Trade War Shifts to Atlantic

Markets wilted again on Wednesday as the market increasingly sours on the global economy. The US was given the OK from the WTO to impose $7.5 bn in retaliatory tariffs on the EU. The USD was lower across the board yesterday on resurfacing odds of a 25-bp rate cut later this month following the slumping services ISM. All eyes turn to today's release of the services ISM for proof on whether the US services sector continues to escape the miserable fate of the manufacturing sector. One day after the DOW30 short was closed for 480-pt gain, both Premium shorts in the SPX and DAX30 hit their final targets for a gain of 79 pts and 350 pt respectively.

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Global equity sentiment crumbled on Wednesday for the second day. US stocks fell nearly 2% while European markets sank around 3%. There wasn't a particular catalyst, rather it was a continuation of worries following the weak US ISM non-manufacturing survey on Tuesday.

The US tariffs that will be authorised by the WTO on the EU will take effect on Oct 18. Their aim, according to Trump, is to persuade the EU to reach a negotiated settlement.

On the Brexit front, Johnson delivered his proposal to the EU and it included a call for the Northern Ireland assembly to vote on border deals every four years. It's a sort-of democratic backstop but doesn't answer the question of what happens if they suddenly reject a deal. The initial EU and Irish reception was chilly but not completely dismissive. A memo from 10 Downing leaked that suggested calling the EU 'crazy' if it didn't accept the deal in a sign that Johnson may be angling more for an election rather than a deal. On the flipside, a report said as many as 25 Labour MPs will back the deal.

The pound was relatively stable but that might be more an indication of the broader market turmoil than a reflection of Brexit developments. Much hangs in the balance in the day ahead. If a deal begins to look possible, the pound could jump. GBPUSD remains supported above the 55-DMA, but has yet to make a lasting  break above the 100-DMA. Ashraf has issued a Premium trade in cable last week, highlighting a crucial analog.

In terms of economic data, the September ISM non-manufacturing index will be a major event to watch at 1400 GMT (15:00 London). The consensus is for a modest slide to 55.1 from 56.4 in August. Anything above 54.0 could help to stabilize sentiment or prompt a turnaround.