* Equities set for strong open after Carrie Lam withdraws bill
* CAD rallies on less dovish than expected BoC
* GBP volatility backs down with No-deal scenario fading
Carrie Lam supports sentiment, for now...
Look to bullish sentiment in Asia trading given some positive developments over the last 18 hours and not much high impact news on the calendar until US open.
To summarise, here are a few things that developed which tame geopolitical risks for the day:
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Carrie Lam formally withdrew the extradition bill. However, it's yet to be seen whether this amounts to the full cessation of what has been months of protesting. I've seen some Hong Kong nationals tweet "too little, too late". Hang Seng futures were up 4.0% in late Asia.
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A new Italian Five Star-PD coalition government was finally mandated with a new cabinet officially unveiled. Inital fears that teh demands of Five Star leader Di Maio would see the demise of the new alliance was put to bed after his installment as Foreign Minister. EURUSD momentum on a daily chart is pointing up.
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British Parliament blocked an Oct-31 No-deal Brexit scenario, while a snap election to take plac mid-Oct was voted down. GBPUSD currently trades at 1.2251 having breached 1.22 last night alongside an 8bps rally in UK 10y yields.
BoC maintains overnight rate at 1.75%...
Midnight's BoC statement came as a heavy defeat to those who were expecting The Central Bank to join the global caper of rate-cutting, or at least, indicate it would do so going forward.
Instead, The BoC's statement read fairly positive with the second paragraph highlighting the domestic strength of the Canadian economy, in which Canada's Q2 growth exceeded expectations while "housing regarding strength" and "wages picked up further". Notably, inflation was said to be on target with Canada "operating close to full potential".
There's impetus for The BoC to move either way on rates given the fine balance between both inflationary pressures and external trade uncertainties that are impacting global outlooks.
For those trading USDCAD, prepare for heightened sensitivity as the pair feeds off any soundbites that might provide a sense of what to expect for monetary policy going forward.
GBP volatility retreats...
GBPUSD lifted overnight back above 1.22 as a No-deal scenario on Oct-31 seems increasingly unlikely. As mentioned above, we had two developments overnight.
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First, The Uk passed a bill that blocked an Oct-31 No-deal scenario. The goverment must now ask the EU for a Brexit extension should no agreement arise by that date.
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Second, British PM Johnson's motion for an early election was voted down convincingly.
Forward volatility, as captured by the options market, is beginning to settle down as a result and points softer in GBP. We're likely to see liquidity come back into the currency as things begin to normalise. Interestingly, BoE's Haldane chimed in on the matter, however, like many of us - is also waiting to see how Brexit unfolds.
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