Market news

• The International Monetary Fund, in its World Economic Outlook report, said the Chinese economy could grow at 5.8% next year — slower than the 6.1% forecast for 2019.
• Tao Zhang, IMF’s deputy managing director, told CNBC such growth rates are still “reasonable” given that China is restructuring its economy to grow in a more sustainable way.
• “In recent years, what’s going on in the world — we have trade tensions, we have other geopolitical forces, we have all these uncertainties around the world … these add further downside pressures to the Chinese economy,” he said. […]

Boris Johnson will make a fresh attempt to deliver on his pledge to take Britain out of the European Union on Oct. 31 as optimism grows that he now has enough support to get his deal through Parliament.

Cabinet ministers made clear the prime minister is undeterred after a crunch vote on Saturday forced him to write to the EU asking for a three-month delay to the deadline.

Johnson will on Monday ask the House of Commons to back his deal with the EU in a new “meaningful vote,” a test he was denied Saturday after lawmakers voted in favor of an amendment that sought more time for the agreement to be scrutinized.

That puts Johnson on a possible collision course with Commons Speaker John Bercow, who could decide not to allow the the vote because it amounts to asking the same question twice in the same session in breach of parliamentary rules.

At the same time, the government is preparing to introduce the legislation needed to deliver Brexit in the hope of fast-tracking the bill through both houses of Parliament in time for Oct. 31.

The government was defeated in the amendment vote, brought by former Conservative Minister Oliver Letwin, by just 16 votes. Ministers insisted on Sunday that it now has the backing of the 320 members of Parliament needed to win.

“We appear to have the numbers to get this through,” Foreign Secretary Dominic Raab told BBC TV’s “Andrew Marr Show.”

No-Deal Risk

That optimism was shared by Michael Gove, the minister in charge of no-deal Brexit preparations, who said the risk of a no-deal Brexit had increased because there was no guarantee the EU would grant Britain’s request for an extension.

The government confirmed on Sunday it was triggering Operation Yellowhammer, its contingency plan to make sure Britain can deal with the fallout from a chaotic departure from the EU.

Johnson made clear to the EU that he’d rather Britain leave without delay and he refused to sign the letter requesting an extension, one of three sent to Brussels late Saturday. European Council President Donald Tusk is now consulting member states on how to respond.

The Times of London on Sunday, citing unnamed diplomatic sources, said the EU is ready to grant a three-month extension if Parliament fails to approve the deal, with the U.K. able to leave on the 1st or 15th of November, December or January if an accord is ratified. If Johnson calls a second referendum, or meets other obstacles, governments led by Germany would push for a longer extension, possibly pushing the deadline to June 2020, the Times said.

Johnson received a boost when former cabinet minister Amber Rudd, who walked out of the government and the Tory party in protest at the expulsion of 21 colleagues, said she and many among those who were kicked out are ready to support his deal.

The prime minister also has the backing of a small number of Labour MPs, though he may struggle to win over many more. Crucially, Labour wants a customs union with the EU and for any deal to be put to another referendum with an option to stay in the bloc, demands on which there appears little room for compromise.

His key problem could lie in wooing back his allies in the Democratic Unionist Party, whose 10 votes on Saturday made the difference between defeat and victory.

The Northern Irish party has deep reservations about anything that creates any kind of border between Britain and Northern Ireland, such as customs checks in the Irish Sea, and wants a stronger consent mechanism that hands a greater say to the regional assembly. […]

Britain’s junk-rated debt market could be on the verge of a deal bonanza if the U.K. Parliament backs Boris Johnson’s Brexit deal on Saturday.

“The U.K. market is still one of the deepest in Europe for corporate finance and M&A, and given the lack of issuance in the past 18 months, there’s a lot of transactions waiting to happen,” said Stefan Povaly, co-head of leveraged finance origination in EMEA at JPMorgan Chase & Co. in London. “Some sort of resolution or deal could be a catalyst for incremental deal activity in the sterling market.”

Issuance volumes of leveraged loans and high-yield notes in pounds are down 58% on the same period of 2017, a record year for bonds, data compiled by Bloomberg show. Investors have been less inclined to buy sterling credit in recent months given a lack of visibility around Brexit and all the headline risk, according to syndicate bankers.

But if the U.K. prime minister fails to win the crucial vote this weekend, the country will be on course to leave the bloc without a deal on Oct. 31, or to delay exit day for a third time. Arranging banks say either of those scenarios could freeze sterling issuance for the rest of the year.

“An extension would mean the sterling market remains in limbo, and the risk premium that U.K. companies have to pay to raise financing will remain higher than what you would see in normal times,” said Paul Watters, head of corporate research at Standard & Poor’s. “Investors may be quite reluctant to provide financing to U.K. companies in a no-deal Brexit.”

Brexit Premium

While the March deadline extension for leaving the EU brought some leveraged borrowers back to the U.K. market, funding costs in sterling have continued to creep up. This so-called “Brexit premium” versus euro equivalent debt financing has kept many potential issuers on the sidelines.

Used-car dealer BCA Marketplace Plc and outsourcing firm Webhelp SAS paid premia of 125 to 150 basis points this year on sterling M&A loans raised alongside euro tranches. Borrowers raising both euro and pound loans typically paid 50 basis points more for sterling in 2016 and 75 to 100 basis points extra last year, according to data compiled by Bloomberg.

In the bond market, William Hill Plc and Cabot Financial Ltd. sold sterling-denominated bonds with coupons that were higher than those on the debt being refinanced. More broadly, high-yield credit spreads in sterling are currently 89 basis points higher than their euro equivalent, Bloomberg Barclays index data show.

A resolution on Saturday could erode these relatively higher funding costs, paving the way for a spate of refinancing and M&A debt deals in pounds, according to a syndicate manager in London. Arrangers also point to pent-up pockets of demand for sterling credit, especially in the bond market.

“Deals have been accelerated to get done before the Brexit deadline,” said Jeremy Duffy, a partner at the law firm White & Case London Ltd., who specializes in bank finance. “The pipeline has been preemptively cleared.”

“But there is a lot of capital, both equity and debt, and there is a decent number of deals — mainly opportunistic — on ice that are waiting to see what happens and will come to market when there is any clarity,” Duffy said. […]

BoE Dep Gov Ramsden: A Smooth Brexit Outcome Would Put Rate Increases On The Table
-We Are Seeing Domestic Inflation Pressures Building
-Hike Framing Of ‘Limited And Gradual’ Is Reasonable […]

LiveSquawk on Twitter

Economic growth was the lowest since records began in March 1992 and below expectations of 6.1 per cent.

Other figures released on Friday showed that industrial production grew by 5.8 per cent in September, while retail sales grew by 7.8 per cent last month. […]

We’ve got a great new deal that takes back control — now Parliament should get Brexit done on Saturday so we can move on to other priorities like the cost of living, the NHS, violent crime and our environment #GetBrexitDone #TakeBackControl […]

Boris Johnson on Twitter

Even if an agreement can be reached between the UK and the EU it will still have to be voted through by parliament.

DUP leaders have said they “could not support” Boris Johnson’s Brexit plan as the prime minister heads to Brussels for what could be the UK’s final EU summit.

Talks between UK and EU negotiators look set to go down to the wire as the leaders of the 28 member states gather.

But early on Thursday morning, Arlene Foster and Nigel Dodds, leaders of Northern Ireland’s DUP which props up Mr Johnson’s government, announced they could not fully support the plan.

In a statement, they said: “We have been involved in ongoing discussions with the government.

“As things stand, we could not support what is being suggested on customs and consent issues, and there is a lack of clarity on VAT.

“We will continue to work with the government to try and get a sensible deal that works for Northern Ireland and protects the economic and constitutional integrity of the United Kingdom.”

Sterling fell 0.5% to $1.2762 following the news, drifting from Wednesday’s six-month high. […]

‘EU sources’ are talking nonsense. Discussions continue. Needs to be a sensible deal which unionists and nationalists can support. […]

Arlene Foster ‏on Twitter

China’s Foreign Ministry: Expresses Strong Indignation At U.S. Lawmakers’ Actions
– Hong Kong Is Purely China’s Internal Affairs, Urges U.S. Lawmakers To Stop Interfering
– China Will Take Necessary Measures To Safeguard Its Sovereignty And Security […]

LiveSquawk ‏on Twitter