Sterling gains as ‘no deal’ threat recedes for now

Sterling was firmer against the euro, to just above 90p, and the dollar, to $1.22, as the anti ‘no-deal’ bill passed through the House of Commons yesterday. Meanwhile, the euro made some ground on the dollar getting back above $1.10. It was a risk on day in general with equities on both side of the Atlantic gaining while Government bond yields rose in Europe but were largely unchanged in the US

The bill that more or less blocks a ‘no deal’ Brexit by the current UK Government at the end of October was passed by the House of Commons and  now goes on to the House of Lords. It is almost assured to become law and will require the UK Government to request an extension of Article 50 to the 31st of January 2020 by October 19th unless a deal (or a no deal) is agreed and passed by MPs before then. Prime Minister Johnson’s bid to hold an early general election failed to gain the 2/3rds House of Commons majority needed but he may revisit this again soon and tried to goad the opposition into supporting an election once the bill passed today becomes law (though any Government who wins election before October 19th could revoke that law)

In Europe, ECB presidential nominee Christine Lagarde told the EU parliament that the ECB must act with ‘agility’ against low inflation and said ‘a highly accommodative policy is warranted for a prolonged period’. This signals Lagarde, who is due to take over at the ECB on November 1st, will follow Draghi’s view that more stimulus is now needed but she also said that the ECB need to take  ‘the concerns (about monetary stimulus) of people seriously’ and called for European level cooperation to use fiscal stimulus in countries that have the capacity to do so

On the data front, UK services PMI dipped to 50.6 in August from 51.4 in July as businesses continue to deal with Brexit uncertainty. In the Euro area, retail sales fell 0.6% month-on-month in July with the annual rate falling back to a +2.2% (from 2.8% in June)

The Fed’s Beige Book said the majority of firms remain optimistic about the near term outlook although concerns regarding trade policy remain. It reported economic growth as modest while consumer spending was ‘mixed’. The beige book collects anecdotal information from the 12 regional Fed and informs the FOMC ahead of its meeting on September 18th where it’s expected to cut rates once again. There was several Fed speakers out yesterday – Evans, Williams, Kashkari and Kaplan – all of whom spoke about downside risks and/or uncertainty and appeared supportive of easing policy further

On the agenda today, data is mainly from the US with ADP employment, durable goods orders and ISM non-manufacturing due while there may be further political manoeuvring in the UK