Market Brief: Manic Monday feared post Super Saturday

Investors are avoiding major moves ahead of Saturday’s momentous risk event

Stock market snapshot as of [18/10/2019 1:56 PM]


  • European equities are off earlier losses though France’s CAC-40 is unable to shake off a spate of disappointing results from some major components
  • The earnings season for European large caps is trundling on in typical mixed fashion, with a negative read from major groups reporting on Friday adding to regressive signals from China’s slowest quarterly growth since 1991
  • Still, stock indices holding steady—relatively speaking—despite a spate of bearish news, shows disinclination to chase pathways either to the upside or downside
  • A clear disincentive against deep position taking is Saturday’s momentous risk event: A UK parliamentary vote on whether to approve Boris Johnson’s Brexit deal, or risk plunging Britain into one of the most far-reaching political crisis for decades
  • Given so much attention on Parliament’s rare ‘Super Saturday’ sitting and vote—for which there is no precise timing—it’s telling that expectations appear almost universally ambivalent, outside of the political class

Labour is strongly advising its MPs to oppose the deal, and most, perhaps all, are likely to do so. 10 ‘no’ votes appear all but inevitable from MPs of Ireland’s DUP party that has also vowed to oppose the deal. So the fate of Boris Johnson’s plan hangs partly on Tory pro-Brexit MPs who have repeatedly voted down previous deals

The Prime Minister is busily making pleading calls to MPs ‘across the Commons’ as the weekend approaches, says Downing Street. There’s really no telling how persuasive he will be, till the result of the vote is known. It’s a recipe for investors to execute only the most necessary moves in advance, before a possible ‘manic Monday’ in Saturday’s wake

  • For now, bunds and Treasurys drift lower in quiet trading, causing curves to marginally bear-steepen. European peripheral bonds resume a tightening move this week that’s seen Italy narrow about 8 basis points to Germany since early Monday. Gilts are leading underperformance from the ‘core’

Stocks/sectors on the move

  • French large cap firms have been in focus amid a raft of earnings reports with several disappointments. Food group Danone and Renault lead high-profile declines after also cutting forecasts. Shares in the maker of Müller yoghurt and Evian water slumped almost 8% earlier, though the stock retains an 18% gain for the year
  • The car group’s stock tumbled around 15% at one point to a six-year low on a profit warning that blindsided major investors
  • Europe’s auto sector is consequently among the region’s worst industrial performers. Financials (led by banks), energy, materials, TMT, and industrials outperformed. The latter rose on a lead from Swedish conglomerate Assa Abloy (shares +2.5%) after it joined a small list of quarterly success stories
  • Remy Cointreau’s weak earnings add to negative indications for the drinks industry following Thursday results from country peer Pernod Ricard. Defence group Thales also cut guidance. It cited a “wait-and-see attitude” at commercial telecommunication-satellite operators, resulting in lower-than-expected order intake
  • American Express (AXP), Coca-Cola (KO), State Street (STT), Citizens Financial (CFG) and Schlumberger (SLB) are among major U.S. firms reporting before the Wall Street bell.  AXP rises pre-market on a beat and strong credit market indications, SLB too after its own beat, KO fizzes in early deals after adjusted Q3 operating revenue topped the Street, CFG’s quarter was also ahead of forecasts as was SLB’s, though the oilfield services results were muddied by a $12.7bn pre-tax charge


FX snapshot as of [18/10/2019 1:20 PM]

FX markets and gold

  • The dollar is a tad weaker, particularly against the euro, Aussie and franc though not so much sterling, as the next phase of Brexit uncertainty encourages mild bouts of profit taking from recent gains, keeping sterling largely static. A conditional signal that the Bank of England could look to raise rates depending on the outcome of Saturday’s Brexit vote helps underpin sterling, though it’s still in overall retreat from this week’s five-month high, albeit +1.8% since Sunday night
  • EUR/USD consolidates its latest phase of structural and technical weakness, rising 0.8% this week, aided by a softening dollar
  • The yen erases an earlier advance ahead of a raft of Fed speeches later, leaving USD/JPY up a respectable 0.4% this week. This moderates the greenback’s broad decline that’s still set to notch a third week
  • Kiwi also saw action; leading G-10 at one point following RBNZ’s raised forecast of New Zealand’s key export, milk. Up as much as 0.5%, NZD/USD eyes a fourth straight weekly rise, its longest run since April 2018
  • Aussie also gained 0.5%, reacting to RBA governor Philip Lowe dampening speculation of negative rates, whilst noting cuts actually undertaken are supporting Australia’s economy


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