Morning Report – September 11th

Main Headlines

The U.K. and the European Union are heading for a chaotic split without a new trade deal as talks between the two sides frayed. The UK has categorically stated it will not be withdrawing its Internal Market Bill. During crisis meetings yesterday, Prime Minister Boris Johnson’s government rebuffed an EU request to scrap his plan to re-write the Brexit divorce accord even after the bloc gave him a three week ultimatum to do so and threatened legal action.

Most Asian stocks pushed higher and U.S. futures climbed as investors shrugged off fears over valuations in certain pockets of the market. U.S. futures rose while European contracts fell. Asian equities were mixed as they headed for a second week of losses after the fresh selloff in U.S. tech stocks overnight. WTI was steady just above $37 a barrel. Treasuries were little changed and Gold nudged lower.

GBP

The pound hit a five month low against a rising euro yesterday, weighed down by fears that the UK-EU trade negotiations may fall apart. Investors were watching to see if the bill to undercut the Brexit divorce deal would make the EU leave the negotiating table, but it stuck with the talks. Goldman Sachs analysts said they thought the British government’s moves were intended to extract “concessions on the UK’s ability to diverge from EU regulatory standards while still enjoying zero-tariff/zero-quota access to EU markets” after the transition period ends this year. Goldman Sachs said it expected “the perceived probability of a breakdown in negotiations to escalate over the coming weeks,” but its base case remains a “thin” free trade agreement that steers both sides back from the brink.

EUR

The euro whipsawed yesterday, first rallying higher after European Central Bank President Christine Lagarde insisted the bank does not target the exchange rate, before pairing gains as a slump in U.S. equities dampening demand for riskier currencies.

USD

The dollar is poised for its first back to back weekly gain since May as jitters in equity markets had investors sticking to safer assets. The dollar was firm overnight ahead of U.S. consumer price data due later for an insight into the recovery and to the challenge facing the Federal Reserve as it looks to lift inflation.

Main Economic Data/Central Banks/Government (All Times BST)

8:00 a.m.: Spain July Industrial Production, Aug. CPI
9:00 a.m.: Italy 2Q Unemployment
9:00 a.m.: ECB’s Weidmann, Villeroy speak at Bundesbank event
9:30 a.m.: BOE inflation expectation survey
1:00 p.m.: ECB’s Lane in online panel
1:30 p.m.: U.S. Aug. CPI
5:00 p.m.: USDA WASDE Report
6:00 p.m.: Baker Hughes U.S. Rig Count