By Lorcan Roche Kelly
Pound plunges on Johnson’s Brexit move, China prepares for the worst, and Italy almost has a new government. Here are some of the things people in markets are talking about today.
The British pound fell as much as 1.1%, the most in a month, after the BBC reported that U.K. Prime Minister Boris Johnson will ask Queen Elizabeth II to suspend parliament from mid-September to mid-October, a move which could severely hamper efforts by anti-Brexit lawmakers to block a no-deal exit from the European Union. While suspending parliament, known as proroguing, is not unusual, using it to strategically frustrate opposition to the government is likely to cause uproar. The decision is expected to be confirmed by the privy council – a group of senior politicians who advise the Queen – later today.
One of the key obstacles to a breakthrough on trade talks has become President Donald Trump’s credibility, according to Chinese officials familiar with the talks. His comments over the weekend that China had called looking to restart negotiations is still causing some confusion in Beijing as nobody there seems to have contacted the U.S. negotiators. All the uncertainty is having real-world effects for Chinese exporters, with toymakers there already losing out on Christmas orders in what should be their busiest quarter, while governments in the region are following monetary policy moves with fiscal stimulus of their own.
Down to the wire
The anti-establishment Five Star Movement and the center-left Democratic Party in Italy continue their talks to form a new government which would avoid the need for a snap election. Both parties face a deadline this afternoon to present an agreement on a government to President Sergio Mattarella, with talks on sorting out key administration roles likely to continue until the last minute. Should the talks fail, new elections will be called. Right now, with the country’s bond yields plunging, traders are betting on a successful outcome.
Overnight the MSCI Asia Pacific Index was broadly unchanged while Japan’s Topix index closed slightly higher as traders awaited the next developments in the trade war. In Europe, the Stoxx 600 Index was 0.4% lower at 5:50 a.m. Eastern Time, with London’s FTSE 100 Index the only major national benchmark posting a gain due to the plunge in sterling. S&P 500 futures pointed to a small gain at the open, the 10-year Treasury yield was at 1.471% and gold was flat.
The oil market will be looking for confirmation of a large draw on U.S. stockpiles when government figures are released at 10:30 a.m. this morning. There are a couple of Fed speakers on the slate for today, with Richmond Fed President Thomas Barkin and San Francisco Fed President Mary Daly both due later. The U.S. Treasury will sell $18 billion of two-year and $41 billion of five-year notes. Tiffany & Co. is among companies reporting today amid a weaker-than-usual diamond market.