Previous Day's Market Highlights
I would usually use this section of this Note to recap Friday's developments in financial markets. However, the Brexit merry-go-round continued spinning this weekend, when what was billed as 'Super Saturday' - Parliament's first Saturday sitting for almost 3 decades - turned into 'Damp Squib Saturday'.
So, this weekend's Brexit developments are as follows:
- MPs voted in favour of an amendment proposed by Sir Oliver Letwin, withholding Parliamentary approval of the new Brexit deal until implementing legislation has been passed.
- This amendment meant Saturday's vote was not a 'Meaningful Vote' on the deal, as had been expected, therefore requiring PM Johnson to request an Article 50 extension under the Benn Act.
- The UK sent 3 letters to the EU; an unsigned copy of the letter laid out in the Benn Act, a covering letter from the UK's EU Ambassador laying out the circumstances for the request, and a signed letter from the Prime Minister outlining why he feels an extension "damages UK & EU interests"
- EU Council President Tusk confirmed that the extension request had been received, and that he would immediately begin to consult on "how to react". A decision on an extension is, however, unlikely to be made for a few days.
Where does this leave us? Legally, the UK will still be leaving the EU on 31st October, with or without a deal, though the EU remain likely to grant an extension if the only alternative were a no deal Brexit. Such a decision is, however, unlikely to be taken until the end of the month, at a potential emergency EU Council Summit. Meanwhile, the government will continue to attempt to pass the Withdrawal Agreement in Parliament. A close look at the voting lists on Saturday's Letwin amendment, and an examination of recent comments from MPs, indicate that the numbers may just be there to pass a deal, even without the votes of the DUP; the key issue will be whether timing is too tight for the implementing legislation to progress through the Commons, and whether amendments to this legislation - for example, proposing a customs union or second referendum - are passed. The passing of amendments would further complicate the process, with MPs potentially passing legislation that differs significantly from the deal negotiated with the EU.
For the pound, Friday was a relatively quiet trading day, as sterling steadily ticked higher ahead of the expected meaningful vote. Sterling ended Friday 0.4% higher against the dollar, up more than 2.5% for the week, and around 0.2% higher against the euro. At Sunday's market open, sterling was a touch softer, trading around 0.5% lower than Friday's close, though above the $1.29 handle.
Elsewhere on Friday, markets were relatively rangebound amid a lack of economic releases. The dollar struck a softer tone, dipping 0.5% against a basket of peers, after Federal Reserve policymakers did little in their final pre-blackout remarks to push back on the roughly 80% chance of a rate cut at the end of the month. Other majors benefitted from the weaker greenback, with the Aussie, Kiwi and Canadian dollars all adding more than 0.25%. The euro, however, failed to take advantage, though remains close to its best levels of the month.
In other markets, equities struggled on Friday as concerns over Chinese economic growth once again came to the fore, after third quarter GDP data showed growth falling to a 30-year low. The pan-European Stoxx 600 closed 0.3% lower, while the US benchmark S&P 500 shed 0.4%. Oil prices also fell on the poor data, which raised concerns over future demand. Global benchmark Brent settled around 1% lower, while US WTI crude shed 0.3%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A fresh trading week begins with politics remaining in focus, on both sides of the Atlantic. In the UK, attention will remain on Brexit developments, with the Commons set to, today, hold another 'Meaningful Vote' on the new Brexit deal, with the government confident that they have the numbers to pass a vote in favour of the deal. Crucially, however, rumours continue to swirl that Commons Speaker John Bercow will not permit another ‘Meaningful Vote’ to take place, judging it to be out of order. Should such a vote take place, and be passed, the government would then be able to withdraw the letter requesting an extension - under the terms of the Benn Act - before turning their attention to the Parliamentary timetable for passing all of the implementing legislation before the 31st October deadline. The trading playbook for the pound remains the same as ever; moves towards approval of a deal will result in sterling upside, while decreasing chances of a deal will see sterling come under pressure.
Meanwhile, across the pond, Canadian voters head to the polls today in the 43rd Federal Election. Going into the vote, opinion polling shows the two major parties, the ruling Liberals and opposition Conservatives, neck and neck on around 31% of the vote apiece. Such a tight race means that the election is likely to result in a hung Parliament, giving incumbent Prime Minister Trudeau the first chance of forming a government. For the Canadian dollar, the risks appear asymmetric. A victory for the incumbent Liberals is unlikely to result in any significant movement in either direction, while a victory for the opposition Conservatives may result in some modest upside movement.
Looking ahead to the remainder of the week, the data calendar is relatively sparsely populated for the beginning part of the week, ensuring that geopolitics will remain in focus. From Thursday onwards, things get a little more interesting. From the eurozone, October's flash PMI figures will be closely watched for signs of continued sluggish economic momentum, while President Draghi bids farewell to the ECB at Thursday's meeting, with no policy changes expected. Other highlights this week include Canadian retail sales (Tues), German IFO sentiment surveys (Fri) and final US consumer sentiment figures from the University of Michigan (Fri).
Earnings season also continues on Wall Street, with equity indices closing in on their record highs as earnings continue to beat expectations. This week sees approximately 25% of the S&P 500 report third quarter results, with highlights including Boeing, Microsoft, Amazon, Visa and 3M.
Today's Economic Calendar
|All Day||CAD||Federal Elections|
|Tentative||GBP||Parliamentary Vote on Brexit Deal|