Powell promises more liquidity amid Brexit breakdown
|Market movers today
Fed Chairman Jerome Powell (voter, neutral) will speak again today at the 'Fed listens' event in Kansas . However, he will likely not bring much new compared to his speech yesterday. Minutes from the latest FOMC meeting will be released tonight . This will give insights into the discussion about the need for further accommodation. However, the meeting took place before the recent weak US service PMI that points to some spill-over to US consumers and the service sector.
Also look out for any new comments regarding the upcoming US-China trade talks starting tomorrow in Washington . We may also get more signals regarding possible Chinese retaliation against the US blacklisting of more Chinese companies. However, China may wait until the other side of the trade talks this week before hitting back.
In Scandi, we get Prospera inflation expectations in Sweden this morning and Norwegian GDP for August . We expect a decline of 0.3% m/m in line with consensus. More on Scandi on page 2.
Selected market news
Yesterday, the Brexit negotiations broke down and while it is normal for political negotiations to break down just before the deadline, this seems real. For PM Johnson it is a red line that all four nations of the UK leave the customs union while it is a red line for the EU and Ireland to avoid creating customs checks. The collapse of the negotiations also means that the blame game has started on both sides. A game changer could be a meeting between the Irish PM Varadkar and UK PM Johnson tomorrow or Friday but don't put your hopes too high We still believe we are heading for another Brexit extension followed by a snap election. Unfortunately, it is impossible to predict the outcome of such an election. For more details, see Brexit Monitor: Negotiations have broken down, blame game has started, 8 October.
Fed Chair Powell said yesterday that the Fed will soon announce its plan to buy T-bills again in an attempt to calm money markets . While this would increase the Fed's balance sheet, Powell stressed it is not QE but because of the structural increase in demand for money, referring to it as "organic growth". Fed's Evans also said he "wouldn't mind another cut", supporting our call for a cut later this month.
Turkey has stated it will soon cross the Syrian border, which is likely to increase tensions between the US-Turkey-Syria (and perhaps eventually spill over to European politics).
President Trump has made it clear he will not cooperate with the House Democrats on the House impeachment inquiry. White House Counsel Pat Cipollone called the process "unconstitutional and invalid".
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