Market movers today
US-China trade talks continue today and given the statements from President Trump, the trade talks have developed well so far. Hence, we still see a decent chance of an interim deal being struck.
UK and Ireland held “constructive” talks on Brexit yesterday. EU and UK will meet today and continue negotiations – see more below. The optimism had a significant impact on Gilts as well as the GBP. GBP strengthened against the Euro and 10Y Gilts moved some 12bp yesterday.
On the data front, the preliminary consumer confidence for October from University of Michigan will be interesting. The service PMI has declined lately and suggests the slowdown is spreading to this part of the economy too. Consumer confidence has still held up well, which has also been highlighted by some Fed members. Any sign of weakness here would add to the pressure for more rate cuts.
Tonight, Fed members Rosengren (non-voter, hawk) and Kaplan (non-voter, neutral) will both speak.
Selected market news
Yesterday, the Brexit negotiations got back on track after Irish PM Varadkar and UK PM Johnson met. We have not received many details yet (probably because neither side wants to risk jeopardising the fragile negotiations) but the most difficult part of the negotiation is customs, so Varadkar and Johnson may have found a way forward here. The problem is that PM Johnson’s potential majority in the House of Commons is also very fragile and he cannot afford to lose support from DUP and the group of hard Brexiteers within his own party. This means that one should not get hopes too high yet, and our base case remains another extension followed by snap election but the coming days are going to be extremely important. Today, UK Brexit Secretary Barclay and EU Chief negotiator Barnier meet at 09.30 CET followed by a briefing to the EU ambassador. EU has set a deadline today to reach an agreement before the EU summit next week but this is probably a soft deadline so a deal can be reached at a later stage (also the EU still has an possibility to call an extraordinary EU summit to ratify an agreement).
The trade talks between the US and China went very well according to President Trump. The talks continue today. The combination of more optimism on Brexit as well as the US-China trade talks sent bond yields higher in both Europe and US yesterday as risk sentiment turned positive. Asian equity markets have followed the positive sentiment this morning, while the Asian bond markets have seen rising yields this morning.
