Market Drivers September 4, 2019
BoJo may not have enough votes for a snap election
UK PMI worse EU bit better
Nikkei 0.12% Dax 1.34%
UST 10Y 1.49%
Europe and Asia:
AUD AU GDP 0.5% vs. 0.5%
EUR EU PMI 51.9 vs. 51.8
GBP UK PMI Services 50.6 vs. 51.0
USD Trade Balance 8:30
CAD BOC 10:00
A series of positive events across the globe sparked some risk on flows in FX with European equities rising by more than 1% on improved market sentiment while yen pairs all rallied.
Perhaps the most important geopolitical action in overnight trade was the announcement by Hong Kong Chief Executive Carie Lam that she is formally withdrawing the extradition bill from HK Parliament. The move was a major win for the protesters and more importantly, will likely cool the tensions that have gripped the city for the past two months sparking fears of Chinese intervention.
Meanwhile, in the UK the prospect of a no-deal Brexit has been greatly reduced after Parliament took control of the agenda effectively stopping PM Johnson from unilaterally leaving the EU. The next 24 hours will bring in a lot of jockeying as opposition MPs make sure that this legislation is confirmed into law before allowing any vote on a snap election to take place.
If Mr. Johnson does get his way with an early election its far from clear if he will, in fact, win it. Mr. Johnson's bet is that the current 9% lead that he holds will allow him to achieve the electoral mandate with his Brexit plans, but with the UK economy quickly heading into recession, the electorate may have second thoughts about proceeding with no-deal Brexit plans.
Assuming the no-confidence vote goes through the focus in pound trading will be driven by polls most specifically by the performance of Liberal Democrats which are shaping up as the main anti-Brexit opposition vote and could end up with the role of kingmaker should they perform well. For now, however, the relief over the thwarting of no-deal Brexit has put the bid into cable which looks like it could make a run to 1.2200 as the day progresses.