Financial markets were quiet overnight, thanks to holidays in the US and Canada. Over in Europe though, summer holidays appear to be ending abruptly as Brexit re-emerged from its long slumber to recapture the front pages. The British pound fell by nearly one percent overnight as UK Prime Minister threatened to walk away from negotiations by October 15th, setting up a hard Brexit. (NB: the author is a perpetual GBP/SGD, and GBP/IDR bear, as cost-center two enters her 5th year of higher education in London. Brexit has been good to us.)
The Financial Times reported that the UK government was also preparing to unwind parts of the previously signed exit agreement regarding Northern Ireland with the European Union. That would arguably have more significant consequences for the United Kingdom if it follows the China path with Hong Kong and rips up agreements that don’t suit it. Political and economic pragmatism will give China much more international leeway in this respect than the United Kingdom.
Elsewhere, President Trump’s campaign trail had a back to the future look about it. The President announcing overnight that he wished to completely decouple the US economy from China and bring supply chains and jobs back to American shores. We just need promises of a trillion-dollar infrastructure package, and the platform will be almost identical to his 2016 one. The announcements will not be market-moving in themselves, but further reinforces that US/China tensions are a known unknown and the new normal.
After hours US equity index futures continued to trade yesterday, with small gains eked out in overnight trading. That, and a lack of headlines, has set Asian equity markets up for a modest but positive start to the day. With all the noise surrounding the use of short-term call options by Softbank (OTC:SFTBY) and the Robin Hood massive to boost big tech stock prices, the holiday honeymoon may not last beyond Wall Street’s return to work this afternoon.
Closer to home, Japan Household Spending for July badly underperformed this morning, printing at -6.50% MoM. Japan Q2 GDP also underwhelmed, covering the height of the Covid-19 movement restrictions regionally. Q2 Annualised Growth fell by 28.10%, as expected, but Private Consumption for Q2 shrank by a much worse 7.90%. The fallout will be modest as Q2 now seems like an age away. What it highlights are the challenges Japan will face in its recovery. The household sector will not drive that; instead, Japan Inc. has everything on black 13 for a recovery in export markets, maintaining momentum.
Contrasting Japan’s data with China’s drives home that Asia’s recovery will be an uneven one; the region will not grow in linear lockstep.
The rest of the day’s data releases are unlikely to be market moving, with the US data exceptionally quiet. Germany’s Balance of Trade will receive more attention than usual after Industrial Production faltered yesterday. The European Union estimated GDP for Q3 is expected to fall by 12.10%. Arguably, the German data is more critical. With so much optimism positioned for an EU recovery, a faltering of the Eurozone’s engine room could add more corrective downward pressure on the euro.
In the old days, the “Thundering Herd” was a nickname for Merrill Lynch (now swallowed by Bank of America (NYSE:BAC)). The sounds of thousands of hooves clattering through the now empty canyons of Wall Street are just as likely to belong to Bob and Chip from somewhere in the mid-West these days, “call-ing” to each other on online forums. Say what you like, this herd has kicked plenty of dirt and dust into the faces of institutional professionals at the watering hole these past six months.