The Internal Market Bill has passed its second reading but what does this mean to markets?

  • 15th September 2020

What has happened

Risk appetite was supported yesterday by a series of M&A announcements as well as the resumption of the Oxford/AstraZeneca vaccine trials. Europe underperformed however this is the context of a strong week of relative performance versus the United States and the source of some of yesterday’s rally being Technology M&A, a sector which Europe is structurally underweight.

Internal Market Bill passes second reading

Yesterday’s vote passed despite some Conservative rebels who did not back the government. The EU have given the UK until the end of the month to withdraw the contentious clauses within the bill but Boris Johnson’s comments in the House of Commons yesterday shows there is little chance of the government backing down. The Bill will now move to the Committee stage and next week amendments will be voted on by MPs. The key one at the moment is that of Tory MP Bob Neill, this amendment would give parliament the final say on whether the UK could decide to override the Northern Ireland Protocol in the Withdrawal Agreement. Several Conservative MPs have suggested that they will support this amendment even if they did not abstain last night. Post any House of Commons votes there will clearly be oversight by the House of Lords so this Bill will likely remain in the headlines for several weeks and possibly months.

Abe’s successor

Japanese Prime Minister Shinzo Abe announced his resignation at the end of August citing reasons of ill-health, and Abe’s Chief Cabinet Secretary and long-time political ally Yoshihide Suga has been chosen to succeed him. During his tenure, Abe sought to introduce far-reaching reforms, which came to be known as Abe’s ‘Three Arrows’. These were: (1) monetary easing from the Bank of Japan; (2) fiscal stimulus through government spending; and (3) structural reforms. In broad terms, these policies have seen both success and criticism.

What does Brooks Macdonald think

Markets will be watching closely to see if Abe’s successor continues ‘Abenomics’ albeit under a different name or instead drives policy if a different direction. That said, policy makers are judged to have limited room for monetary and fiscal policy manoeuvre, with Japan’s public debt to GDP estimated by the International Monetary Fund this year to spike to over 250%. The Japanese equity markets have failed to meaningfully outperform in recent years so some change in approach may be needed to tempt investors back.

All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.