Sterling bumping into Brexit ceiling

Equity markets have recovered much of their losses in recent weeks and, after hitting multi-year lows at the start of September, sterling and bond yields have also rebounded. (See Chart 1.) This is partly due to signs of a temporary détente in the US-China trade war and partly due to Parliament passing legislation which makes a no deal Brexit on 31st October much less likely. However, we doubt it will be long before concerns around the trade war reignite which, combined with a further slowdown in US GDP growth, is likely to drag global and UK equity prices lower later this year. And unless there is a Brexit deal, which still looks challenging, we doubt that there is much more upside for bond yields and sterling in the near term.