Sterling slipped below $1.20 this morning after Boris Johnson further increased the pressure on MPs by threatening to call a general election on October 14th. Ahead of a potentially turbulent day in Westminster, the pound dropped to a level briefly seen in 2016 but not regularly traded at since the 1980s. 

Rebel Conservatives may work with the Labour Party today in an attempt to hand control of the House of Commons to MPs, a move which Johnson said would “wreck” his negotiating strategy. If the vote goes against the Prime Minister today, he has threatened to call the election in order to ensure that the UK leaves the EU as scheduled at the end of next month. 

Elsewhere, Asian stocks were mixed last night amid further tariff war frustration. Washington refused Beijing's request to delay tariffs which took effect over the weekend, while Chinese and US officials are struggling to agree on plans for a potential meeting later this month. 

Amidst the uncertainty, UK 10-year gilt yields fell to a record low of 0.38%. The German Bund equivalents also breached new territory, as did Italy's sovereign debt as optimism grew that members of the 5-Star party will strike a coalition deal with the Democratic Party. 

British manufacturing shrank at the fastest rate in seven years in August as the fears of no-deal Brexit moves some supply chains abroad and the weak pound drove up import costs. The UK manufacturing purchasing managers' index (PMI) fell to 47.4 from 48 the previous month, significantly undershooting forecasts.  

Similarly, the IHS Markit Construction PMI reading for July disappointed economists' expectations. Data released this morning show that new orders for UK construction companies suffered their sharpest drop since the financial crisis, as the Brexit predicament scared away potential customers.  

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