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US Election, Recession, Brexit: What’s in store for markets in 2020 H2?
The first half of 2020 has been a wild ride. We’ve seen unprecedented moves in markets, historic stimulus efforts by both central banks and governments, and record-breaking data that grabbed headlines across the globe.
H1 has already brought plenty of drama, but what should we expect from the next two quarters? Join us for a recap of some of the biggest events in market history and a look at the risks and opportunities that lie ahead.
Coronavirus pandemic prompts worst quarter in decades for stocks
At the start of 2020 the main themes of the year looked to be the US Presidential Election, the trade war with China, and Brexit.
It seems like years ago that markets began to get jittery on fears that the handful of novel coronavirus cases in Wuhan, China, could become something ‘as bad as SARS’. It quickly became apparent that we were dealing with something much worse, and the market was quick to realise the full, brutal, reality of a global pandemic.
The panic reached its zenith towards the end of March. As the sell-off ran out of momentum global stock markets were left -21.3% lower. The S&P 500 had its worst quarter since 2008; the Dow dropped the most since 1987 and set a new record for the biggest single-day gain (2,117 points) and single-day loss (2,997 points). European stocks had their worst quarter since 2002, with a -23% drop in Q1.
Oil turns negative for first time in history after Saudi Arabia sparks price war
Things became even more chaotic in the oil markets when, after OPEC and its allies failed to agree a pandemic response, Saudi Arabia opened the floodgates and slashed prices of its crude oil exports. Oil prices endured the biggest single-day collapse since the Gulf War – over -24%.
It was further strain for a market now seriously considering the risk that shuttered economies across the globe would hit demand so hard that global storage would hit capacity. The May contract for West Texas Intermediate went negative – a first for oil futures – changing hands for almost -$40 ahead of expiry.
Meanwhile US 10-year treasury yields hit record lows of 0.318%, and gold climbed to its highest levels in seven years, pushing even higher in Q2.
Economies locked down, central banks crank up stimulus
Nations across the globe ordered their citizens to remain at home, taking the unprecedented step to voluntarily put huge swathes of their economies on ice for weeks. Even when lockdown measures were eased, the new normal of social distancing, face masks, and plastic screens left many businesses operating at a fraction of their normal capacity.
The world’s central banks were quick to step in during the height of market volatility and continued to do so as the forecasts for the economic impact of the pandemic grew even more grim. The Federal Reserve, the Bank of England, the Bank of Canada, the Reserve Bank of Australia, and the Reserve Bank of New Zealand all dropped rates to close to zero. Along with the European Central Bank, they unleashed enormous quantitative easing programmes, as well as other lending measures to help support businesses.
Unprecedented stimulus as unemployment spikes
Governments stepped in to pay the wages of furloughed employees as unemployment spiked – the US nonfarm payrolls report for April showed a jaw-dropping 20.5 million Americans had become unemployed in a single month. In the space of just six weeks America had erased all the job gains made since the financial crisis. The bill for US stimulus measures is currently $2 trillion, and is set to go higher when further measures are approved.
While most of the data may be improving, we’re still yet to see just how bad the GDP figures for Q2 are going to be. These, which will be released in the coming weeks, will show just how big a pit we have to dig ourselves out of.
H2: Recovery, US election, trade wars, Brexit
Markets may have recovered much of the coronavirus sell-off – US and European stocks posted their best quarter in decades in Q2 – but the world is still walking a fine line between reopening its economies and fending off the pandemic. Second wave fears abound. In the US in particular, economic data is largely pointing to a sharp rebound in activity, but at the same time Covid-19 case numbers are consistently smashing daily records.
These key competing bullish and bearish factors threaten to keep markets walking a tightrope in the quarters to come. Because of this, progress in the race to find a vaccine is closely watched. Risk is still highly sensitive to news of positive drug trials. The sooner we get a vaccine, the sooner life can return to normal, even if the world economy still has a long way to go before it returns to pre-crisis levels.
US Presidential Election: Trump lags in polls, Biden threatens to reverse tax cuts
The biggest talking point on the market in the coming months, aside from coronavirus, will undoubtedly be the US Presidential Election. The stakes are incredibly high, especially for the US stock market, and Democrat nominee Joe Biden intends to reverse the bulk of the sweeping tax cuts implemented by president Donald Trump.
Trump is currently lagging in the polls, with voters unimpressed by his response to the pandemic and also to the protests against police brutality that swept the nation. The president has long taken credit for the performance of the stock market and the economy, so for the latter to be facing a deep recession robs him of one of his key topics on the campaign trail.
Joe Biden may currently have a significant lead, but there is a long time to go until the polls, and anything could happen yet.
China trade war in focus, Hong Kong law adds fresh complications
The trade war with China would be a focus for the market anyway, but will come under increasing scrutiny in the run-up to the election. Thanks to Covid-19, anti-China sentiment is running high in the United States. This means Biden will also have to talk tough on China, which could mean that the damaging trade war is set to continue regardless of who wins the White House this time around.
Tensions have already risen on the back of China’s passing of a new Hong Kong security law, and coronavirus makes it virtually impossible that the terms of the Phase One trade agreement hashed out by Washington and Beijing will be carried out. Trump may be forced to stick with the deal, because abandoning it would leave him unable to flaunt his ability to make China toe the line during the presidential race. This would be positive for risk – markets were already rattled by fears that the president’s response to the Hong Kong law would include abandoning the deal.
How, when, and if: Unwinding stimulus
Even if we get a vaccine before the end of the year and global economies do rebound sharply, the vast levels of government and central bank stimulus will need to be addressed. Governments are running wartime levels of debt.
We’re looking at an even longer slog back to normalised monetary policy – something that banks like the Bank of England and the European Central Bank were struggling to reach even before Covid. There will be huge quantitative easing programmes to unwind and interest rates to lift away from zero, or potentially even out of negative territory.
Markets have been able to recover thanks to a steady cocktail of government and central bank stimulus. The years since the financial crisis have proven that it is incredibly difficult to wean markets and the economy off stimulus. There could be some tough decisions ahead, especially as governments begin to consider how they plan to repair their finances in the years to come.
Brexit deadline approaches, impasse remains
There is also Brexit to consider. While the coronavirus forced officials to move their negotiations online, little else seems to have happened so far. Both sides are refusing to budge and both sides are claiming that the other is being unreasonable. The UK does not want an extension to the transition period, and the two sides are running out of time to agree a trade deal.
We’ve seen before that both Downing Street and Brussels like to wait until the last possible moment to soften their stance. However, the risks here are higher because before there was always the prospect of another extension.
The last time negotiations were extended the battle in Westminster shocked the UK to its constitutional core. The Conservative landslide victory of 2019 gave Boris Johnson a much stronger hand this time around – the UK will leave in December, regardless of the situation.
Stay on top of the biggest events in H2
Whatever happens in the coming months, we’ll be here to bring you the latest news and analysis of the top developments and market events via the blog and XRay.
Stocks extend last week’s losses on second wave fears
European stocks plunged and US futures tumbled on Monday as equity markets extended last week’s losses amid fears of a second wave to the pandemic. We are seeing pockets of cases in Beijing suddenly – the first in 50 days, whilst Alabama, Florida and South Carolina have reported record numbers of new cases for three days straight.
The dreaded second wave will weigh on equity markets – it is already sparking a wave of selling – and force policymakers to chuck even more money at this. Markets just need to think things are heading in the right direction to go up; it’s the rate of change that matters, so fresh waves of cases are taken as a sell signal. Equity markets had also clearly become overstretched and overbought.
Stocks dumped on fears of Covid-19 second wave
The FTSE 100 slumped under 6,000 to test the 50-day moving average around 5950, potentially heading for the key support region at 5900. If this goes we can easily see a retreat to the Apr swing lows around 5641 and 5575. BP shares slumped 5% as it wrote off $13.5bn-$17bn of asset values due to lower forecast oil prices – this will only raise speculation that the board will be forced into cutting the dividend sooner or later.
Asia was broadly weaker overnight, with sentiment also being affected by Chinese industrial production, fixed-asset investment and retail sales all falling short of expectations. Futures indicate the S&P 500 open around 2950, a little above the 100-day and 50-day moving averages, having broken beneath its 200-day line. Look especially at 2936/8, where the 100-day and the old 61.8% retracement of the March rout converge.
Bulls fought a rear-guard action on Friday, but that rather hard-fought rally looks capitulation and the path back to 2800 is open. What could change this? You’d need to see a drop in cases and the rebound in the economy as stimulus works its way through to consumers spending with confidence again.
As discussed last week, S&P 500 valuations are very rich and first the Covid-economy trade and now the first reopening trade are all but over, so investors need to find new reasons to buy. Second wave fears are dominating, and the Fed has killed off any last thoughts of a V-shaped recovery.
Bank of England, Brexit in focus this week for UK assets
The Bank of England will this week need to stump up another £100bn-£200bn in QE but should leave rates unchanged. It’s been painting a rather optimistic view of recovery but will need to lower expectations this week for how soon the economy gets back to normal.
On the Brexit front, Boris Johnson will hold a call with EC boss Ursula von der Leyen today in what could be a moment that injects talks with new vigour. The PM will likely threaten no-deal, but it’s hoped this will focus the attention of the EU on delivering a compromise. GBP will be exposed to significant headline risk and may partially explain the currency’s fall this morning.
FX was in risk-off mode too, with the dollar finding fresh bid. GBPUSD broke down through the 1.25 region and was last at the lows of the day with the 50-day moving average around 1.2410 in sight. EURUSD was holding at 1.1230. Crude prices were weaker as risk sentiment soured, with WTI for August trading under $35.
Chart: SPX eyes path back to 2800
Stocks rally, dollar offered, OPEC meeting may be brought forward
European markets nudged up on Monday as the cash opens followed the futures higher and bulls try to recover last week’s highs. Stocks across Europe finished Friday sharply weaker on US-China fears that eased a bit after the cash markets closed, but still the major indices rose last week.
On Monday, the FTSE 100 rose over 1% at the open to 6,176, with bulls eyeing Thursday’s peak at 6,234. The DAX also faded later on in the session to rest on the 61.8% retracement – although Frankfurt is shut for Whit Monday, futures are trading higher. US futures are in the green. The Hang Seng led Asia higher and shot up by more than 3%.
US stocks edged higher on Friday as Donald Trump’s press conference on China was not as bad as feared, albeit the US is to end preferential status for Hong Kong for trade and travel and is ending ties with the WHO. This rally completed a very solid month for Wall Street as both the Dow and S&P 500 finished 4% higher, while the Nasdaq was up almost 7%.
Market nerves were calmed as Trump held something back and did not reignite the trade war, but we should nevertheless stress that US-China tensions are expected to deteriorate over the coming months as Trump doubles down ahead of the presidential election. China has responded this morning with comments from the foreign ministry this morning offering the usual non-descript warnings of ‘countermeasures’ and advice to the US to just butt out.
Looking at the economic damage from Covid, today’s focus is the US ISM manufacturing PMI, which is seen rebounding to 43.5 from 41.5. Overnight data showed South Korean exports tumbled 23.7% in May, which was worse than expected but an improvement on April’s 25% decline.
Manufacturing activity in the country declined at the second fastest clip since 2009, marginally improving from April. Japan’s factory activity contracted at the sharpest pace since 2009, the final PMI showed. China’s manufacturing PMI showed a tiny amount of expansion but the damage to global trade from the pandemic left new export orders still in contraction.
Remember, PMIs only ask if survey participants think things are better or worse than the previous month, so they give a pretty imperfect snapshot of economic activity in times of crisis. A reading over 50 only tells us things are better than last month – not a high bar to clear. The real hard economic data we want to see will look at the period after lockdown restrictions end.
In FX, the dollar is offered at the start of the trading week with momentum continuing against the greenback. The dollar index is lower, taking a 97 handle and breaking down through the 61.8% retracement of the Covid-inspired rally.
GBPUSD hit 1.24, clearing the 50% retracement at 1.23750. EURUSD advanced as high as 1.1150 running into resistance at this level, the March 27th swing high. The ECB meeting this week is the chief focus for the euro, with most anticipating the central bank to push its PEPP envelope wider by another €500bn whilst the going is good – see our ECB Preview: Welcome to Japan?
Brexit risks come to the fore again this week as talks resume on Tuesday. The language last week from the UK’s chief negotiator David Frost was not optimistic, saying the EU mandate is not likely to produce a deal. Michel Barnier hit back, telling The Times that the UK has taken ‘three steps back’. The next few days will be crucial to break the deadlock and we will be paying close attention to whether the two sides think that progress has been made this time around.
OPEC may bring its June meeting forward to this Thursday at the request of Algeria, which holds the rotating presidency. Algeria says this is to facilitate crude sales for Saudi Arabia, Iraq and Kuwait. Russia, the key lynchpin of OPEC+, is reported to have no objections.
This may suggest an energy and enthusiasm to get a deal on maintaining deeper cuts for longer. July is currently set to see a gradual tapering of cuts down from 9.7m bpd in May and June, but there has been a lot of chatter that Saudi Arabia is trying to bring Russia around to backing an extension to make the deeper cuts last longer – perhaps for the rest of 2020.
Whilst OPEC production hit 20-year lows last month, compliance with the agreed cuts stood at around 75% as Iraq and Nigeria failed to meet targets. Crude prices rebounded sharply in May and are cautiously holding gains ahead of the OPEC+ talks. WTI for August was up at $35.73, although front month contracts have pulled back on Monday.
FX update: Pound blown off course by Frosty Brexit talks, euro tests 200-day line
Sterling got a smack and the euro pulled back from its highs of the day as Britain’s chief Brexit negotiator confirmed what we already knew; that UK-EU talks are not going very well at all. Whilst a classic last-minute EU fudge is still broadly anticipated by the market, the language from David Frost was not optimistic.
GBPUSD moved sharply off the 1.23 handle, turning lower to test 1.2250 before paring those losses. EURGBP pushed higher and looked towards the May 21st swing high at 0.90, a two-month peak. Undoubtedly sterling becomes increasingly exposed to headline risks around Brexit as we move out of the worst of the Covid-19 pandemic and back into the cut-and-thrust of negotiations.
Speaking to MPs, Frost said the EU’s current mandate handed to chief negotiator Michel Barnier is – in certain key areas – not likely to produce an agreement, adding that the EU must change its stance in order to reach a deal with the UK. He said that the policy enshrined in the EU’s mandate is not one that can be agreed by the UK. Interesting to see sterling come back a touch as Mr Frost said it’s still the early stages of talks and the UK is still setting out its position – this seems rather optimistic given the timelines previously mentioned.
Whilst we knew that there had been precious little progress in the latest round of talks, the language indicates the two sides are very far apart still. We should however note that adopting this tone is part of the game – the UK’s position remains to take a hard line and, with Mr Cummings still in place, I would think this will remain the case. When questioned, Mr Frost said he reports to the PM, not to Mr Cummings. Of course, we all know where the real power lies.
As previously noted time is running out fast for the talks and we become less sure that either side has the political will and capital to expend on this when dealing with the economic catastrophe of the pandemic. The EU focus is on sorting out a rescue fund that all members can sign up to. Political capital is being spent on that more readily.
Chatter around the Bank of England looking at negative rates is another weight on sterling right now. Indeed it’s a crossroads moment as we deal with a massive increase in government debt, run huge twin deficits and exit the EU whilst in the midst of the worst global recession since the 1930s. There are a lot of downside risks for GBP.
Chart: Pound under pressure: EURGBP moves up to test near-term resistance, GBPUSD drops sharply
Meanwhile, EURUSD also pulled back from its highs, before recovering the 1.10 handle. The euro had earlier moved higher and European equities extended gains after the European Commission laid out plans for an additional €750bn stimulus fund. Ursula von der Leyen set out plans to distribute €500bn in grants – as per the Franco-German proposals – with an additional €250bn in loans on top. She said this would take the EU’s total recovery fund to €2.4 trillion.
A German government spokesman said Berlin was happy the EU had taken up elements of the plans set out last week by Angela Merkel and Emmanuel Macron. Macron urged the EU to move forward quickly. But a Dutch official said budget talks would ‘take time’, indicating a still rather frosty approach to the rescue fund from certain corners – it’s far from a done deal.
Chart: EURUSD analysis
The EC plans took the cross through the 200-day simple moving average around 1.1010 but there was not an immediate follow-through and the Brexit chatter knocked it back before it retook the 200-day line. Bulls need to see a confirmed push above this to unlock the path back to 1.1150, the March swing high. Failure calls for retest of recent swing lows at 1.0880.
Risk offered into the weekend
A number of factors have conspired to create a more risk-off tone to the end the trading week than we saw at the start of the European session.
Although European indices are just about holding the line, US futures are indicated lower and we may see the S&P 500 retest the lows under the 50% retracement level at 2790. The Dow is indicated -200pts.
The FTSE 100 has retreated sharply from the morning highs of the day and may well stutter into the close should Wall Street drag sentiment down. The DAX is also well off the highs though still positive, the CAC is already weaker, and the Euro Stoxx 50 is flat. US indices are already set for their worst week since the middle of March. Key test at yesterday’s lows at 2,766 for SPX.
In FX, the Japanese yen was the strongest and kiwi was the weakest. Sterling sank to its weakest since late March. Gold has broken out above the Apr 24th peak and now has the $1747 region its sights. A breakout above $1750 could see the next leg higher to $1800.
US retail sales were even worse than forecast in April, sliding 16.4% vs 12% expected. Core retail sales fell 17.2% vs 8.6% expected. Trying to read too much into individual data points in the current environment is exceptionally tough, but the optics from these figures are hardly reassuring.
US-China relations sour by the hour, with the White House moving to block semi-conductor shipments to Huawei. Reports suggest China is looking at retaliation with measures against US companies like Apple, Qualcomm and Cisco. I think we can assume a ratcheting up of pressure on China by the Trump administration in the coming weeks.
UK-EU relations are also looking very risk-off. GBP is now in full RoRo mode and cable made fresh two-month lows as it breached the April 6th support at 1.2160 to test 1.2150. It looks like real stalemate.
The UK is refusing to countenance the EU’s level playing field demands. Britain also said it would refuse any offer to extend the transition period. Both Frost and Barnier sounded downbeat on the prospects of a deal. Barnier said the positions are extremely divergent, Frost said very little progress has been made.
A lot to do to avoid the dreaded no-deal – downside risks for GBP clearly evident. The pound is already beaten up pretty badly due to the wider macro outlook as a risk-on currency these days, and the Brexit risk has reared its head again to impart more pressure.
Advisory note – Trump as ever is the wildcard and we have Rose Garden update on a vaccine from the president at some point today.
Brexit day, Bank of England eyes cut, FAANG earnings on tap
At long last, after more than three and a half years and much political and market turmoil, Britain will finally leave the European Union on Friday, January 31st at 11:00 GMT. Bongs or not, there will be celebrations and commiserations in equal measure. For the pound, the focus now is on the trade deals with the EU and the US – at Davos last week it was made clear this is not going to be easy.
Bank of England to cut?
Market pricing suggests a roughly 50/50 chance the Bank of England will cut rates by 25bps to 0.5% on Thursday. Whilst hard economic data prior to the election showed a softening in activity, surveys since the Tory win have improved.
Weak inflation – which rose just 1.3% against 1.5% in November – could swing it for the doves. CPI inflation rates are at their lowest since 2016. There is a sense the Bank doesn’t want to get behind the curve of market expectations and is seeking to get a jump on markets whilst still teeing up the cut. It would be following the Fed’s playbook in cutting early in order to prevent a downturn.
Tesla’s record run faces test
Shares in Tesla have enjoyed a remarkable run up to record highs, valuing the company at $100bn. But will the fourth quarter numbers deliver on the promise?
Influential analyst Dan Ives at Wedbush thinks the company will at least meet expectations. He says: “While Tesla shares remain on a historic rally heading into earnings, the bull party likely continues as the aggressive trajectory of Giga 3 production and demand out of Shanghai look very strong out of the gates and is the catalyst to move our price target from $370 to $550 ahead of earnings”.
Apple has also been making new record highs as it gears up to report its fiscal first quarter earnings. This is always Apple’s strongest as it chalks up the holiday season and new iPhone models. We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward.
New Fed makeup
No change expected from the Fed – don’t expect Powell to do anything other than signal he can’t imagine hiking again. A new makeup of the voting membership of the FOMC will provide some interest but is unlikely to change things materially – hawks Eric Rosengren and Esther George, along with doves Charles Evans and James Bullard, are set to depart. They will be replaced by arch dove Neel Kashkari, the more balanced Robert Kaplan and two more hawkish-leaning governors, Loretta Mester and Patrick Harker.
(All times GMT)
09.00 GMT 27-Jan Germany Ifo Business Climate
00.30 GMT 28-Jan Australia NAB Business Confidence
13.30 GMT 28-Jan US Durable Goods Orders
15.00 GMT 28-Jan US CB Consumer Confidence
After-Market 28-Jan Apple – Q1 2020
23.50 GMT 28-Jan Bank of Japan Summary of Opinions
00.30 GMT 29-Jan Australia Inflation Rate
07.00 GMT 29-Jan Germany GfK Consumer Confidence
15.30 GMT 29-Jan US EIA Crude Oil Stocks Change
19.00 GMT 29-Jan Federal Reserve Interest Rate Decision
After-Market 29-Jan Microsoft – Q2 2020
After-Market 29-Jan Facebook – Q4 2019
After-Market 29-Jan Tesla – Q4 2019
08.55 GMT 30-Jan Germany Unemployment Rate
10.00 GMT 30-Jan Eurozone Business & Consumer Confidence Surveys
12.00 GMT 30-Jan Bank of England Interest Rate Decision & Inflation Report
13.00 GMT 30-Jan Germany Preliminary Inflation Rate
13.30 GMT 30-Jan US GDP Growth Rate (Q4)
15.30 GMT 30-Jan US EIA Natural Gas Stocks
After-Market 30-Jan Amazon – Q4 2019
10.00 GMT 31-Jan Eurozone Preliminary Q4 GDP
13.30 GMT 31-Jan US Personal Income and Personal Spending
Cable jumps to test $1.29 as Nigel hands Boris an early Christmas present
Markets have quickly priced in higher odds of a Conservative Party victory in the coming General Election after the Brexit Party today launched its own campaign.
Party leader Nigel Farage has backed away from his initial aim of fielding 600 candidates and will instead focus on Remainer strongholds; those held by Labour and the Liberal Democrats.
Farage has gone as far as to say that his party will not contest the 317 seats won by Conservative MPs during the 2017 election. He seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020.
Having knocked on $1.29, cable pared gains to trade around $1.2880. EURGBP dipped below 0.8560 before retracing to around 0.8570. The pound is stronger since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.
This is a huge boon for Boris Johnson. Conservatives had reason to fear the Brexit Party before, as it offered a place for Leave voters who felt betrayed by Johnson’s broken promise to get Brexit done by October 31st. The PM claimed he would rather be dead in a ditch than request an extension, but thanks to some legislative arm-twisting, he was forced to do so.
Everyone knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.
Now Leavers in many constituencies have a much clearer choice; back the Tories or abandon Brexit.
Brexit Day delayed as UK gears up for another General Election
Today was supposed to be Brexit Day. Instead the whole thing is on pause for another three months while the UK holds another General Election.
We’ll soon be entering the government’s quiet period, known as purdah, during which Downing Street won’t be announcing any major new policies that could influence the campaign.
Sterling is also facing a quiet period as well. The diminished threat of a no deal Brexit – for the time being – is providing solid support, but the upside is limited due to the political uncertainty.
Over the past few days cable has bounced between 1.28 and1.30, but there was a Fed meeting driving the dollar and the pound’s contribution to the volatility looked limited.
The deal on the table makes all the difference
We’ve been expecting an election for weeks now, and the upcoming poll is very different from a market perspective than it would have been if it had been held a couple of months earlier.
Boris Johnson managed to renegotiate Theresa May’s withdrawal agreement, replacing the backstop with something he claims is more palatable. The DUP don’t like it, however, and they’re not alone.
What’s important here is that if Boris gets to return to No.10 with a solid majority it’ll be his withdrawal agreement bill that he attempts to implement. This is a much better outcome for cable than the no deal Brexit he seemed intent on pursuing when he won the leadership contest.
Labour seems less market friendly no now deal off the table
For a while it looked like markets might have been relieved by the prospect of a Labour government due to its aversion to a no deal Brexit.
Back when Boris was talking about no deal, Labour was pretty tight-lipped about what exactly it wanted. Jeremy Corbyn has since come out in favour of a confirmatory referendum on a Brexit deal.
The political landscape has shifted away from a no deal Brexit. A Conservative majority may not be the downside risk it was once perceived to be. Labour still has the more market-friendly Brexit policy, but the Conservative alternate is not nearly as unpalatable as it once was. All parties in this election (other than the Brexit Party) are now offering to avoid a no deal exit.
This may free up traders to look a bit longer term and take into account Jeremy Corbyn’s radical plans for shaking up the system.
What are the risks of a hung Parliament?
The latest YouGov poll shows the Conservatives hold a 15-point lead over Labour at 36%, while Labour, at 21%, are just three points ahead of the Liberal Democrats. But it’s vital to remember that the Conservatives were polling at 44% the day before Theresa May called her disastrous 2017 election. Boris is by no means going to walk this one.
While another huge surge for Labour can’t be written off, perhaps the bigger threat comes from Nigel Farage’s Brexit Party. It could hoover up the votes of both Tory and Labour Leavers, weakening both parties. The other parties have given them the perfect campaign materials; Boris broke his own promise to ‘get Brexit done’ by October 31st, and Labour and the Lib Dems both want a second referendum.
Rather than looking at one established party dominating the others, this could be an election that sees the Brexit Party squeeze its way into Parliament, leaving no one with a majority. Not only would this promise many more months, if not years, of further chaos, but it would also put a no deal exit firmly back on the table, especially if hardcore Brexiters in the Tory party make alliances with Nigel Farage.
There really is a lot to play for, and the outcome will have huge implications for the UK’s future. But until we get more polling data and the candidates start doing things that are seen to dramatically alter their chances, the pound will be paralyzed by uncertainty.
Week Ahead: Nonfarm payrolls, China PMIs and Eurozone inflation on tap
Welcome to your guide to the week ahead in the markets. China trade talks are ushered in by PMI data, Eurozone inflation results and US nonfarm payroll reports.
US nonfarm payrolls
The set-piece US labour market report on Friday is the main eco event for market watchers. Signs of a slowdown in employment growth are showing, supporting the doves’ case for further rate cuts. Will we see stronger wage growth though? The NFP report missed expectations on the headline number with employers adding just 130k last month versus the 160k expected.
China data ahead of trade talks
The week gets a kickstart with more economic data from China likely to give more clues about the impact of the trade war. The official manufacturing and services PMIs will be followed by the closely-watched private Caixin manufacturing survey in the early hours of Monday.
The European Central Bank has cut rates, so what now? Inflation has proved stubbornly weak in the Eurozone, with headline inflation in August of just 1%, while core inflation was a meagre 0.9%. Market expectations for inflation remain subdued. There seems little hope that inflation will start to tick higher and give the ECB some breathing space. Euro area CPI preliminary readings will be delivered on Tuesday morning.
MPs are back to business, but we don’t know where this leaves the only thing that matters for sterling right now – will there be a deal or not? GBP pairs will remain exposed to headline risk as the market tries to figure out which way the wind is blowing.
The Reserve Bank of Australia is expected to cut interest rates again when it convenes on Tuesday. Speaking last week, governor Philip Lowe gave a very strong signal that rates would be cut again from the current record low 1%.
There are several corporate data releases this week, here are the main ones to put in your diary.
|Oct 1st||Ferguson||FY 19 Full Year Results|
|Oct 1st||Greggs||Q3 Trading Update|
|Oct 2nd||Tesco||Interim Results|
|Oct 3rd||Pepsico||Q3 Earnings|
|Oct 3rd||Ted Baker||Interim Results|
|Oct 3rd||H&M Group||Q3 Results|
Coming Up on XRay
Don’t miss our upcoming video streams on XRay. You can watch them live directly through the platform or catch-up afterwards when it suits you.
|07.15 GMT||Sept 30th||European Morning Call|
|15.00 GMT||Sept 30th||Charmer Trading talks Forex|
|15.45 GMT||Oct 1st||Asset of the Day: Oil Outlook|
|19.00 GMT||Oct 1st||Live Trader Training|
|18.00 GMT||Oct 3rd||The Stop Hunter’s Guide to Technical Analysis (part 5)|
|12.30 GMT||Oct 4th||LIVE Nonfarm Payrolls Coverage|
Key Economic Events
There’s a lot of data coming out in the next few days, particularly at the start of the week.
|01.00 GMT||Sept 30th||China Manufacturing and Services PMIs|
|01.00 GMT||Sept 30th||ANZ Business Confidence|
|01.45 GMT||Sept 30th||China Caixin PMI|
|08.30 GMT||Sept 30th||UK Final QoQ GDP|
|12.00 GMT||Sept 30th||Germany CPI Inflation YoY|
|03.30 GMT||Oct 1st||RBA Interest Rate Decision and Statement|
|08.30 GMT||Oct 1st||UK Manufacturing PMI|
|09.00 GMT||Oct 1st||Eurozone Preliminary CPI|
|14.00 GMT||Oct 1st||US ISM Manufacturing PMI|
|12.15 GMT||Oct 2nd||US ADP Nonfarm Employment|
|14.30 GMT||Oct 2nd||US Crude Oil Inventories|
|08.30 GMT||Oct 3rd||UK Services PMI|
|12.30 GMT||Oct 4th||US Nonfarm Payrolls|
Week Ahead: Brexit courtroom drama, US inflation and euro area PMIs
Welcome to your guide to the week ahead in the markets. This week, Brexit is inescapable and Euro data comes in.
UK Supreme Court ruling
One thing is certain – the Brexit comedy/tragedy will continue this week following the drama of the Supreme Court. Boris Johnson will find out this week whether his decision to suspend Parliament was legal. Meanwhile rumours of the chances of a ‘deal’ between the UK and EU will no doubt do the rounds.
Sterling will remain exposed to headline risk and be more volatile than peers, although until there is real clarity, GBP pairs may lack direction over the coming days.
US PCE inflation
The Fed is relaxed about the uplift in the core CPI readings, which jumped to 2.4% last time out. On Friday markets will be focused on the Fed’s preferred inflation gauge – core PCE.
While announcing a quarter point cut to rates last week, FOMC members left their inflation expectations for this year and next unchanged. If the PCE gauge follows the CPI indicator, there may be some concern that inflation is rising faster than policymakers are forecasting.
Following the ECB interest rate cut, markets are shifting to eco data to show whether there’s any sign of uplift in the Eurozone economy. Flash manufacturing and services PMIs are due Monday, while the German Ifo business climate report is released on Tuesday.
Reserve Bank of New Zealand governor Orr has said the central bank is in wait and see mode as it assesses the impact of cuts this year. Markets don’t expect any change to the main cash rate on Wednesday, but recent GDP slowing does suggest the RBNZ will maintain its easing bias and accommodative stance.
Keep these dates in your diary, as results come out for Manchester United, Nike and more.
|Sept 23rd||Cintas||Q1 2020|
|Sept 23rd||Manchester United||Q4|
|Sept 24th||Nike||Q1 2020|
Coming Up on XRay
It’s a busy week on XRay, make sure you don’t miss out on these live video sessions. Tune in live, or watch on catch-up when it suits you.
|07.15 GMT||Sept 23rd||European Morning Call|
|17.00 GMT||Sept 23rd||Blonde Markets|
|15.45 GMT||Sept 24th||Asset of the Day: Oil Outlook|
|19.00 GMT||Sept 25th||Asset of the Day: Indices Insights|
|18.00 GMT||Sept 26th||The Stop Hunter’s Guide to Technical Analyis (Part 4)|
Key Economic Events
Lots of US and Euro data out this week, so expect to see some reaction in the currency markets.
|07.15-08.00 GMT||Sept 23rd||Eurozone Flash PMIs|
|13.45 GMT||Sept 23rd||US Flash Manufacturing PMI|
|08.00 GMT||Sept 24th||German IFO Business Climate|
|14.00 GMT||Sept 24th||US CB Consumer Confidence|
|02.00 GMT||Sept 25th||RBNZ Official Cash Rate and Statement|
|14.30 GMT||Sept 25th||US Crude Oil Inventories|
|12.30 GMT||Sept 26th||US Final GDP|
|12.30 GMT||Sept 27th||US PCE Inflation, Core Durable Goods|