INDICES: Markets brush off impeachment, Queens speech
Shares in Europe have opened more or less flat on Thursday. There was little to write home about the decision in Japan to keep interest rates unchanged and markets are paying little attention to the impeachment of Donald Trump. It’s Super Thursday in the UK but in actual fact neither the Bank of England or the Queens speech are expected to spark much reaction from markets.
The FTSE 100 is little changed before the Bank of England’s latest decision on rates and the second Queen's speech in as many months. The speech will set out the agenda for Boris Johnson’s Conservative government. It is unlikely to deviate too much from the last Queen’s speech – barring perhaps an extra nod to his new constituents in the rubble, formerly known as the red wall. We’ll be looking for any clues from the speech about what could be included in the budget slated for February. Hints at extra spending on infrastructure, housing and defence could see shares in those sectors get a boost.
LCG pricing points to a slightly higher open on Wall Street. Markets are brushing off the impeachment of Donald Trump as political theatre without economic consequence. The impeachment vote in the House of Representatives went down parties lines as expected, and the same is expected in the Senate, meaning Trump will not be convicted and can remain in office. As we noted yesterday, the two risks from impeachment as we see it are:
- Impeachment happens, causing political instability
- It doesn’t happen but the acrimony prevents progress on other policies.
This is only step one out of two to complete the impeachment – and it is well understood that step two (a vote in the Senate) will almost certainly fail. The concurrent passing of the USMCA trade pact and the 2020 budget would suggest impeachment doesn’t have to curtail cross-party legislation.
In Asia shares pulled back from multi-year highs as the Bank of Japan left its monetary policy stance unchanged.
FOREX: BOJ, BOE staying pat
USD/JPY hovered around 109.5 as the Bank of Japan its monetary policy stance on hold. The Japanese central bank has acknowledged one of the issues with its ultra-accommodative policy stance. The BOJ will now offer the ETFs that is has purchased
The British pound has been edging higher ahead of the latest interest rate decision from the Bank of England. The meeting has been somewhat marred by the misuse of its audio feed, which it today referred to the FCA. There is almost zero chance of a rate move today with votes likely to remain at 7-2, with the two voting for a cut. The neutral outlook for 2020 on UK rates has turned slightly move dovish. A new so-called cliff edge for the economy if no trade deal has been agreed between the UK and EU could persuade policymakers to cut interest rates pre-emptively.
COMMODITIES: Gold flat on impeachment, oil 3-month high
The fact that gold prices barely flinched tells you all you need to know about the risks markets are assigning to the impeachment of US President Donald Trump. Oil prices rose to a 3-month high as reports from China indicated its negotiators were still in touch with US counterparts.