Markets are playing the push-pull of weak economic numbers and the offsetting policy response again. Stocks are essentially reading poor activity numbers as good news and betting on fresh monetary easing.
And so despite, or maybe because of, a weak U.S. August employment report on Friday and news on Sunday of an unexpected drop in Chinese exports last month, equities are focused instead on the latest stimulus from the People’s Bank of China’s cut in reserve requirements last week, the expected easing package from the European Central Bank this Thursday and the Federal Reserve’s likely quarter-point interest-rate cut next week.
That’s sustained the tilt back toward riskier assets from last week, with Asia’s main markets mostly higher early Monday and U.S. and European futures in the black as well.
Shanghai, Tokyo and Seoul gained about 0.5% each, with Hong Kong underperforming once more and closing flat. China’s offshore yuan retreated and gave back gains made late Friday on the PBOC move.
Emerging-market equities generally outperformed, with MSCI’s emerging-markets index hitting their highest in more than a month. U.S. 10-year Treasury yields and German bund equivalents nudged higher. Brent crude oil prices rose, too. The dollar’s DXY index was little changed, with euro/dollar holding steady about $1.1030 going into this week’s ECB meeting.
The big political focus remains on sterling, which slipped back against both the dollar and euro first thing on Monday after last week’s rally on parliament’s move to prevent a no-deal Brexit.
Parliament is expected to vote again later on Monday on PM Boris Johnson’s plan to hold a snap October election - but is likely to reject it once more as it awaits confirmation Johnson will carry out its instruction to seek an extension to the Oct. 31 Brexit deadline if he fails to get a deal with the European Union. Parliament is then effectively suspended for the next five weeks as the negotiations play out before the Oct 18 EU summit.
Johnson visits Irish Prime Minister Leo Varadkar in Dublin on Monday, and press speculation is focusing on whether there is any wiggle room in Brussels or Dublin over changes to the controversial Irish border backstop provision. Press reports also home in on possible ways Johnson can avoid seeking an extension and also on the chance he may resign before having to do so.
In European corporate news, shares in IAG are seen opening 2% lower after British Airways pilots began a 48-hour strike on Monday, grounding most of the airline's flights and disrupting thousands of travellers' plans.
In M&A, the Sunday Times reported Orion Capital was seeking partners for a buyout of Intu; shares in the manager of shopping centres are expected to opend around 10% higher. Eddie Stobart Logistics said it had received a preliminary expression of interest from its third-largest shareholder, DBAY Advisors Limited.
In earnings, Associated British Foods maintained its guidance for the 2018-19 year, forecasting good profit performances at its Primark fashion chain and grocery business would offset a decline in its sugar operations. Its shares are seen up 1% to 2%.
Other stock movers include Lloyds after it raised PPI provisions to 1.2 billion to 1.8 billion pounds and suspended buybacks; Dorian industry insured losses were seen in several billions of dollars, according to Munich Re; Banco do Brasil and UBS were in advanced talks for investment-banking joint venture, sources said; Santander was to increase its Mexican business ownership to 91.6%.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —