Morning Report – Monday 7th September

Main Headlines

The U.K. is playing hardball as Brexit talks resume today. Chief negotiator David Frost said Britain isn’t scared of walking away empty handed, while Foreign Secretary Dominic Raab insisted the country will not accept the EU’s position on fisheries and state aid. Negotiators have scheduled eight hours of talks on both issues. However, Boris Johnson will probably have to explain reports that Britain plans to introduce new legislation that would override key parts of the withdrawal pact. Sections of the bill, due to be published Wednesday, are expected to “eliminate the legal force” of certain clauses of the deal, including those pertaining to Northern Ireland trade.

Global stocks mostly steadied Monday though investors remained on edge after the biggest two day slide for shares since June. Shares dipped in Japan and China, while those in Australia and South Korea climbed. Stocks fluctuated in Hong Kong, where protests again flared up on Sunday. U.S. futures pared earlier losses, while European contracts pointed to solid gains. U.S. markets are shut Monday for a holiday after the worst week for the Nasdaq since March. Treasury futures were flat after a slide in bonds on Friday.
Donald Trump “couldn’t be more pleased” with how the recovery is progressing but wants more stimulus to move ahead. That’s the word from Treasury Secretary Steven Mnuchin, who told Fox third-quarter growth will be “phenomenal.” He noted some predict GDP growth of 30% to 35%. With two months to go, Joe Biden holds a 10-point lead over Trump, according to a CBS News poll. Biden is up 52%-42% among likely voters nationwide.

GBP

Sterling weakness continued against all its G-10 peers overnight on Brexit concerns. Pressure has also come from warnings from the Bank of England that the economic fallout from the coronavirus could be worse than expected.

EUR

The focus this week will be on European Central Bank’s policy decision on Thursday. Most analysts don’t expect a change in policy stance but are focusing on the message the ECB will deliver on its inflation forecasts. The ECB meeting comes after the euro marked a two-year high at the beginning of the month. The common currency, however, quickly retraced after executive board member Philip Lane said last week that the appreciation of the euro “does matter” for monetary policy, highlighting the potential for further easing from the bank.

USD

The dollar steadied in overnight trade after U.S. jobs data showed job growth slowed further in August. The U.S. Labour Department report on Friday showed that U.S. employment growth slowed and permanent job losses increased as government funding started running out, raising doubts on the sustainability of the economy’s recovery. Broader sentiment on the dollar remains weak after Federal Reserve Chair Jerome Powell reiterated on Friday that the central bank plans to keep U.S. rates lower for longer.

Main Economic Data/Central Banks/Government (BST)

7:00 a.m.: Germany July Industrial Production
BOE’s Haskel speaks
Brexit negotiations continue
U.S. Labor Day holiday