Financial market research and analysis

The pound fell to 1.2875 against the US dollar, as British lawmakers voted to ask for a delay on the Brexit deadline on Saturday rather than voting on the Brexit deal that Boris Johnson put on the table.

As a result, a letter was sent to EU’s Donald Tusk asking for another delay in the Brexit deadline, even though Boris Johnson refused to put his signature on that letter. Tusk said he ‘will now start consulting EU leaders on how to react’. On this front, some EU leaders including French President Emanuel Macron could refuse further elongating the negotiations, but the UK will certainly be given that additional time to continue discussing what to do a few more months and the possibility to leave the union in November, December or January. The Times reported that if the UK calls for another Brexit referendum, the new deadline could even be stretched to June 2020. Hence, the Brexit headache may not be over just yet.

Still, it is said that Johnson will ask Parliament to back his deal again on Monday. But he could be refused to do so, because asking the same question twice in the same session would go against parliamentary rules. In case of a vote, some policymakers are confident that Johnson has enough support to pass his deal through Parliament and make the Brexit happen by the end of this month.

So far, pound traders are content that a disorderly Brexit will likely be avoided in two weeks. Yet an early general election and maybe another Brexit referendum are on the UK’s political agenda for the coming months. Therefore, cable could give back its recent gains along with the fading hopes of an imminent Brexit agreement. A downside correction could pull the pound to 1.2743, minor 23.6% Fibonacci retracement on September – October rebound, then to 1.2593, the major 38.2% retracement.

Ongoing Brexit uncertainties could inject some volatility to the British stock markets approaching the October 31st deadline as well, where small, mid-cap stocks would be more exposed than the blue-chip stocks which benefit from dollar denominated revenues.

But, for now, there are no particular signs of stress across the British equity markets. FTSE futures (+0.05%) hint at a flat start in London.


US futures gain as earnings come in, but global growth slows.

US equity futures were better bid in Asia. The Dow Jones (+0.25%) and Nasdaq (+0.35%) futures edged higher before a deluge of corporate earnings this week. Among them, Amazon’s third quarter earnings are expected to be boosted by record Prime Day sales, which may have counterweighed the impact of a slowing global demand during that quarter.

So far, the US third quarter earnings surprised on the upside. Banks especially revealed good-looking quarterly performances despite narrowing interest rate margins. Energy and mining stocks, on the other hand, remained on the back foot as the trade war between the US and China, and the slowing global demand appear to have hit the revenues more than expected.

Speaking of oil, WTI crude fluctuated near the $53 a barrel and Brent crude traded a touch below the $60 mark, as investors digested the news of a further slowdown in the Chinese economy following Friday’s 6% GDP read. Further data showed that home prices in China grew 0.53% m-o-m in September, gentler than 0.58% printed a month earlier. Slower home prices are also a sign of financial distress in China, where the real estate market has a lot to do with the growth figures.

To top it all off, the IMF and World Bank’s annual meetings pointed at a slower growth in almost 90% of the global economy and agreed that fiscal stimulus could remedy to the slowing economy after a decade of heavy monetary stimulus and bottom-rock interest rates failed to do the job. But policymakers couldn’t agree on how to implement these policies. We know how much the European Central Bank (ECB) President Mario Draghi is tired of repeating that a loose monetary policy alone could not boost the economy if it is not accompanied by a solid fiscal help. In vain.


Elsewhere…

The ECB is expected to stay pat at Thursday’s monetary policy meeting, but the Federal Reserve (Fed) will likely lower its interest rates for the third consecutive time at next week’s FOMC meeting. The activity on the US sovereign markets suggests a solid 89% chance for a 25-basis-point cut on October 30.

On US-China trade front, Chinese officials are working hard to clinch a partial deal with the US according to Chinese Vice Premier Liu. In the US, Mike Pence will deliver a major speech on Chinese policy on Thursday.

Elsewhere, Hong Kong was home to another weekend of violent protests, but the Hang Seng index (+0.30%) gained regardless of the street chaos.

The US dollar traded mixed. Gold remained flat near the $1490 an ounce. Antipodeans were better bid against the greenback in Asia. The Kiwi advanced to 0.6405 despite a 0.1% monthly contraction in credit card spending in September.

The EURUSD extended gains to 1.1172 on softer US dollar on Friday. The pair is expected to push for a further advance toward the 200-day moving average, 1.1209, with a support building near the 100-day moving average (1.1138).

In Japan, exports fell 5.2% y-o-y in September, versus -3.7% penciled in by analysts and -8.2% printed a month earlier. Imports contracted 1.5% during the same period versus -2.8% penciled in by analysts and -12% printed a month earlier. The global trade disruptions combined with trade tensions between Japan and South Korea continue weighing on the Japanese trade balance. If the Bank of Japan (BoJ) is expected to stay still at next week’s monetary policy meeting, the sovereign markets are fully convinced of a 10 or 20-basis-point cut in December, with a probability of 50% and 41.4% respectively. Hence, Japanese stocks are better bid on bad news. The USDJPY is bid near the 108.50 level.