The pound edged higher as Boris Johnson’s Brexit strategy appeared in disarray. The PM lost 328-301 in a key vote that hands control to Parliament.

He will now table a motion to call an election, however it is unclear whether Labour will play along. Do they fall into the ‘elephant trap’, or do they prefer to watch the new Tory regime implode? With rebels having the whip withdrawn the government benches are now very much in the minority.

However, the threat of no-deal remains high. An election has to happen sooner or later – surely it is better to happen now? Even if Parliament gets its anti-no-deal legislation on the statute book before an election, a new Parliament would be free to revoke.

GBP/USD finds a floor

GBPUSD appears to have found something of a floor for the time being at 1.20 and was last pushing up to 1.2130 and close to 1.2140. Lots of short covering is no doubt in play. The move higher only serves to underscore the kind of headline risk and volatility we can expect to see over the coming weeks which will make sterling a tough currency to trade. And it is worth noting that at least a portion of the rally is down to the drop in the US dollar following that weak ISM manufacturing reading. EURUSD has also pushed higher and was last at 1.0980, threatening to retake the 1.10 handle. The dollar index has fallen below 99 again.

Wall Street came back from the Labor Day holiday to the first down day in five. Trade wars continue to gnaw away at confidence. SPX fell 20 points and the 2900 line was breached at one stage but buyers quickly stepped in and the index finished the day at 2906.

US manufacturing data was the weakest since 2016, driving down confidence and bond yields. It was the confirmation that the trade war is biting on the real economy. The US 10yr plumbed a new 3-year low a little above 1.4%. The 30-year also stretched to a new low. Markets are increasingly betting the Fed has to ease more.

Stocks recovering as Hong Kong tensions ease

Asia has bounced back as reports indicate Hong Kong leader Carrie Lam will formally drop the controversial extradition bill that was the spark for the wave of protests over recent weeks. The move will be taken as a sign that the authorities are willing to be accommodative. However risks remain as this has become about much more than the hated bill. If the protests continue now, China’s response may harden quickly.

The news more than compensated for figures showing Hong Kong’s economy has been badly hit by the protests, with private sector activity at a decade low. Other overnight was equally concerning, with Australia’s economic growth slowing to its weakest since 2009.

After sliding in a broad risk-off move yesterday, European shares are on the advance again but see the major indices fairly rangebound for the time being. The FTSE 100 regained the 7300 level in early trade but as ever in the current climate these gains always look a little fragile.

Oil was hit hard yesterday by the broad risk-off moves and the US factory data but WTI bounced off rising trend support around $53 to recover the $54 handle, bolstered overnight as Asian stocks rose.

UK services data at 09:30 will be risk for sterling crosses following that very soft manufacturing reading. If this too shows contraction then we’ve got to be looking to a technical recession as a possibility and for the Bank of England to take note and ease.