Brexit set-back sends risk assets lower
The Pound whipped-about last night as UK Parliamentarians voted on UK Prime Minister Boris Johnson’s divorce agreement with the EU.
A notionally risk-off day
The momentum from Monday’s positive start to the trading week proved short-lived. Wall Street indices generally failed to add to their gains, in the absence of a true risk-on catalyst. There wasn’t a great depth of high-impact news during overnight trade, so safe-havens only marginally outperformed risk assets. Brexit was the dominating story, with UK Prime Minister Boris Johnson facing another set-back in pulling the UK out of the EU by the end of the month. Canadians went to the polls and re-elected PM Justin Trudeau. The night’s trade has the ASX 200 set for modest gains this morning.
You win some, you lose some, Boris
The Pound whipped-about last night as UK Parliamentarians voted on UK Prime Minister Boris Johnson’s divorce agreement with the EU. The votes were broken into two parts. The first, was a vote, in principle, on the actual substance of the Withdrawal Agreement. The second, was a vote on the permissible timeline for Brexit – that is, whether it could be “rammed through” before the October 31st deadlines. In what proves that it’s a fine line between pleasure and pain in politics, UK MPs voted in favour of PM Johnson’s deal, but voted against rushing Brexit through by this month’s deadline.
A little more uncertainty than before
Having rallied on the passage of the Withdrawal Agreement, the Pound took a spill after MPs voted to effectively extend, once again, the Brexit deadline. The prospect of a no-deal Brexit – that which is considered the worst of all outcomes for the UK economy – remains low. Hence, the Pound has held onto the 1.28 mark this morning. But a series of variables open up now that kill the certainty for which traders had been hoping. Another general election is on the cards in the UK now. So too are possible amendments to the Brexit-bill, that could bring about new disagreements regarding the shape of Brexit.
Safe havens lift and stocks dip on Brexit vote
The set-back to an October Brexit has upset broader financial markets. The Euro has fallen with the Pound, and that’s driven flow back into the USD. Bond yields have fallen as investors sought out, very marginally, safe havens. That put a little light under gold prices in late US trade, which pushed back towards the $1490. The S&P 500 fell into the close following a middling day’s trade, closing below the 3000 mark again. As ever a proxy for risk-appetite, the Australian Dollar dipped after the vote in the house of commons, though it does remain safely around 0.6850, for now.
Confidence rattled by Brexit vote
Brexit is a kick in the guts for investors, but the blow would be far-less wrenching if market fundamentals were a trifle stronger. US reporting season remains at the core of investment market activity right now, and although corporates have delivered above average earnings beats, the focus remains fixed on downgrades for the future. Analysts have cut earnings growth forecasts for the year ahead by half-a-per-cent so far this earnings season. The results received last night were heartening it must be said, with likes of Procter and Gamble soundly beating estimates. Attention will turn now to heavyweights like Boeing, Amazon, Microsoft and Caterpillar, which report in coming days.
North of the US border, and one eye was being kept on Canada in global markets yesterday. The Loonie rallied briefly, after Canadian PM Justin Trudeau won re-election. Not necessarily the most pro-business candidate, the resolution of a knifes-edge election has proven good for Canadian assets. The Canadian Dollar itself has been a relative outperformer in foreign exchange markets this year, despite its status as a “growth” or “commodity” currency. With Canada’s economic fundamentals looking strong, and the US Fed looking prepared to cut rates next week, traders will be watching how the key 1.30 level for the USD/CAD holds ups going into the final stages of 2019.
ASX waiting for a strong lead
Locally, the ASX is set for a soft, albeit positive, start to today’s trade, with relatively little on the economic locally calendar, still, to drive financial markets in the next few days. Cyclical sectors outperformed yesterday, off the back of the night prior’s positive trade-war chatter from the Trump administration, carrying the broader ASX 200 0.3% higher. Investors will continue to take cues from international leads, especially as traders eye potentially market-moving US corporate results, as well as a spate of global PMI figures on Thursday, which could either relieve global-growth fears, or ignite them.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
Be ready to act on ECB opportunities
Learn how the ECB’s monetary policy announcements affect interest rates and price stability ahead of its next meeting in September 2020.
- How might the next meeting affect the markets?
- What are the key rate decisions to watch?
- Why is the Governing Council announcement important for traders?
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.