Key events in developed markets

UK MPs will return from summer recess on 3 September, and the big question now is whether they can rally around a plan to prevent a ‘no deal’ Brexit. There are two main ways this could be done. Firstly, opposition leader Jeremy Corbyn could table a motion of no-confidence in the government, and then MPs could install a caretaker prime minister to apply for another Article 50 extension (before going to elections). But so far, non-Labour MPs appear reluctant to go down this route, so in the first instance lawmakers will try to pursue legislative options instead. But as we discussed in more detail recently, this could prove complex and time-consuming – and will require goodwill from Speaker John Bercow.

In short, next week will give us some clues on how MPs plan to use the first couple of weeks back after summer as the battle to avert a ‘no deal’ Brexit on 31 October begins.

Next week will see more news on the Italian government crisis as President Sergio Mattarella has set Tuesday as the deadline for a new government proposal. Whether the Democratic Party and the Five Star Movement are able to come to an agreement on a feasible government by then remains to be seen, in particular considering that their majority in parliament is not assured. Meanwhile, the League’s leader Matteo Salvini has also shown some openness to a reconciliation with Five Star, although this seems a slightly less likely solution at the moment. All in all, the option of a snap election in late October or early November remains on the table.

In terms of eurozone data, inflation will be closely watched as this will be the final reading before the European Central Bank holds its September meeting, at which a significant stimulus package is now widely expected. Inflation has been on the decline recently and with core inflation stuck around 1%, the July release will likely bring more ammunition for the doves.