UK presses on with changes to Brexit deal.

Prime Minister Boris Johnson’s government will press ahead on Monday with legislation to scrap rules on post-Brexit trade with Northern Ireland, setting up further clashes with the European Union. The legislation, which would unilaterally replace parts of the post-Brexit deal that was agreed in 2020 by Britain and the EU, is due to be sent back to parliament’s lower house for a so-called second reading.

Britain plans to stop some checks on goods moving to Northern Ireland from the rest of the United Kingdom and it is challenging the role played by the EU’s court. The EU’s ambassador to Britain said on Sunday that Britain’s plans were illegal and unrealistic. The European Commission has launched legal proceedings against Britain, potentially leading to a trade war.

These ‘recession’ concerns were reflected in a softening of rate hike expectations. Futures contracts are now pricing in Eurozone rates getting to 1% by year-end (was 1.25% at the start of last week). The peak of rates in 2023 is now seen being nearer to 1.75% rather than 2.25%. In terms of the Fed, the market is now envisaging the peak of rates being 3.5% rather than nearer to 4%. As a result, bond markets rallied, with yields falling across the board. The German 10-year bund yield was down around 20bps to back below 1.5%. Meantime, the 10-year US Treasury yield fell by circa 10bps to under the 3.2% level, moving further away from its recent peak of 3.5%.

The European Central Bank’s annual forum in Sintra will be a key highlight with ECB President Christine Lagarde and Federal Reserve Chair Jerome Powell both attending the meeting. Hopes inflation may be peaking will be tested this week when the U.S. PCE price index, the Fed’s favoured inflation gauge, is out on Thursday and closer home, the UK will be releasing Q1 GDP, current account and final June manufacturing PMI.

Finally, Russia looked set for its first sovereign default in decades as some bondholders said they had not received overdue interest on Monday following the expiry of a key payment deadline a day earlier.

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