Market movers today
In the UK, focus remains on Brexit and any news regarding Theresa May's uncertain future as PM and party leader (see also Macro Strategy Views Podcast: A deal is still likely despite the UK's house of cards, 19 November 2018). May is expected to travel to Brussels today to discuss trade. Apart from politics, markets will also keep an eye on any changes in the BoE's rhetoric, when Carney, Haldane, Cunliffe and Saunders testify before the UK Parliament's Treasury Committee today.
In the US, housing starts and building permit data for October is due. Recently, the housing market has looked a bit shaky, but numbers for September were probably influenced by the hurricane season. Hence, we will keep an eye on whether we see a recovery in October and the coming months.
Selected market news
Risk sentiment was sour yesterday with equities down across the globe. Despite the very weak risk sentiment, US treasuries were only able to stage a very modest yield decline last night. The market continued to pare back on the Fed pricing and the curve 2s10s steepened further to 27bp. ECB pricing also declined marginally yesterday, with 5bp now priced in for September 2019 and 12bp for December 2019. The front of the EUR curve continues to be driven by the long end of the curve. In the overnight session, Asian equities declined more than 1.5%.
As we argued in Brexit Monitor: Decent Brexit is still base case but uncertainty has risen , 16 November 2018 , the two main things to look out for in the near-term are whether there will be a no confidence vote in Theresa May and whether the supporting party, Ulster's DUP, will pull its support for the government. With respect to the former, it is proving more difficult for the Brexit hardliners to secure the 48 'no confidence' letters than they had imagined. We still think a leadership challenge is likely, but the difficulties support our view that Theresa May is likely to survive it. With respect to the latter, the DUP chose to abstain from the budget votes last night, which is against the confidence and supply deal between May and the DUP, which indicates that the DUP will support the government on (among other things) the budget and finance bills (see the GOV.UKs Cabinet Office link to the agreement here ). The big question we need an answer to is whether this is just a warning shot, or whether the DUP is indeed about to pull its overall support.
In the US, the NAHB housing market index dropped to 60 in October from 68 in September. The level remains high but the trend is not good. Many housing indicators are turning around and while the interpretation is difficult given the extremely high volatility in most of them, it seems as though the housing market is cooling, perhaps because mortgage rates have hit 5%. We think it is increasingly important to look out for how the housing market is doing. This market is a very important driver of overall economic activity.
Italy was not discussed at yesterday's Eurogroup meeting. The DE-FR proposal of an EU budget gathered steam, and while no size or further guidance was given on the proposal, this seems more like a symbolic rather than substantial win to Macron (and to some degree Merkel).
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