The bruised, battered, and beleaguered Boris suffered yet another round of blows last night in the House of Commons as MPs forced the PM to allow the Benn bill – which forced the PM to seek an extension if a deal is not in place by next month – to sail through the House of Lords by Friday. Should this achieve royal assent, which is the likeliest option, the conditions are satisfied for Labour to join Boris in forcing a snap election with a ⅔ majority. This feat wasn’t achievable last night with Jeremy Corbyn and his party abstaining from the vote meaning Johnson’s attempt to trigger an election was defeated by 136 votes. Thus far, the news has had little impact on sterling as major unknowns still remain, especially in the form of an impending general election despite the tight timeframe until the October deadline. The big question now is when the polling day will be, conditional on no bumps in the road for the Benn bill. Labour members see Corbyn as the man in the driving seat. This is reiterated in today’s papers which claim Boris is being held hostage inside 10 Downing Street. Comments by Corbyn have remained open-ended with little suggestion that a general election will be pencilled in before or after the extension has been struck. All that is known for now is that a snap election is likely given the assent of the Benn bill. There is still work to be done by both parties, as preliminary polls place the Conservatives as only 7 percentage points ahead of Labour at 33%. Today, senior Labour members and opposition leaders will get together to hammer out a unified stance on when an election should take place. Meanwhile, PM Johnson is set to address the nation with a televised speech but the details of such announcement are unknown at present.
The single currency joined its G10 peers in taking some ground back against the elevated dollar but ultimately sat at the bottom of the pack after it only managed a measly 0.5% gain. A small beat in Eurozone PMIs, notably in Germany, helped the euro on its way. The soft data is having a muted effect of late, however. This has been visible this morning following a dismal contraction in German factory orders. The release showed that orders fell by 5.6% YoY in July, while the construction PMI also fell to a level not seen since records began. The fact EURUSD has barely flinched in the face of these negative releases stresses the extent to which the slowing Eurozone economy is a known narrative in markets. This suggests an external event may need to occur before EURUSD takes another leg lower.
The US dollar continues to suffer losses as fears of a substantial economic slowdown following the ISM manufacturing release earlier in the week persist. Dollar related news flow was moderate, with a couple of interesting data releases and some comments from the New York Fed’s John Williams hitting the wires. Williams sounded dovish on the whole, saying that low inflation was the “problem of this era” – a clear nod to looser monetary policy. The result’s index of the IBD/TIPP Economic Optimism consumer survey plummeted to 50.8 in September, the lowest reading since February. Today’s calendar includes Challenger Job Cuts at 12:30 BST, followed by the ADP estimate of Non-Farm Payrolls at 13:15. Unit Labour Cost and Non-Farm Productivity data will be released at 13:30 BST alongside weekly Unemployment claims. At 14:45 BST Markit Services PMI will be released, followed at 15:00 by the non-manufacturing equivalent of the ISM PMI survey that began the USD selloff earlier in the week.
The loonie surged some 0.8% yesterday following a neutral Bank of Canada rate statement as the US dollar took on water across the board. The BoC is one of the last G10 central banks to join the chorus of doves in cutting rates and by referencing the upside surprises in the latest domestic data, the rate statement prompted markets to trim expectations of a 25 basis point cut in the October meeting. However, the inclusion of the word “current” in the sentence “In this context, the current degree of monetary policy stimulus remains appropriate” suggests the BoC may in fact be lining up a rate cut in the immediate future. Given the dovish stance the market took in the run-up to the event though, the neutral statement overall trimmed some rate cut pricing and prompted a surge of loonie strength. Today, Deputy Governor Schembri will give an update on the bank’s economic outlook before the BoC enters a quiet period ahead of the upcoming Federal election.