Brexmas election vote, equities tentative start, HSBC down on miss
There an awful lot of questions for traders that should be
answered in the coming days. First and foremost: is Britain leaving the EU on
Thursday? A vote on the government’s call to hold an election on Dec 12th takes
place today. Requiring a two-thirds majority under the Fixed Term Parliament
Act, it’s unlikely to succeed. The SNP-Lib Dem vote on Tuesday, calling an
election for Dec 9th, has much greater chance of success as it only
requires a simple majority. Amid all this we need to know if the EU will offer
an extension, and for how long. The timing of the election is important as it
has a material impact on whether the government can get its Brexit withdrawal
agreement bill through Parliament before MPs break up for the election. The
length of the delay will affect whether there can be an election or not. If
there is no appetite for delay Brexit for long enough to allow an election,
and/or MPs don’t back an election at some point, we could be heading for no
deal by accident.
It feels as though we will see no deal risks elevated again
– it’s still the default position – which would weigh on sterling. Short bets
on sterling are being dumped with the latest speculative positioning data
showing net shorts declined to 52.4k from 73.0k in the preceding week. The
market seems to have discounted no deal now, so any threat to that consensus
could quickly open up a lot of downside.
GBPUSD was firmer in early trading in London, pushing
up to a whisker away from 1.2860 before paring gains back to the 1.2850 area.
EURUSD was also a tad firmer, pushing up back to the 1.110 level lost last
Equities got off to a tentative start in Europe. The FTSE,
CAC and Euro Stoxx 50 all slipped, while the DAX got a boost from
better trade vibes to rally through 12,900. The FTSE 100 was weighed down by
heavyweight HSBC, which slipped 3.5%. Asia was firmer as investors digested
more positive sound bites on trade. It seems the US and China are close to
finalising parts of interim trade deal. The mood music is sounding better
on trade for sure, but disappointment is only ever a presidential tweet away.
US stocks are close to record highs once more but the bulls failed to push the S&P
500 over the line on Friday.
is going to be a massive week for equity markets, with and slew of important
macro data, earnings and the Fed in focus. The key
question that we think will need to be answered is whether the Fed
believes there may be another hike in December. Given the uncertainties over
trade it seems likely the Fed and Jay Powell will leave the door open for
another cut this year after this week’s expected cut.
Since the last meeting the near-term risks of a blow out
from the trade war have subsided with the ‘phase one’ deal, whilst no-deal
Brexit risks are also greatly reduced. This offers the Fed time to pause its
cutting cycle at 3 should it choose to – therefore it’s possible it will just
drop a few hints that there will no Dec cut. The yield curve is also looking a
lot healthier. Broadly, the economy appears still in decent shape, albeit there
are heightened fears that manufacturing is slumping. Inflation is not running
too hot by any means.
Gold has eased off its highs hit last week as it
continues to prefer to stick to the ranges. Bitcoin has gone on a
rollercoaster that’s brought back memories of the worst of the hype phase.
After last week’s plunge futures based on the 7350 support zone and flew higher
on Friday before gapping up again on the Sunday open to touch $10k again. At
last look prices were around $9500, a full $2k up from Friday morning.
HSBC profits fell by a quarter because of weakness in
Britain, Europe and the US. Asia held up ok. HSBC has well-documented exposure
to emerging, especially Asian, economies, but it’s developed markets that are
the problem. Profit before tax in Asia was up 4% with Hong Kong proving
Profits overall slipped 24% to a shade off £3bn, well below
expectations. Return on tangible equity was down to 6.4% vs 9.5% expected.
That’s left management having to abandon its goal of achieving 11% next year.
All this leads to interim boss Noel Quinn to speed up plans
to ‘remodel’ the business, for which read major cost-cutting and retrenchments.
Remember Mr Quinn wants the job full time – he’s going to be aggressive with
this. Shares slipped more 3% in early trade.