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Good morning. Labour could be heading closer to backing a second Brexit vote just as the Tory leadership race hots up, the White House had more hawkish commentary on the trade war, the Federal Reserve’s Powell speaks later and there was a surprise election outcome in Australia over the weekend. Here’s what’s moving markets. 

Leadership Race

Prime Minister Theresa May has vowed another push to get her Brexit deal through Parliament, but minds are turning to other things  in her Conservative Party. With May set to leave and a leadership contest on the horizon, members of the party are staking out their positions ahead of the race. Boris Johnson is still leading the polls, but Works and Pension Secretary Amber Rudd is also in contention. On the Labour side, leader Jeremy Corbyn is moving closer to backing a second referendum, saying the public should get to vote on any deal eventually reached. As ever, the most miserable people in the room remain London homeowners.

Eyes on Yuan

President Donald Trump has said China's economy will never outpace the U.S. on his watch, adding the country is “obviously not doing well like us.”  China's foreign minister, meanwhile, is taking a more conciliatory tone. Attention is now turning to what China will do to offset the risks the trade war brings. Its central bank has pledged targeted stimulus and a steady currency, but the country's battered yuan is about to face a significant test and a further weakening could well inflame tensions yet further. All this as top tech firms in the U.S. start to cut off software and components from China's Huawei Technologies Co. under the new U.S. ban.

Aussie Surprise

Australia Prime Minister Scott Morrison claimed the biggest come-from-behind win in decades, clinging to power in a surprise election victory. The country’s center-right government is getting straight back to business, pledging to pass signature tax cuts to shore up a slowing economy, with pledged rebates seen crucial in boosting consumer spending and buoying an economy in its 28th year of unbroken growth. Australian stocks rallied and the Aussie dollar jumped at the market open.

Markets Overnight

Asian shares were mixed and U.S. equity futures rose as investors awaited the next chapter in the Sino-American trade dispute. Indian stocks rallied after election polls showed Prime Minister Narendra Modi’s ruling coalition is poised for victory in general elections. Japan’s yen slipped as unexpected economic growth in Japan came with reasons for caution. The dollar index edged higher to build on last week’s gains. 

Coming up...

High on the agenda is Fed Chairman Jerome Powell’s keynote speech at the Atlanta Fed’s annual Financial Markets Conference. On Friday, one of his colleague’s, Robert Kaplan, sounded somewhat dovish, saying trade tensions might have a chilling effect on the U.S. and global economy, and he’s also watching for the potential effects on inflation. Earnings are thin but note that Ryanair Holdings Plc said that lower fares and losses at its new Austrian arm sent profit tumbling in fiscal 2019.

What We’ve Been Reading

This is what’s caught our eye over the weekend.

  • Brexit blues knock house prices in almost every London borough.
  • Europeans face a choice between liberal values and destructive nationalism.
  • Why beer prices diverge in the EU. 
  • Magazine writers cash in on peak TV. 
  • Deutsche Bank staff eyed Trump, Kushner transactions, NYT says.
  • U.K. Plc counts cost of Brexit as politicians ‘chase rainbows.’
  • Short seller reaps top market-neutral return by spying ‘roaches.’

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To contact the authors of this story: Joe Easton in London at jeaston7@bloomberg.netSam Unsted in London at sunsted@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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