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BRUMP-TREXIT HAZE

President Donald Trump steps off Air Force One after arriving at Andrews Air Force Base, Thursday, Sept. 26.

The Associated Press

Things may be coming to a head in British and U.S. politics. Details emerging over President Donald Trump’s interaction with Ukraine’s leader could add more grist to impeachment proceedings against him. The last time a president was impeached - Bill Clinton in 1998 - it took 2-1/2 months between proceedings being brought and the eventual House vote to impeach him. So there’s likely plenty more noise ahead.

The other question is what UK Prime Minister Boris Johnson does next to carry out his ‘no ifs, no buts’ pledge to deliver Brexit by Oct. 31. His Conservative Party meets for its annual conference from Sunday to Wednesday - we might get a hint of how Johnson plans to obey the law and still take the UK out of the EU by Oct. 31.

These events in two of the world’s most hitherto stable democracies have pushed the World Economic Policy Uncertainty Index – a somewhat crude measure of news articles about economic and policy angst – to the highest in its 20-year history, or some 50% above levels touched during the 2008 financial crisis.

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U.S. shares, bond yields and sterling have all fallen in the past week; the deepening political angst will keep investors on their toes.

QUARTER BACK ... AND FORTH

European Central Bank President Mario Draghi answers a question at the European Parliament in Brussels, Monday, Sept. 23.

The Associated Press

The final quarter of 2019 begins on Tuesday after months of roller coaster moves on world markets. Trouble in China and emerging markets and some of Europe’s big bourses have halted the equity bull run. Oil has stepped back after its red-hot start to the year and U.S. Treasuries have surged as the Fed has spun 180 degrees and cut rates for the first times since the financial crisis.

So what will Q4 bring? Well much depends on the trade war of course, but signs are the bond rally has stalled for the time being. Some big investors are even buying up assets that react well to inflation - yes inflation, remember inflation?

Mario Draghi is preparing to leave the ECB after eight years so European assets will be under scrutiny again. Emerging market central banks are still cutting rates with gusto so their bonds could still run up. Finally, while the year-end always has the potential for a Santa rally in stocks, let’s not forget that last Christmas was more Bah Humbug!

WORK, SPEND, REPEAT

Inside the Boeing facility at Kennedy Space Center, engineers and technicians in the high bay prepare the service module for the upcoming orbital flight test.

Malcom Denemark/The Associated Press

Consumers and the service sector are just fine! That’s been the argument of those who believe the U.S.-China trade war doesn’t spell doom for the broader U.S. economy. But September non-farm payroll data due out on Oct. 4 could confirm that jobs in the so-far resilient service sector are starting to take a hit.

There have been some warning signals. Non-farm service-providing payrolls grew by 84,000 in August - a slower pace of growth than the 133,000 added in July. And the services employment reading of IHS Markit’s September PMI index slipped below 50 - the mark that separates growth from contraction - for the first time in nearly a decade.

True, the broader U.S. services business activity index rose to 50.9 from 50.7 in August, but the slide in service-related employment could be a canary in the service-sector coal mine. Markit added that for the first time since January 2010 jobs were now being cut across the surveyed companies.

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Additionally, consumer confidence ebbed in September, a potentially worrying signal for consumer spending, which has been driving the U.S. economy while exporters grapple with Chinese tariffs and tepid global demand.

HAPPY BIRTHDAY CHINA

In this Wednesday, Sept. 11, 2019, photo, a man checks on the robotic arms at a factory making industrial robots in Zhengyu town of Haimen city in east China's Jiangsu province.

The Associated Press

On Tuesday it will be 70 years since Mao Zedong proclaimed the People’s Republic from atop Beijing’s Gate of Heavenly Peace. It will be an occasion for pomp, pageantry and might.

President Xi Jinping is to make a speech, likely featuring the “Chinese Dream” of military strength, national renewal and growing respect for his country on the world stage.

Markets, however, are on edge about other Chinese realities. A gauge of factory activity due on Monday, China’s Purchasing Managers’ Index, is on a long march backward. It is seen contracting for a fifth straight month in September; the latest in a long list of weak economic readings.

Industrial production growth was its softest in 17 years in August, while profits went into reverse. Quarterly economic growth sits near a three-decade low. And to cap it off, citizens wishing to celebrate over a meal of China’s favourite protein - pork - will find it incredibly expensive, since a contagious and fatal (for pigs) fever has put a rocket under prices. There’s some food for thought about the People’s Bank’s next move.

TRADE DOGFIGHT

A ceremony for the delivery of the company's first Airbus A350, on Sept. 27, 2019 at the Airbus delivery centre in Colomiers, southwestern France.

PASCAL PAVANI/AFP/Getty Images

A new front in the trade war may be about to open up. The World Trade Organization has given Washington the go-ahead to impose tariffs on European Union goods worth around $7.5 billion over illegal government support for planemaker Airbus.

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An arbitration tribunal will soon announce a value and methodology for the tariffs. Sources say duties will target aircraft and aerospace parts from Airbus host nations - Britain, France, Germany and Spain, ratcheting up the tit-for-tat tariff spat in the aircraft industry.

But Washington has other European goods - wine, cheese and luxury goods - in its sights. It’s all very bad news for Europe’s economy and companies, staggering under the weight of an earnings and manufacturing recession, especially in Germany. That’s why for Europe, the WTO decision has overshadowed Trump’s impeachment probe, putting a pan-European equity benchmark on track for its first weekly drop in six weeks.

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