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Bogged down by Brexit


Federal Reserve Chairman Jerome Powell said yesterday that the lack of renewed fiscal stimulus could lead to “tragic” outcomes for the poor. The President responded by halting debate about new stimulus, to focus instead on securing the confirmation of his Supreme Court nominee. Share prices plunged and the USD went up.

Jay Powell’s argument was that “too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses”. In essence, the risk of delivering too much stimulus is greater than the danger of doing too little. Any excess support “will not go to waste”. Arguably it was realistic of the President to draw a line under the stalled negotiations: The predominantly Democratic House of Representatives’ proposal for a pared-down $2.2 trillion version of the Health and Economic Recovery Omnibus Emergency (HEROES) Act is still miles apart from the Republican administration’s $1.5 trillion counter-suggestion.

Pragmatic or not, Trump’s decision went down badly with investors, who are perpetually desperate for more of the financial fuel that keeps stock markets aloft. In an instant risk-off reaction, the safe-haven JPY and USD jumped ahead, with the dollar winning by a nose and the CHF completing the podium. The USD strengthened by an average of 0.6%, adding a cent against the GBP and half a cent against the EUR.


Battle of the Bluff

The Prime Minister delivered to an empty hall what would have been his keynote speech to the Conservatives’ annual conference. Focusing on anti-pandemic measures, wind power and a “broken housing market”, Johnson had nothing to say about Brexit and, for that, investors leaned on the pound.

Although the Prime Minister avoided Brexit in his conference speech, the topic was hot enough elsewhere. Typically, the argument was an almost even-handed one, between commentators who expect the EU to call the Prime Minister’s bluff with a take-it-or-leave-it ultimatum of its own, and those who believe an agreement is close. Unfortunately for sterling, the negative story held more sway during the London session and the pound lost ground almost everywhere. It is an average of 0.2% lower on the day.

Global economic statistics were in short supply on Tuesday. Factory orders in Germany were down by 2.2% in the year to August while in Sweden they were flat. Britain’s construction sector purchasing managers’ index rose two points to 56.8, indicating a sharp expansion in September. Data from Canada showed international trade declining in August, with imports down by 1.2% while exports fell 1.0%.


FOMC minutes

The highlight of today’s economic agenda comes after the end of London’s day, when the US Federal Open Market Committee publishes the minutes of its meeting on 15-16 September. Even if the minutes themselves do not reveal much, they are likely to be the catalyst for media comment from FOMC members.

As for the rest of the timetable, a good half of the ecostats have already come and gone. Australia’s AiG performance of services index fell six points to 36.2, just nine points above its April trough. German industrial production headed lower again in August, though only by 0.2%. The French deficit widened slightly in August as exports and imports headed in opposite directions.

Coming up this morning are UK house price indices from the Halifax and the ONS, and Italian retail sales. After lunch comes the Canadian Ivey PMI and not much else. New York Fed President John Williams will be speaking this evening. Some might also care to stay up late or get up early for the US vice-presidential debate.

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