French and UK politics amongst market movers for the week ahead – Rabobank

It promises to be an important few days for President Macron as he prepared himself for a potential major showdown with France’s public sector union, points out the analysis team at Rabobank.

Key Quotes

“Three major demonstrations are planned for the next two weeks in protest against new labour laws.  Macron, who was swept to power on promises of reform, rushed through a new labour code by decree during the summer in an effort to stimulate the jobs market.  Since his win in the spring, however, Macron’s popularity ratings have slumped in a country that has typically favoured socialist-leaning policies.”

“This evening UK MPs are scheduled to hold a key vote on the government’s EU withdrawal bill.   The principal aim of this bill is to transfer thousands of pieces of EU legislation into UK law on the commencement of Brexit.  However, there are concerns about the reach of powers that the bill will allow government ministers without the scrutiny of parliament.  Proponents argue that this is necessary given the complexity of Brexit.  Critics argue that this is a blatant use of “Henry VIII” powers and is dismissive of the role of MPs.  UK Brexit Secretary Davis has warned that those opposing the bill will be asking for a chaotic Brexit and urged MPs to unite.  While Labour is expected to mostly oppose the bill, the government is reportedly confident of sufficient votes to pass the bill.”

“There are very little scheduled data releases today. However, the week ahead will bring interesting releases of US PPI and CPI inflation data in addition to retail sales and the University of Michigan confidence index.  That said, the market impact of backward looking data releases could be lessened given the recent weather related events.” 

“CPI inflation data is also scheduled for release in the UK this week and a surge to 2.8% y/y is anticipated by the market. In the face of weakening real incomes, however, the BoE is expected to stand pat at Thursday’s policy meeting although at least two members of the MPC are likely to vote in favour of an immediate rate rise.”

“Turkey’s central bank is also set to keep the parameters of the monetary policy unchanged on Thursday due to persistently high inflation which was reported at 10.68% y/y in August. The market will be looking for policy makers to reiterate that all key interest rates will remain on hold until the outlook for inflation improves significantly. Such commitment is a major source of support for the Turkish lira, which trimmed its substantial losses after plunging to a record low earlier this year against the US dollar.”

“On Friday the Bank of Russia will consider lowering the borrowing costs by either 25bps or 50bps. Given that inflation decelerated further to 3.3% y/y in August (surprising on the downside), the odds are skewed in favour of a large cut in our view. Another factor supporting a 50bps move is the sharp decline in inflation expectations. The ruble continues to play an important role for the monetary policy as well. The currency regained its bullish momentum in August and continues to perform well so far this month, which is an encouraging signal for the CBR. Overall, we expect the key rate to be cut by 50bps to 8.50% when the decision is announced at 11:30BST on Friday.”