Market movers today
In the UK, besides looking for any development in the rising EU-UK tensions, we get the monthly GDP estimate for July, which is expected to show another big increase, as non-essential shops re-opened early July. Given the high Brexit uncertainty right now, we do not expect the release to have a significant market impact on GBP.
We have several ECB speeches during the day. The ECB meeting yesterday was, as expected, quite uneventful and nothing suggests the speeches will be otherwise, see also ECB Research: No indication of change in policy stance coming, 10 September.
In the US, CPI inflation for August is due out in the afternoon. Given that the Fed has shifted focus from the labour market to inflation, we do not expect today’s release to change the fact that the Federal Reserve is going to keep monetary policy accommodative for a long time.
The 60 second overview
ECB. The outcome of the ECB’s monetary policy meeting was in line with expectations. The ECB conveyed a confidence in its narrative of a recovery, notably in the manufacturing sector, while the language on inflation was not alarming, despite continued low inflation projections.
Brexit. The EU stood up to the UK playing hardball. The EU has given the UK to the end of the month to change the Internal Market Bill (which overrides part of the Northern Ireland protocol in the Withdrawal Agreement) or the EU may use legal remedies to address violations of the Withdrawal Agreement. The EU also said it is now up to the UK to re-establish trust between them. Cabinet Officer Minister Michael Gove refused to meet the EU’s demands. The EU’s chief negotiator said yesterday that the EU and the UK continue to disagree in essential areas.
Equities. Yesterday was a tough day on Wall Street and yet another tough day for US technology stocks. After Wednesday’s recovery, S&P500 dropped 1.8% and Nasdaq was down 2.0%. The higher-than-expected jobless claims and the lost prospects of renewed fiscal aid, as the US senate killed off a Republican bill that would have provided around USD300bn, were the bad news. Asian shares also struggle this morning with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.2% whereas Nikkei is up 0.3% as Tokyo dropped its coronavirus alert by one notch.
FI. Yesterday’s ECB meeting was very much in line with the consensus expectations. Hence, the market reaction was rather muted with a modest rise in bond yields and spread tightening between the core-EU and peripheral bond yields. ECB’s Lagarde struck a fairly confident and slightly positive tone regarding the economic outlook. 10Y Treasuries rose initially yesterday, but ended the day more or less unchanged.
FX. After an ECB-induced spike higher in EUR/USD the cross later lost its gains with the cross now back close to the 1.18 threshold. Despite a high inflation print in Norway and an ‘as expected’ inflation print in Sweden both EUR/SEK and EUR/NOK ended the session modestly higher. The biggest winners in the session were RUB and CHF, while GBP was the clear loser as EUR/GBP firmly moved above the 0.92 level on Brexit fears.
Credit. Both iTraxx Xover and Main ended yesterday slightly wider than the day before on the back of late-session softness.
