Stimulus keeps the party going, Brexit chaos continues

Morning Note

Stimulus, stimulus, everywhere, nor any drop to drink. More and more stimulus is underpinning equities but how long can this party go on?

The softer US jobs number in Friday only underlines the Fed will cut rates next week, whilst China announced fresh stimulus late Friday with cuts to banks’ reserve requirement ratio, or RRR, which is lifting Asia today. On Friday Jay Powell reiterated that the Fed will do whatever it can to sustain the expansion. 

This week’s big set piece is the ECB – so expect yet more stimulus – although as we detail in our preview, the bar for doves has been set very high.

With central banks refilling the punch bowls, markets can shrug off the weakening economic data and put off the coming dawn for another hour. The party goes on for now, but it’s looking increasingly precarious.

China’s export figures made for chastening reading. Exports declined 1% despite the softer yuan, indicating the real bite of the trade war with US. Exports to the US were down 16%, while imports from the US declined over 22%

The Sino-US trade spat is behind these softer figures. Trade data won’t go anywhere but south as the second half of the year plays out and China feels the impact of the latest rounds of tariffs. Moreover the indications are that we’ll encounter further escalation from here.

But expect the usual warm manure from the White House over the coming weeks. I reiterate that we should not expect a trade deal of any kind until 2020, when the presidential election is a lot closer.

European shares have started the week in positive territory as investors soak up yet more stimulus and expect more to come from the ECB. The FTSE 100 is holding the 7300 level but if there’s not much appetite to drive it over 7350 we could see a pullback again to the 7240. The DAX continues to march higher and may look to take out the 12400 region.

Asia was stronger on Monday after Wall St finished higher, with the 0.1% gain for the S&P 500 cementing a second straight weekly gain, the first since mid-July.

On Brexit, there have been a range of news flow and reports over the weekend. We’ll stick to what we know, which is the Boris will do whatever it takes to get Britain out on Oct 31st. A second attempt to call a general election will be made today, which the PM is expected to lose.

There is increasingly talk the PM would ‘break the law’ to see Brexit through by Halloween. I’ve not heard of such things in the past and it’s increasingly clear we’re into uncharted constitutional territory as MPs on both sides push the boundaries of what’s acceptable and sustainable. An election to break this sclerotic parliament is clearly what’s required. 

The pound will remain highly sensitive to headline risk and any further evidence of a lower no-deal risk will further squeeze shorts. If Boris gets his way, it’s increasingly likely that no-deal is the outcome. 

GBPUSD rallied well last week to break through 1.23 but has since retraced some of the gains as it encounters near-term resistance around the 50-day moving average. Bulls will need a push to 1.23560, last week’s swing high, to regain the momentum. Plenty of support at 1.2210. CFTC figures show speculators have trimmed their net short exposure a touch in the last week, as expected given the short squeeze we saw last week.

Oil – Saudi Arabia has sacked oil minister Al-Falih, in a shock move that’s going to add some additional uncertainty into oil markets. It looks like the persistent weakness in oil prices, despite Saudi-led production curbs, did for Al-Falih. There may also have been disappointment at the slow progress on the Aramco IPO. Either way he’s gone and it means there’s something of a cloak of uncertainty hanging over Saudi energy policy for the time being. Prices ticked higher with WTI rising through $57 to trade around $57.20 at send time, with bulls eyeing last weeks’ highs around $57.60. Brent has rallied to $62.20. CFTC data shows speculators have slightly trimmed their net long positions to 384.2k contracts from 391.6k the previous week.

Gold appears in a consolidation phase around the $1500 level.Goldhas pulled back to $1508 and there’s a chance of a pullback now to the $1492 support region if risk prevails. Bulls will look to regain the $1516 first. CFTC figs show speculators added to their net long positions. In a world of negative rates, gold is sure to shine.

Latest Markets.com News

US Election, Recession, Brexit: What’s in store for markets in 2020 H2?

Read More

US Election 2020: What happens to the US dollar with a Democrat clean sweep?

Read More

Stocks steady as pubs prepare to reopen

Read More

Risk assets rally on bumper US NFP jobs report

Read More

Blonde Money US Nonfarm Payrolls Preview

Read More

Stocks go up, cases go up, US jobs harder to call

Read More

US oil inventories preview: EIA data to confirm the biggest draw this year?

Read More

Stocks steady after Q2 boom, gold breaks higher, economic data uncertain

Read More

Short sellers triumph as Wirecard collapses – but who’s next?

Read More
Previous
Next

Join Markets.com to Experience Marketsx

Markets.com is the state-of-the-art trading platform provided by Markets.com. As part of the TradeTech Group, a constituent of Playtech, a FTSE 250 listed company, at Markets.com we have deep knowledge of the financial markets and an incredible range of resources to continually raise the bar in the world of financial trading.

Create Account

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under License no. 092/08 and FSCA under Licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.