- Rates: Two key votes in UK parliament after EU close
Bullish risk sentiment lifted European/US stocks and pulled core bonds lower. Investors remain optimistic that UK PM Johnson will at least get his withdrawal bill through parliament. The probability that he’ll be able to rush the complete legislature through both Houses by October 31 is much lower. - Currencies: Euro and sterling stay resilient, despite potential roadblocks
Yesterday, EUR/USD preserved most of its recent gains even as US yields rose and as the outcome on Brexit stays uncertain. Markets apparently assume that even risk will decline in the near future, preventing a euro setback, at least for now. Sterling also remains well bid, even as it is still unclear whether PM Johnson will be able to finalize the Brexit procedure in time
The Sunrise Headlines
- WS rallied (up to 0.91%) amid positive signs on trade talks and ahead of earnings form major companies. Asian markets are following the trade optimism and nudge higher, with South Korea outperforming (+1.45%). Japan is closed.
- US president Trump has indicated that talks over an initial trade deal with China are advancing, raising expectations that he and his Chinese counterpart, president Jinping, could sign a pact at the APEC summit next month.
- UK’s prime minister Boris Johnson was thwarted to have a key Brexit vote yesterday. UK parliament will vote on the full Withdrawal Agreement Bill and, if approved, on the timetable for the rest of the bill’s passage after EU close.
- Canada’s prime minister Justin Trudeau won a second term in Canada’s elections yesterday. However, Trudeau emerges from the election with a weakened power that will force him to rely on other parties to govern.
- Israel’s prime minister Benjamin Netanyahu gave up his effort to form a new government on Monday after failing to secure a majority coalition, raising the prospect of renewed political uncertainty.
- The PBOC used open market operations to inject cash into the banking system as upcoming corporate tax payments tighten liquidity conditions, but stresses that no major stimulus is coming as it wants to avoid a rapid debt build-up.
- Today’s economic calendar is quite meagre. Sentiment will mainly be driven by Brexit/trade developments and key events later this week (central banks’ rate decision, EMU PMI’s, Pence speech, Q3 earnings). The US taps the bond market
Currencies: Euro And Sterling Stay Resilient, Despite Potential Roadblocks
Euro and sterling stay resilient, at least for now
Global markets continued to engage in some kind of reflation trade yesterday. Optimism was supported by positive headlines from the US-China trade talks and lingering investor hope that Brexit could be solved in a not-that distant future even as short-term developments remain uncertain. US and EMU yields both trended higher, leaving EUR/USD traders with mixed feelings. EUR/USD touched a minor correction top near 1.1175/80 but closed at 1.1150. USD/JPY also made only modest progress despite the risk-on and finished at 108.60.
Asian stocks maintain a positive bias on trade hopes. Korea outperforms. China slightly underperforms. For now, the yuan doesn’t profit much from the positive trade headlines (USD/CNY 7.0775). EUR/USD stabilises in the 1.1150 area. So does USD/JPY (108.60). The Canadian dollar is holding close to a 3-month high against the dollar as election results indicate PM Trudeau might stay in power with a minority government.
There are no important EMU data. The Richmond Fed manufacturing index and US existing home sales are of second tier importance. Global markets are preparing for better times ahead as event risk of the likes of the trade war or Brexit might mitigate. This was EUR/USD positive of late, but the move might run into resistance as visibility on Brexit (timetable) is still inconclusive. The EUR/USD picture turned more constructive as the pair settled above 1.10 but follow-through gains were modest. Brexit uncertainty hasn’t been removed (yet?). At the same time, the dollar probably won’t make much headway ahead of the Oct 30 Fed meeting. EUR/USD 1.1250 is next reference on the technical charts. A break isn’t evident unless some high-profile euro positive news kicks in (Brexit, better PMI’s…)
Sterling maintained recent gains on Monday. Uncertainty remains high, but sterling apparently embraced that idea that a no-deal Brexit has become unlikely. Today, it will become clear whether PM Johnson via an accelerated procedure, will be able to push a Brexit deal through Parliament. A delayed procedure might slow recent sterling rally. Even so, for now, we have the impression that any sterling correction might be moderate. The prospect of new elections or even a referendum maybe aren’t that bad for sterling in a LT perspective. ST support at 0.8576 is nearby. MT support comes in at 0.8490.
EUR/GBP: sterling holding strong despite potential Brexit road-blocks
