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Good morning. The Brexit clock is ticking, there’s more pandemic restrictions on the way and there’s a big banking merger in the Middle East. Here’s what’s moving markets.
Boris Johnson’s Oct. 15 deadline for the outline of a Brexit deal is just days away following an intense weekend of diplomacy. The U.K. prime minister told French President Emmanuel Macron on Saturday that Britain remains committed to seeking a pact with the European Union, but not at any cost. Fishing rights is still a key talking point, with France warning that the U.K. has made “unacceptable” proposals on the matter. German Chancellor Angela Merkel is seen by the rest of the bloc as a deal-maker who could convince other governments to compromise.
Recorded Covid-19 infections are jumping in too many countries to name, with several nations tightening social restrictions as a result. Non-essential movement in and out of Madrid was banned, the Czech government is touting an “improved” version of lockdown, Italy is reviewing its measures and the U.K.’s Johnson will make a statement on new curbs. The expectation is that a three-tier local system will be introduced, with parts of northern England to face the harshest restrictions. It’s not all bad news, though, with Dow Jones reporting that U.S. officials are looking to open up travel between New York City and London.
The biggest banking takeover this year has come from the Middle East, as Saudi Arabia’s National Commercial Bank agreed to buy rival Samba Financial Group for $15 billion. Lenders in the oil-rich Gulf have been combining as regional economies suffer the twin shocks of lower energy revenues and the pandemic. The consolidation also coincides with a long-awaited wave of banking mergers in Europe. Speaking of European deals, the weekend also brought news that private equity firm EQT AB is said to be considering a takeover of Dutch phone company Royal KPN NV.
European futures are higher after China stocks climbed on optimism before President Xi Jinping’s address in Shenzhen this week, with some investors hoping further reforms could drive foreign capital inflows and enhance the tech sector. On U.S. stimulus, President Donald Trump and House Speaker Nancy Pelosi blamed each other for a lack of progress on a new plan to support the economy. Goldman Sachs Group Inc. has a warning on the U.S. currency, saying the dollar may tumble to its lows of 2018 on the rising likelihood of Joe Biden winning the U.S. election and progress on a coronavirus vaccine.
Volkswagen AG’s Audi unit is in focus after the carmaker warned of a 2020 loss and there’s a big tech IPO in Poland. Elsewhere, European Central Bank President Christine Lagarde will attend the virtual annual meetings of the International Monetary Fund and the World Bank. Note that bond markets will be closed in the U.S. for the Columbus Day holiday. Finally, the Nobel Prize for Economics is due to be announced.
What We’ve Been Reading
This is what’s caught our eye over the weekend.
And finally, here’s what Cormac Mullen is interested in this morning
A consensus forming in financial markets is often a signal to take a contrarian view, though the one now appearing in U.S. Treasuries seems more down to post-Covid monetary policy realities than an opportunity to take the other side. Once wildly divergent fast-money bond bears and their one-time mega bullish asset manager counterparts have reined in their wagers on benchmark Treasuries to almost the same level and direction. Both speculators and institutional accounts now hold modest net long positions in 10-year Treasury futures, according to the latest data from the Commodity Futures Trading Commission — the smallest gap in three years. The convergence likely reflects the understandable expectation the Federal Reserve could at some stage introduce yield curve control, or at least extend the duration of its asset purchases — helping to contain 10-year yields. There are still big bets being made on the U.S. bond market, its just that they are further out the curve. Hedge funds are once again taking the bearish viewpoint, and have extended their net short positions in long bond futures to a fresh record for another week.
Cormac Mullen is a Cross-Asset reporter and editor for Bloomberg News in Tokyo
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