Cable jumps to test $1.29 as Nigel hands Boris an early Christmas present

Forex

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.

GBP/USD 5min Chart, MARKETSX, 14.30 GMT, November 11th 2019

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.

Risk-off start to week, Greggs punches above its weight

Morning Note

We are starting the week in risk-off mode: Fiery protests in Hong Kong and the US-China trade war are conspiring to dampen the mood in markets on Monday. As usual expect the risk switch to be flicked to ‘on’ pretty quickly with the standard trade war pump in due course. And in terms of Hong Kong, we wonder how long term this de-risking kneejerk will last.
 
Asian shares were broadly weaker after another weekend of clashes in Hong Kong, in which at least one protestor was shot. The Hang Seng dipped almost 3% and the Nikkei dipped 0.25%, but Sydney rose. Overnight data showed Japan’s machine orders down for a third straight month.  

European markets are off to a soft start at about -0.5% across the board and are set for a weaker session as they take the cue from Asia, whilst political deadlock in Spain is not a help. 

In Spain, after a fourth election in four years, there is still political deadlock. No clear winner emerged from the vote, but the Right is resurgent. The lack of any consensus here is a troubling reminder of what might happen in Britain if there is a hung parliament. 

US equity markets notched a fresh record on Friday as a flurry of buy orders late in the day pushed the S&P 500 to an all-time closing high at 3,093. Futures are indicating a lower open.  

Gold has rallied off its lows back to $1463 on haven flows. It comes after a torrid week for gold bulls as a blow-up in the bond market torpedoed havens. Speculative positioning has barely changed, the CFTC’s COT report shows. 

Oil was lower round $56.65 in the middle of the rising channel trend since the start of Oct. A touch on the lower band at $55 may be possible before resumption of the uptrend. Traders have added to long positions in the last week, the latest CFTC data shows. IEA World Energy Outlook on Wednesday and the IEA Oil Market on Friday should be watched. 

A bid for safety boosted the yen, sending USDJPY back under 109 and under the 200-day moving average again. Dollar bulls will look to drive up again. GBPUSD traded with a 1.27 handle as markets exhibit a degree of caution over the General Election, but should be looking again for comfort at 1.28. On the open we saw GBPUSD rise slightly. Traders have continued to reduce short positioning. EURUSD has found support along the 1.10160 line and is looking to recover the 50-day line at 1.1040. 

On Saturday Donald Trump said trade talks are moving more slowly than he had hoped, adding that China is keener to do a deal than he is. It comes after last week’s pushback over claims the US is prepared to roll back existing tariffs as part of any deal. Despite this, it’s clear the economic reality is not lost on the White House.  
 
The US-China trade war will provide the pulse of daily market shifts. However, there are some additional factors to consider this week: 

  • Germany is in recession. This ought to be confirmed on Thursday with the Q3 print. Ahead of this we have the ZEW report. Interesting times for Christine Lagarde, who takes charge of her first ECB meeting this week, although it’s not a monetary policy event.
  • Fed chair Jerome Powell will discuss the economic outlook before the Joint Economic Committee of Congress on Wednesday. It comes after the Fed’s third rate cut this year and a signal that it is pausing the easing cycle. Given the introduction of press conferences after every FOMC meeting there are not expected to be many surprises. However Mr Powell can’t be completely relied upon not to drop an erratic comment. Likely to be more interesting is a speech on monetary policy by Richard Clarida on Tuesday. 
  • US inflation and retail sales are also due this week. Core inflation has risen to 2.4% – further upside from the last three rate cuts would be a (in central bank land) a sign of success following three rate cuts, but ought to raise questions about just how accommodative the Fed should be right now. Retail sales are expected to bounce and underline the resilience of the US consumer. 
  • A batch of UK data is crossing this week, providing traders with a clearer picture of the state of the economy as we enter the year-end. GDP and manufacturing numbers (Monday) are followed by unemployment and earnings figures (Tuesday), CPI inflation data (Wednesday), and retail sales (Thursday). But against the back drop of a Brexit election, these will only really mild distractions for sterling.  
  • The Reserve Bank of New Zealand is expected to cut interest rates when it convenes on Wednesday. There is a roughly 65% the central bank will cut the OCR to 0.75% from 1% and leave room for further cuts in the future. The recent rise in unemployment from 3.9% to 4.2% is seen warranting additional stimulus. 

Equities 
 
Greggs has the magic touch – another upgrade. The vegan sausage roll effect lingers on.  We’re now talking about a £2bn sausage roll seller.

Despite exceptionally tough prior year comparisons trading in the first part of the fourth quarter has proved remarkably strong. In the six weeks to Nov 9th, sales rose 12.4%, and +8.3% for company-managed like-for-like sales. Management now anticipate 2019 full year underlying profit before tax to be higher than previous expectations. 

We’ve also got a positive 10-month update from Informa. The company reported underlying revenue growth of 2.8% ahead of the significant, November/December trading period. Full year guidance unchanged. 

Aston Martin has been raised to buy at HSBC. On a purely valuation basis there is an argument, but debt levels are a worry.


Sirius Minerals has revealed a strategic review identifying a two-stage plan that will require significantly less capital than the previous incarnation. The plan would require c$600m for phase one, with an additional requirement of $2.5bn for the second phase. A possible way out of the mire, but needs to be picked over in more detail.

Brexit Day delayed as UK gears up for another General Election

Forex

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.

GBP/USD 4hr chart, MARKETSX: 09.00 GMT, October 31st, 2019

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.

Markets pause before Fed, Brexmas election eyed

Morning Note

A blow off top or just a moment to pause ahead of the Fed; either way the S&P 500 edged back from its all-time high to close down marginally on Tuesday. Asian markets have broadly followed the lead. Coming off a dip yesterday, European markets were flat to slightly lower at the open with the FTSE just a little under 7300 and the DAX holding above 12,900. Bonds remain pretty stable with bunds at -0.35% and US 10s at 1.83%.

Markets are in wait-and-see mode as we await the outcome of the FOMC meeting tonight. The Fed is all but certain to cut for the third time in a row, and while Jay Powell will of course leave the door open to further cuts, there’s a sense this should be the last cut this year. The FOMC is already divided on cuts, putting pressure on the dovish core to justify why more are needed, and although there has been some softening in the economic data since the last meeting, it’s by no means all bad and the immediate market-based pressure to cut has subsided. More in our Fed preview later.

There is a risk a balanced statement is taken as hawkish by markets, given the weight of expectations. That’s a key reason why the Fed won’t surprise by not cutting – doing so will only tighten financial conditions and undo all the positive energy from cuts it’s already carried out. But it may start guiding markets to expect the current mid-cycle adjustment to finish.

However given growing market expectations for the Fed to make this its last cut if the year, markets could be met with a dovish surprise. Funnily enough a lot may depend on the Q3 advance reading ahead of the Fed statement. A sub-2% print is on the cards. Weakness in manufacturing and a slowdown in the global economy are starting to weigh on the American economy, but we think the consumer remains more resilient. 

USDJPY is near 2-month highs a little under the 200-day moving average at 109. If the market sees a hawkish cut a push above that level is on, bringing 109.50 into view. Also bear in mind the Bank of Japan, which may use the cover of other central banks easing to hoover up even more Japanese securities. It’s expected to stand pat but signal it may act if required. A surprise move to additional stimulus would further pressure JPY. However an easing in trade tensions and softer yen means the BoJ doesn’t need to panic.

Overnight data showed Japan retails sales surging in September by 9% but this was due to consumers bringing purchase forward before the sales tax hike so will only make the Q4 numbers look even worse.

The dollar backed off highs against the euro yesterday. EURUSD regained the 1.11 handle and is sitting pretty at 1.1110. Data this morning showed France’s economy grew more than expected in the third quarter, expanding 0.3% in the three months to the end of September. German inflation data is on the way all morning.

GBPUSD continues to track around the 1.2850/1.290 area and will likely remain in ranges before the election. In early trading cable pushed up to 1.29 and could yield more upside as the market works itself out. But you feel it’s going to be hard to see a break above 1.30 unless there is real momentum in the polls. And with no deal seemingly averted, the downside is limited from here. Could be treading water until Christmas.

Quick word on Brexit – well it’s on pause. No! But that’s because we get six weeks of General Election bants instead. Yes! Sterling will now become a hostage to polling data.  Polls showing a Tory majority win is net positive as it would mean leaving with Boris’s deal, while anything else is net negative as it implies new uncertainty.

Gold is making tracks south with markets eyeing the Fed to pause its rate cut cycle. Real yields are ticking higher with 10-yr TIPS up to 0.23% from 0.1% at the start of the month. The problem for gold right now is that inflation expectations are falling and the Fed looks set to stop its easing cycle for the time being and we’ve seen US Treasury yields rebound.

Equities

Standard Chartered shares rose in Hong Kong after the bank posted a quarterly profit of $1.2bn, up 16% from the year before. It’s beaten expectations amid a challenging environment and managed to keep costs flat while simultaneously growing revenues. StanChart seems to have shrugged off any ill effects from the US-China trade war and unrest in Hong Kong. Return on tangible equity climbed to 8.6% for the nine months YTD, seemingly on course to hit 10% by 2021. It’s facing growing headwinds though, so much like peers this profitability target is not a slam dunk despite the solid performance this year. 

Next produces a similar set of results each quarter – online going great guns, in-store floundering. So no surprises from today’s breakdown showing online sales up 9.7% and in-store down 6.3%. Product full price sales were net +1.6%. It’s getting something, indeed a lot, right but there comes a point when they’ll be expected to do something about the store estate to reduce costs.

Overall Q3 full price sales rose 2% including interest income, beating guidance. September’s warm weather hit sales but the cold snap in October was a boost – this bodes well for Q4 although management don’t see the same uplift for the rest of the year as they witnessed in October. Full year profit guidance maintained at £725m Importantly this means annual profit growth again at Next. It’s small at just +0.3%, but it’s a whole lot better than the May forecast of -1.1%. Shares slipped probably due to the September soft patch. All in all though Next is in good shape. We noted in July and that Next had delivered a blockbuster second quarter as sales growth picked up markedly and was well ahead of expectations. Despite the gloom it’s been raising rather than lower guidance – the FY outlook could still conservative.

Deutsche Bank – the erstwhile German powerhouse reported a loss of €823m in the third quarter and a 15% decline in revenues. The loss is in large part due to restructuring costs that are the necessary evil of trying to get the bank back to profitability. Can it get any wurst? Management are comfortable with the figures, largely because they reflect large restructuring costs that they think will not last forever and the core bank posted a pre-tax profit of €352m. Restructuring takes time, of course, and may be more expensive than analysts think, but Deutsche has had a decade and several attempts at this already. And the decline in revenues can’t be masked. Bond trading is about all it has left in investment banking and the fixed income division posted a 13% drop in revenues. Shares -3.5% in early trade.

Brexmas election vote, equities tentative start, HSBC down on miss

Morning Note

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 week.

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. 

This 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.

Equities

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 remarkably resilient.

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.

Sterling stabilises after steep fall, European equities open weaker

Morning Note

The pound dropped sharply after the latest Westminster drama but is firming up this morning. Against the dollar sterling was off 1% from Tuesdays highs near 1.30 at 1.2870, having tripped as low as 1.2840 overnight. It’s lost the 10-hour moving average at 1.2906 which may now form a resistance point.

The pound remains the proxy for the Brexit process and it’s displaying nervousness that Parliament still can’t get its act together and see a deal through. Uncertainty prevails for the time being, but Parliament has backed a deal and that feels like a key moment.

The government passed its Withdrawal Agreement bill comfortably but lost its way with the timetable. MPs chose to pull the handbrake on the government’s breakneck pace of legislation and blocked the program motion. Taking time out, the government chose to pause the bill – but did not abandon it altogether. Importantly, Boris Johnson said that the UK would leave the EU with this deal come what may, but did not stick to his Oct 31st do-or-die mantra.

This could be an important, indeed key, shift in the government’s position as it indicates a willingness to extend and then seek to get the bill through Parliament. The mood of the government seems to be to get the EU to approve a 3-month extension and call a General Election. Donald Tusk has called on EU leaders to back an extension. France is unhappy about any delay, Germany says they want to know why they should extend. The truth is the EU will extend, the question is the length as that depends on the purpose. As we said last night after the vote, with Parliament agreeing to the WAB in principle, the EU may only back a short delay to get the deal agreed. However the Benn Act specifies three months and therefore that would tend to be the default – individual EU countries would need to argue why it should be shorter. European leaders may be uncomfortable about what could lie ahead if they enable an election.

And the problem remains for the government that holding a General Election having failed to ‘get Brexit done’ will be oxygen for the Brexit Party and could split the pro-Brexit vote. The other risk though is that this unreliable Parliament throttle the bill with amendments and then the government is forced to pull it and seek further delay and an election. One sense Boris’s political capital would have run pretty thin by that point. Safer to use the lead in the polls and the promise of this deal to hold an election before Christmas.

And even if this deal does get through sooner or later, there is plenty of scope for ongoing volatility in the pound as we would quickly be looking ahead to the end of the transition period. Britain and the EU have until Dec 2020 to agree their new trade deal, but the UK could ask for an extension by Jul 2020 if required – i.e. if it does not look like a deal can be done in time. The mere fact though that we are talking about this now is an encouraging sign for pound bulls.

Elsewhere, European equities have softened a touch in the wake of the Brexit uncertainty and some mixed earnings. The FTSE 100 was on the flat line at 7200 with housebuilders and banks weaker. The DAX slipped beneath 12700 briefly before paring early losses.

But investors may be buoyed by signs of thawing in the rather frosty EU-US trade dispute, after US commerce secretary Wilbur Ross suggested trade talks could be an alternative to tariffs being imposed on auto imports next month. 

Wall Street finished mildly lower yesterday as US faced a Brexit drag following the government’s defeat on the timetabling. SPX closed south of 3k at 2996. Earnings are painting a decent picture of relative resilience but we’re still stuck in this range around the 3,000 level.

Earnings overnight – Texas Instruments missed on revenues and posted weak Q4 guidance. Shares fell sharply in after-hours trading and the chipmaker is a clear drag today on sentiment.  Shares in Snap also tanked about 15% at one point in after-hours trade despite reporting a solid Q3.  Snap expects to make a profit in Q4 but not as much as analysts had thought.

Asia has been pretty mixed. SoftBank shares fell as it went all in with WeWork. Hong Kong was lower amid reports of Beijing seeking to replace Carrie Lam, although the legislature has now officially dropped the controversial extradition bill. China says the reports on Lam being replaced are a rumour with ‘ulterior motives’.

Key Brexit votes today to drive sterling

Morning Note

Boris Johnson will seek to push through his Brexit deal with a vote on the withdrawal bill, 2nd reading, today. The numbers are tight, but No10 thinks it has just enough support to get it through. It would be a huge breakthrough as it would mark the first time MPs approving any Brexit deal. 

Risks/questions?

  • Can the government secure the 320 votes it needs? The hardcore of the ERG is on side this time but it’s still too close to call.
  • Will the government also secure MPs backing for the program motion required to get the bill through in record time? Opposition parties are angry about the lack of scrutiny. For me this is key risk as it would derail the Johnson juggernaut and require at least a ‘flextension’ – one that BJ has said he categorically will not seek.
  • Will MPs back a customs union and/or confirmatory referendum amendment? A confirmatory referendum is unlikely to win enough support, but would force the govt to pull the bill. The big doubt is whether the SNP might back an amendment to remain in the EU customs union, an idea they’ve previously backed. For the SNP though a no-deal Brexit they can blame on the Tories might be manna from heaven as they pursue their narrow separatist agenda.
  • If MPs do back either such amendment would the govt see this as a wrecking amendment(s) and pull the bill, likely calling also for an election? A customs union amendment would not affect the withdrawal itself and could be overturned at a later date.

All the while sterling is teetering at multi-month highs close to $1.30. GBPUSD was last trading down a touch around 1.29650.

If the PM fails the key vote on the Withdrawal Agreement Bill, sterling could get spun back to $1.25 in short order. If it passes, a breach of $1.32 and thence a push to $1.34 seem likely.

But there are yet -as detailed above – plenty of hurdles for the government to clear after winning the vote that will keep traders mindful of downside risks. The deal premium which has already added c7% to sterling would collapse quickly if the deal gets scuppered. That said, the market is right now quite confident that no-deal is not such a risk now as it was – this appears to be overconfident until the necessary votes are passed.

Meanwhile…US equities rose firmly yesterday amid a broad risk-on rally that saw the S&P 500 close at the highs of the day at 3,006.72. The Dow has a tougher time as Boeing shares fell again, but still managed to rally 0.2%. There seems to be some better vibes around US-China – not that I’d say there’s been meaningful progress, but comments from Trump and Kudlow were upbeat. In particular Kudlow’s suggestion that the Dec tariffs could be scrapped if talks in Nov go well is a clear positive. Meanwhile China’s vice foreign minister said today that progress was made in trade talks.

SPX is now just another day like Monday away from breaking it’s almost-time highs around 3028. With a slew of earnings this week we could see the bulls drive this one to a new top. We don’t have much in the way of macro eco data to get in the way. But this a key phase now as earnings multiples are by some measures very stretched. Eg 2020 forward Ev/Ebitda is the highest since Dec 2007. So I think we can weather the c-4% decline – what’s important is the guidance and I feel from today we will start to build up a fuller picture of Q4 and beyond. Chipotle, Kimberly-Clark, Hasbro, United Technologies, Harley Davidson, McDonald’s are among the big hitters reporting today.

That’s got, if we do get the ATH, the potential to knock haven assets like gold, bonds, the yen and even start to unwind haven dollar bids. US 10s are printing 1.8% once more.

Yesterday the FTSE struggled for momentum and clung to the 7160 area. Different story in Frankfurt where the DAX has cleared the YTD highs and can now look to take on the May 2018 swing high at 13,200. European equities are starting modestly lower despite the solid handover from the US and Asia.

Equities 

Bunzl says trading remains consistently sluggish, but in line with forecasts. Guidance for full-year 2019 is unchanged after reporting a decline in underlying revenues for Q3. Revenues grew 4% but only by 0.5% on a constant currency basis. Acquisitions remain the only growth lever, contributing 1.5% to this figure, while underlying revenues slipped 1%. Bit of a slowdown is to be expected at this point in the cycle for this kind of business. Acquisitions remain the important area – £100m so far committed this year but investors, unusually, may want more. Shares slipped over 1.5% in early trade.

Whitbread says it’s making strong progress in challenging markets. The company is struggling to make headway after selling Costa as it focuses squarely on an increasingly tough hotels market. London remains strong but it’s been harder going in the regional UK market. Total UK accommodation sales fell 0.6% and were -3.6% like-for-like due to the hit taken in the regions outside of London. Whitbread is one of those firms that for sure is hopeful that Brexit uncertainty lifts sooner rather than later.  

Germany is where the growth is though and on that front things are more optimistic with the German pipeline increasing 25% to 7,280 rooms. In fact management are accelerating the German programme of growth and scaling back the UK. Adjusted profits were down 4% to £236m. Adjusted earnings before interest, tax, depreciation, amortisation and rent fell 4.8%. So lots of short term uncertainty but longer term looking more solid – all eyes on whether it can drive growth in the key German market. Shares opened a shade lower.

Week Ahead: Brexit courtroom drama, US inflation and euro area PMIs

Forex
Week Ahead

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. 

Eurozone data 

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. 

RBNZ decision 

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. 

Corporate Diary

Keep these dates in your diary, as results come out for Manchester United, Nike and more.

Sept 23rdCintasQ1 2020
Sept 23rd Manchester UnitedQ4
Sept 24thNikeQ1 2020
Sept 26thAccentureQ4

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 GMTSept 23rdEuropean Morning Call
17.00 GMTSept 23rd Blonde Markets
15.45 GMTSept 24thAsset of the Day: Oil Outlook
19.00 GMTSept 25th Asset of the Day: Indices Insights
18.00 GMT Sept 26thThe 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 GMTSept 23rdEurozone Flash PMIs
13.45 GMTSept 23rdUS Flash Manufacturing PMI
08.00 GMTSept 24thGerman IFO Business Climate
14.00 GMTSept 24thUS CB Consumer Confidence
02.00 GMTSept 25thRBNZ Official Cash Rate and Statement
14.30 GMTSept 25thUS Crude Oil Inventories
12.30 GMTSept 26th US Final GDP
12.30 GMTSept 27thUS PCE Inflation, Core Durable Goods

Cable softens as UK nears general election – and that’s when the real pain begins

Forex

Markets usually know what to do in a general election – hope a right-leaning party takes the day. But what happens when the socialists are the ones who could have the best approach to the economy?

In other circumstances, Boris Johnson would be the perfect election candidate. Sterling would surge on expectations that he would stroll comfortably to a majority. He’s charismatic, respected by many, and is facing up against Jeremy Corbyn – the perennial fence-sitter who struggles to keep his own party united.

But, as far as the markets are concerned, the current Prime Minister has a major flaw. He seems determined to take the UK out of the European Union without a deal on October 31st. He may make claims to the contrary, but his extended proroguing of Parliament and his refusal to budge on the Irish border backstop make negotiating and ratifying a new deal virtually impossible.

GBP/USD rallies hard after Boris Johnson Parliamentary defeat

It was for this reason that Sterling rallied hard this week as the opposition, with the support of 21 Conservative rebels, forced through a bill that would allow them to take control of the Parliamentary agenda and table new legislation obligating Johnson to get an extension.

Cable shot up 1.3% in overnight trading, and pushed 0.6% higher the following session to rebound from “flash crash” lows to its highest levels ($1.2350) in nearly six weeks. EUR/GBP was forced lower, falling from €0.9080 to €0.8940.

Johnson responded by calling for a snap general election, but his efforts were thwarted. Labour abstained from the vote, meaning the motion failed to receive the two-thirds majority required.

Parties fight over election date, but a vote is coming

So, we currently have Boris Johnson, who has repeatedly stated he doesn’t want a general election, desperately pushing to dissolve Parliament. He’ll try again on Monday with another vote. Meanwhile, Jeremy Corbyn, who has been calling for an election for months now, has refused the offer.

Welcome to Brexit politics.

There will be a vote though, the question remains when. Labour and the Liberal Democrats want to ensure the new legislation that prevents a no deal exit has been passed before they agree to a vote. Otherwise Johnson, who would have the power to set the actual date of the election, could simply opt for November 1st – after the UK has left the EU. It’s for the same reason that Johnson is so keen to get the opposition to agree to it now.

Even that isn’t the end of it. There’s a risk for the opposition in waiting for an election. If Boris Johnson does set the voting date after the UK’s departure, he will have been the Prime Minister who successfully delivered ‘the will of the people’. Boris couldn’t ask for a better string to his electoral bow.

Markets forced to choose between anti-economy and anti-business

But those are problems for the parties to concern themselves with. The issue for markets is do they back anti-EU Johnson, or anti-business Corbyn? In this poll, both candidates threaten the UK economy.

The business world has been largely outspoken against a no deal exit – if it does deal huge economic damage, a pro-business Conservative might not be enough to repair the damage.

But is it better to soften Brexit and then leave the nation in the hands of Jeremy Corbyn, a man who intends to completely transform the economy anyway? His plans include nationalising rail, water, electricity and mail companies. He wants to increase taxes for the rich, vastly increase public spending, and redistribute powers from corporations to workers.

Again, in a straightforward election, this would be a simple call for the markets: go for the man who doesn’t want to come after their investments. But, although Corbyn has them firmly in his crosshairs, he is at least committed to keeping as much of the status quo in terms of trade intact for business as possible.

Are markets comfortable to have the same percentage of a smaller pie, or a smaller percentage of the same pie?

Boris Johnson will suspend Parliament ahead of Brexit deadline

Forex

Opponents of Brexit are furious after Prime Minister Boris Johnson secured the Queen’s permission to suspend Parliament for over four weeks in the run-up to the October 31st Brexit deadline.

Those fearing a hard Brexit have been dealt another blow this week. The Prime Minister will suspend Parliament between mid-September and October, drastically limiting the amount of time opposition MPs have to block his attempts to walk away from the EU with no deal in place.

Although Parliament does traditionally close before the annual Queen’s Speech, this year scheduled for October 14th, the proximity to the Brexit deadline has caused outrage amongst the opposition.

Sterling plunged yesterday on the news, dropping as low as 1.2155 before paring losses, although not enough to prevent it from wiping out all of Tuesday gains by the close of trading. The weakness in the pound has been a small factor today in pushing the FTSE 100 up 1.1% to a five-day high just under resistance at 7,200.

Is this the final nail in the coffin for softer Brexit hopes?

The gloves are really coming off now. Such was the outrage caused by Johnson’s move to suspend Parliament that rebel MPs from his own party joined forces with the opposition to call for a legal injunction to stop it from happening.

With just a couple of weeks to make a move, opponents of a no deal Brexit may have to strike hard and fast. Markets may bet that the opposition will finally be compelled to act decisively – Labour leader Jeremy Corbyn has suggested he will call a vote of no confidence in the government when the time is right. He may not have much time left to choose from.

Even if a vote is called though, Johnson could refuse to hold an election until after Brexit has taken place. Remain-supporting MPs are running out of time and options. The markets are firmly pricing in a no deal Brexit, and this seems to be an almost-certainty unless the EU caves at the last second.

However, the latest developments suggest that tensions could continue after the UK has officially departed. A general election could be on the way. The battle for Brexit looks almost won, but the battle for No. 10 may be just about to start.

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