By Lorcan Roche Kelly
The British economy saw the immediate threat of recession recede with this morning’s GDP data for July showing it expanded 0.3%, faster than economists had expected. The pound reversed earlier declines to climb above $1.23 in the wake of the numbers. While the data provides some hope that the economy is weathering Brexit uncertainty better than forecast, the current confusion in British politics points to risks to the outlook remaining high for some time. Germany also had some better than estimated economic news as the country posted its biggest trade surplus in four months, with exports proving surprisingly resilient.
Markets are hoping Friday’s easing by the People’s Bank of China is the start of a global trend, rather than a localized event. Expectations are high for Thursday’s decision from the European Central bank, with a rate cut further into negative territory seen as the minimum that will be announced. Also on Thursday, Turkish policy makers may be set to announce another monster rate cut, with July’s 425 basis-point reduction forecast to be followed with a 300 basis-point move this week. Next week sees meetings of the Federal Reserve, Bank of Japan, and the Swiss National Bank – with easing on the cards for all three institutions.
New man, old plan
Saudi Energy Minister Khalid Al-Falih was dismissed over the weekend and replaced by Prince Abdulaziz bin Salman, son of the country’s King Salman. Analysts do not expect significant changes in the Kingdom’s oil policies in the wake of the change at the top, with the ambition remaining to push the price of crude higher. OPEC and its allies are meeting later this week, with no change to current production curbs expected. West Texas Intermediate for October delivery is trading above $57 a barrel this morning.
Overnight, the MSCI Asia Pacific Index climbed 0.4% while Japan’s Topix index closed 0.9% higher as investors reacted positively to China’s reserve ratio reduction. In Europe, the Stoxx 600 Index was broadly unchanged at 5:45 a.m. Eastern Time as traders await this week’s ECB decision, with London’ FTSE 100 Index falling as the pound rises. S&P 500 futures pointed to a gain at the open, the 10-year Treasury yield was at 1.599% and gold was slightly higher.
While it’s set to be a relatively quiet day for economic data and events in the U.S., the British Parliament looks ready to provide more distractions later. Prime Minister Boris Johnson is expected to make another call for an election, and is expected to lose again. Today is the first day that the government can prorogue Parliament, so there’s also a chance that may happen. Despite more than three years of evidence to the contrary, Johnson says he remains confident that a deal to exit the European Union can be agreed by October 18.