News & analysis


Boris Johnson urged EU leaders to show common sense and renegotiate Brexit yesterday as the October 31st deadline looms. Elsewhere, Chancellor Sajid Javid delayed a three-year spending review until 2020 and instead will be announcing a budget for just the year from April. The budget will be completed and announced next month. Yesterday, senior aides to the PM stated that Boris Johnson would hold a general election in the “days after” the Brexit deadline if Parliament forces him to the polls. The pound didn’t move much off of the news and continues to sit in the 1% range from the previous 7 sessions. Today at 09:30, Q2 GDP is released with expectations sitting at no recorded growth. However, the Q2 PMIs suggested a bleaker picture – negative growth could be on the cards.


The announcement of fresh elections in Italy has put no pressure on the single currency thus far as fixed income markets take the beating. Two-year Italian government debt now carries positive yield again, rising dome 20 basis points on open this morning. Risk-off sentiment in the Eurozone has led to German 2-year bund yields falling to early-2017 lows. The calls by the leader of the far-right League party, Matteo Salvini, to call a vote of no confidence come after the coalition 5-star party opposed a bill to build a high-speed train link between Turin and Lyon. Parliament is currently enjoying its summer recess but will be recalled next week to cast their votes on the n confidence motion. If it passes, an election will follow. Although the 5-star party holds more seats in Parliament at the moment, Salvini and the league sit comfortably at the top of the current polls at around 40% after riding a wave of public support. If recent polls are to be trusted, the league could see themselves holding a majority in the near-term. Salvini has pushed for elections as early as October 13th Bloomberg reports, but many believe a fresh round of national voting won’t be viable until November. Rhetoric from Salvini to replace “no’s” with “yes’s” in order “to build, to work”, suggests that the League will continue its hardline stance against EU fiscal rules and promise looser fiscal spending in their election manifesto if the bill passes next week. The need for looser fiscal policy in Italy, and the Eurozone as a whole is of great importance to the bloc’s slowing economy and promises to open the taps further by Salvini could support the euro in the coming periods. It must also be noted prior to the last period of political instability in the Eurozone’s third-largest economy, following the March 2018 election, EURUSD was a full 12 points higher. This time around, the single currency may have limited downside in the short-term as further political risk enters financial markets.


The dollar traded flat in a broad sense yesterday, but weakened notably to the Japanese yen, as trade tensions between the US and China were seen as escalating yet again. US Commerce Secretary Wilbur Ross said that licenses for US tech companies to buy Huawei equipment were on hold, after Beijing halted US crop purchases. In isolation the move does not have significance for the US dollar or for global macro; but given the continued worsening in tensions it may be a sign of further tariff escalation, a move that would certainly be significant for the greenback. Today’s major data release for the dollar will be Producer Prices at 13:30 BST.


The loonie joined other resource sensitives currencies in regaining some ground from the greenback yesterday as oil prices sat flat from its jump upon open. No news is good news thus far, as oil holds steady around the $52 mark. Today sees the labour market report released for July, with another uptick in wage growth from 3.6% to 3.8% expected. However, any such positive data release may not cause the traditional surge in the currency. The loonie has responded in a muted fashion of late to the firming of Canadian data as the narrative is already known to markets.