Bulls have been a bit limp, stumbling out of the gate with
their tails up but quickly getting bogged down on decidedly heavy going turf.
European markets perked up early but ran out of steam heading towards
lunch. Having initially popped higher the Euro Stoxx 600 turned negative,
sliding 0.3%, while the DAX edged 0.4% lower before paring losses a touch.
The FTSE 100 held onto slim gains as sterling softened as the odds shortened
considerably on the Bank of England cutting interest rates this month.
trade delegation is said to have left Beijing, on their way to Washington to
sign phase one deal.
GBPUSD is softer, beating a retreat under
1.30 as markets aggressively reprice for a BoE rate cut this month following
comments from rate setter Vlieghe and weak eco data (See earlier note, BoE:
Stitch in time saves 9). EURUSD has been steady at 1.112 but USDJPY is
firming with the pair crossing key resistance around the 200-week moving
average around 109.70/80, to hit 109.9
Crude oil is steady at $59 with little in the
way of catalysts. Lots on the wires from Saudi Arabia on production but
long and short is they are looking to extend output curbs agreement come
March. Likewise, gold held the line around $1550 but is showing no
US stock futures indicate a solid open with the Dow eyeing
a c70pt gain, having earlier looked at a triple-digit gain when the
cash equity market opens.
Lululemon shares rose c2% pre-mkt after it said
raised its guidance, saying Q4 revenues would be between $1.37bn and $1.38bn,
from previous guidance of $1.32bn to $1.33bn.
Alphabet is on the verge of joining the $1
trillion market cap club. Shares were a little higher pre-mkt after Evercore
ISI raised their price target on the stock to $1600 from $1350.
Tesla bears are throwing in the towel. Shares
were up 2% pre-mkt to $488 after Oppenheimer raised its price target to a
Street high $612 from $385. Microsoft price target raised to
$180 from $155 at Credit Suisse, whilst Apple’s price
target was raised to $375 from $300 at Davidson.
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Stocks firm before NFP, Dax bulls eye all time high
Fading Middle East tensions and a US-China trade deal so
close you can smell it helped lift the three major US indices to record highs
The Dow rallied 200pts and got within 12pts of
breaking the 29k level. Overnight futures prices have ramped higher, taking the
Dow through this level and indicating it could open around 29,040 when the cash
equity market opens. The S&P 500 ran into a brick wall at 3275 but futures
imply a breach today on the open to 3283. This steamroller is not one to get in
front off to pick up pennies.
shares smashed new all-time highs to hit $310 with data showing an 18% surge in
China sales. The stock has already rerated to trade about 25x forward – much
upside left? Needs solid EPS growth which I think we will get in Q4. We’ve already 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.
Asia has been broadly higher and European equity markets are on a firm footing
The DAX is looking to open higher, through 13,520 adding to yesterday’s
1.3% gain. A tilt at the all-time high and a breach of 13,600 is on the cards
if sentiment holds.
Today’s nonfarm payrolls are the main economic
event. Markets anticipate payrolls +162k, with average earnings +0.2% and
unemployment at 3.5%.
Remember last month a blowout jobs number sent equities
higher along with the US dollar and Treasury yields, as it suggested the US
economy was doing better than many corners of the market feared. The headline
print was miles ahead of expectations, coming in at 266k vs 180k expected.
Unemployment at 3.5% was exceptionally strong, too. September was revised
up 13k to 193k, while October was also revised higher by 28k to 156k. Private
payrolls also very strong at 254k. Should we worry about the Fed pivoting again?
I don’t think so and the market clearly thinks the same.
The Fed can stand this sort of hot reading for a while yet
– jobs growth is averaging only 180k this year vs 223k last year. And whatever
privately you might think about whether the Fed should be maintaining an easing
bias in this environment, it’s made it very clear that it will take a sustained
and pronounced rise in inflation to warrant a hike.
The Fed has made it clear it will let inflation and the
economy run hot, so today’s numbers can’t really miss as far as equities are
concerned. A weak reading only raises prospect of quicker policy response and
may lead to the USD handing back some of the recent gains.
Oil remains weaker having taken a decisive step under $60 to trade
through the bottom of the rising channel it’s tracked since Oct. Support is
clear at $59, where our lower trend line meets the 50-day moving average, and
this may be where longs stage their defence.
Gold likewise seems to have based for the time being with support holding
around $1545. In early European trade we saw a push back to $1550. Real yields
are not supportive of pricing as they creep back higher.
In FX, the dollar is still bid. USDJPY is facing double resistance. Having cleared the 200-day and other MAs bulls are looking
to break the trend line drawn from the falling highs since the swing high of
Oct 2018, at 109.50. Then there is long term 61% Fib level to cross at 109.60
where we have seen rallies hit a wall several times lately. This area is offering
a decent amount of resistance as a result but if taken out could see a sharp
spike higher. EURUSD was little changed at 1.11090.
Yesterday’s doji candle looks more like indecision than reversal but having
touched on the 50-day moving average and rejected it, bulls may sniff
something. However the momentum remains with the bears.
GBPUSD has come off its
lows to trade at 1.3080, following Mark Carney’s outgoing speech which the
market decided was more dovish than before. He’s on the way out anyway, two
doves are already voting for cuts – the BoE will cut this year. What Carney
says is no longer relevant.
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Midday wrap: Europe higher as risk appetite returns, DAX near ATHs
European markets enjoyed solid gains Thursday as risk
appetite returned. But the rally hardly betrays a wanton desire for equities
because a) we’re already at or near record highs and b) the selloff had not
been especially deep despite US-Iran conflict fears seeing havens enjoy firm
bid. Even a shaky ceasefire is enough right now to support the bulls. Stronger-than-expected German industrial production figures (+1.1% vs
-1.7% prev and 0.8% est) are helping sentiment, particularly in Frankfurt.
The DAX has led the charge with a 1.25% push higher
to 13,485, having earlier touched a high of 13,522. With investors
apparently keen to load up on risk with US-Iran tensions easing and a US-China
trade deal baked in, we may well see the drive to January 2018’s all-time high
just shy of 13,600. Geopolitical risks remain of course with the situation in
the Middle East still fluid, but you get the sense the bulls are keen to push
this over the line.
The FTSE 100 added 0.5% to break 7600 with resistance seen
at 7675, the high posted Dec 27th. A
softer pound is compensating for the weaker oil price.
Elsewhere US markets are firmer again with the Dow shaping
up for a triple-digit gain on the open.
Oil has held just short of $60 with no further
losses while gold is also holding the line around $1545.
In FX, the pound took a drubbing as the market decided Bank
of England governor Mark Carney’s comments were more dovish than before. GBPUSD
slipped the 1.31 handle to test support on the 50-day moving average around
1.3010. I don’t see much in what he said as particularly more dovish than in
the past. Commentary around the likelihood of the UK agreeing a trade deal with
the EU before the end of 2020 is also weighing on the pound today.
Meanwhile, as flagged in the morning note, the bullish
engulfing daily candle for USDJPY is resulting in further gains today
with the pair moving to 109.50 and momentum in favour of USD across the board.
Having cleared the 200-day and other MAs bulls are looking to break the trend
line drawn from the falling highs since the swing high of Oct 2018. Big 61% Fib
level to cross at 109.60 where we have seen rallies hit a wall several times
lately. This level will offer a decent amount of resistance as a
Cowen has come out with a
bunch of price target upgrades
Facebook raised PT
to $245 from $240
Alphabet raised PT
to $1575 from $1525
Twitter raised PT
to $34 from $32
Elsewhere AMD shares are up c2.5% pre-market after
Mizuho raised the stock to buy.
Benchmark has initiated Lyft
with a sell rating , price target of $35, which is $10 below yesterday’s
Boeing shares are
up a touch pre-mkt despite Berenberg cutting to hold. After enjoying a thumping
5% jump yesterday, Tesla shares are a touch softer pre-market after
being cut to neutral at Baird, a long-time bull which seems to think the recent
rally has run its course. They said: “we would not short the stock and remain
positively biased over the long run.” See
yesterday’s Equity Strategy: US earnings Q4
preview: Two major stocks to watchfor
more on Tesla.
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Stocks bounce, oil + gold rallies fizzle
There has been an abrupt reversal in risk appetite after
Donald Trump’s measured respond to the Iranian strikes. Far from stoking
tensions, he used the moment to step back from the brink, saying Iran appears
to be standing down and raising economic sanctions. It looks as we called it –
Iran saves face with those air strikes but the regime made damn sure the US
wouldn’t escalate. In short, it looks like the shooting war is over for now,
but there is always the potential for escalation at any point. But the relative
calm should mean the focus will come back to the economic data and US-China
US stocks made gains as investors turned risk-on with the
Nasdaq setting a fresh intra-day and closing high, rising 0.7%. The S&P
500 made a new intra-day high, but dipped at the death on some sketchy
reports of rockets being fired in Baghdad to finish 0.5% higher at 3,253. The
Dow’s gains were held in check by Boeing but still rallied 161pts to mark a
near 700-pt swing off the lows of the day hit before the cash equity market
On Thursday, US stock futures point to modest gains. Asia
rose overnight with the Nikkei jumping more than 2%.
European markets won’t miss out on the party and are set
to bounce amid this broad relief rally. The DAX is looking to open up
about 100pts higher around 13,445 while the FTSE is shaping to rally
30pts for a 7600 handle.
Oil has completed an 8% round trip to $65 and then
back below $60. Certainly the geopolitical risk premium is vastly diminished,
but the genie’s out of the bottle and we may expect the gently rising slope of
price action to continue once it bases. Yesterday’s outside day bearish
engulfing candle points to near-term downside risks. Crude prices are starting
to test 50% Fib level of the decline from the 2018 high to the low the same
year around $59.60, with the 50-day MA coming in at $59. Even the lower end of
the uptrend channel is starting to come into view – could start to see a bounce
but hard to say when the base is found. Bearish US inventory data added to the
pressure on oil prices as EIA data showed a build of 1.2m barrels, following
draws for the last three weeks.
Gold was also substantially weaker, slipping to
the $1545 region having earlier smashed through $1600. Another bearish
engulfing candle suggests near term weakness and the rout has continued into
USDJPY also shows a big engulfing candle – this
time bullish – pointing to the recent downward move ending and offering
near-term upside potential. The falling trend line from the 2018 high is coming
into play and offering resistance around 109.30. Clearance of the 200-day
moving average is bullish.
Elsewhere in fx the euro and sterling are softer vs the
buck but not tumbling. GBPUSD is finding round number support at 1.31
and has rallied from last evening’s lows. The failure of EURUSD to break 1.12
to the upside continues to back a bearish near term view but the extent of the
pullback is up for debate. Rising trend support around the 1.110 has been
tested and held for now. On the 4-hr chart the hammer candle points to a
bullish reversal on the rising lower trend line of our channel. 4hr moving
averages turning south however.
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Sterling finds support at 23.6% Fib level
Sterling has found support at the 23.6% retracement of the rally from the Sep 2019 lows to the post-election euphoria highs. GBPUSD pushed through 1.32 at one stage on Tuesday, moving firmly clear from the support level at 1.3140.
The move erases much of the declines from last Thursday and Friday and may signal a recovery that bulls can use to base for a push north of 1.32 again. 50-day moving average support appears at 1.30 and is rising.
The rally ran out of legs at the 50% retracement of the decline from the Dec highs to the recent lows around 1.3220. Corresponding to this move, it’s the 38.2% retracement at 1.3140 that offers support near term. Double Fib support looks powerful.
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Sterling trips on new cliff edge, Unilever dips
Sterling tripped over its heels as Boris Johnson is looking
to legislate for Britain to leave the EU fully in Dec 2020 with or without a
trade deal. That means no possible way to extend the transition period. I must
confess to believing he wouldn’t need to be so drastic, that a large majority
offered the flexibility yet strength a government craves in deal making. This
sets up another cliff-edge and could create yet more months of uncertainty for
investors just when we thought all was squared away.
GBPUSD plunged to the 1.3240 area before paring losses to trade around 1.3260.
Elsewhere in FX, the Australian dollar was softer as the RBA signalled it’s
looking at further cuts, possibly in February. AUDUSD traded at 0.68580 as of
send time, its weakest since last Wednesday. EURUSD steady at 1.1140. Signs in
the dollar index that it’s rolling over.
Equity markets remain buoyant but we are seeing some softness in Europe on the
open. We’ve had a really good run for the last two or three sessions so it’s a
good time for a pause and consolidate around this level. In particular we need
the FTSE 100 to hold this 7500 level.
The S&P 500 made a fresh record top, though Boeing’s
travails left the Dow glittering a little less. Europe’s Stoxx 600 made a
record high. Asia took the cue to make 8-month highs overnight.
shares fell 5% in early trade as it warns that sales growth is more meagre than
expected. Management expects underlying sales growth for 2019 to be slightly
below its guidance of the lower half of its 3-5% multi-year range.
The company puts it down to economic
malaise in South Asia, with the CEO on the conference call saying it’s down
largely to India’s rural markets, although these are expected to bounce back in
the second half of next year. Meanwhile management says trading conditions in
West Africa remain difficult. Developed markets continue to be
challenging, but management did point to ‘early signs’ of improvement in North
America as it picks up ice cream market share.
margin and cash are not expected to be impacted. Weaker sales growth is a
problem, but lately we have been encouraged that earnings growth is being
driven by price rather than volume. However, the problem for fast-moving
consumer goods giants with the big brand names is that consumers have a lot
more choice and are more discerning than ever.
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UK assets surge on huge election win for Boris Johnson
Sterling jumped sharply,
enjoying its best gain in a decade as the Conservatives romped home to a
convincing victory, while the FTSE also rose as investors enjoy the Boris
Bounce. Broadly equity markets were well bid as hopes of a US-China trade
deal crystallise into something more concrete.
Huge win for Conservatives in
UK general election
The Conservative Party has secured an historic mandate with a thumping victory, providing clarity for investors where there was confusion. For the markets and for business this is the perfect result – a clear majority for the Tories, the Corbyn risk nullified entirely, a major reduction in uncertainty around Brexit and even a quick Budget to inject the economy with some added impetus. The only doubts are around the next phase of Brexit – the future relationship – but with a large majority the government will be in a better place to negotiate and do what it needs to do.
Sterling was heavily bid on the
news. The going was looking a tad heavy but the ground firmed once we had the
exit poll. GBPUSD surged to as high as 1.35 but pared gains a
touch to trade around 1.3470 heading into the morning session. Near-term a look
to 1.36 and thence to 1.37 seems feasible.
UK stocks surge on Tory
The FTSE 100 rose over 100 points to trend above 7,388, moving higher despite a clear drag from the stronger pound, which will cap gains. The City has awoken and the relief rally on a massive Tory win has begun. I think 8,000 looks overly bullish as a target, but something like 7700 before the year is out is doable. Near-term, 7440 offers a big test.
Now calls for a rebound in confidence in UK plc. Fundamentally
undervalued UK equities – forward PE multiples have been very cheap versus
European and US peers of late – will now look especially appealing as they have
largely missed out on the rally seen elsewhere. The FTSE 250 put in more
considerable gains – up 1,000 points to easily take out 21k and hit an all-time
high. Sterling and UK equities are in for a Boris Bounce.
Remember just how cheap UK
equities had become – trading on 12-month PE multiples of about 13 vs about 15
in Europe and 18 on the S&P 500. The FTSE 250 nearly made it to 22k but
topped out an all-time high at 21,910. The FTSE 100 added about 100 points.
equities were basking in the warm glow of the Tory victory as investors threw
out their worst-case scenarios for the British economy. There are some
seriously relieved investors – and bankers and corporate financiers.
particular, we are seeing some absolutely stonking moves among the
UK-focused equities. Anything largely exposed to the UK economy took off
at the open, while the drag on dollar earners from the stronger pound was not
so large as to worry the market. It all points to a huge vote of confidence in
the prospects for the British economy as a result of the Tory win. You just cannot
understate the sense of relief here in the City.
had been suffering from a significant Corbyn discount and exploded as the
threat of nationalisation evaporated with the Labour vote – United Utilities,
Severn Trent and National Grid all jumped around 8%, while Centrica jumped 9%.
were also undervalued and caught a bid on hopes that construction will benefit
from the Conservative victory. We should also consider the potential risk that
a Labour government could have posed to their profits being
removed. Barratt Developments and Taylor Wimpey both rose more than
10%, while Persimmon was among the top movers at +14%.
were also bid – with the most heavily exposed banking stocks to the UK economy
enjoying the biggest gains. RBS and Lloyds both rose 11%, with Barclays up
nearly 8%. Investors
are also needing to dial back their expectations for a Bank of England rate cut
so this is an important boost for the banking sector in the UK, with Lloyds in
particular the most exposed to the mortgage market.
retailers found new support with Dixons Carphone shooting 16% higher, with
Marks & Spencer and Sports Direct +6%.
retail, banking, utilities – the whole lot is seeing a huge rotation.
Asian stocks higher on trade sentiment
Asian markets have rallied strongly overnight, taking their cue from the
records on Wall Street as it seems a phase one trade deal is as good as
done. Although not quite signed, sealed and delivered, it seems like
the US and China have come to terms.
White House will cancel the planned tariffs on $156bn in
Chinese goods scheduled to take effect on Sunday, whilst also cutting by half
the existing tariffs on around $360bn of Chinese goods.
it mean we get a comprehensive deal in 2020? Hard to say, but it this has
created the necessary Christmas cheer for a decent Santa Rally. It does rather
look like some of the worst risks and headwinds are fading away – a phase one
deal complete, greater political certainty for the UK and even a slightly
doubts creeping in about
whether China has accepted this deal – of course if it were to be scuppered now
there would be a sizeable downside for equity markets given the ramp we have
surged 2.5% to its best level in over a year above 24k. Hong Kong rallied 2%
and mainland China is up over 1%.
US equity markets had surged to new all-time highs after Trump first tweeted
the deal was oven ready.
indices are pointing broadly higher.
dollar was offered with DXY down to a 96 handle and its weakest since July.
EURUSD has rallied through 1.1170 and held the gains.
Risk-on moves hammer bonds, gold dragged lower
Bonds were crushed by the
risk-on sentiment from the trade deal – US 10s taking 1.95% at one point.
Higher yields knocked gold but prices haven’t capitulated
entirely. Having traded at a high of $1486, gold has retreated to $1467 having
hit a low of $1462. The fact prices haven’t retested the earlier Dec lows
suggests there is still bid there. Crude oil held gains with WTI above $59.50.
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Sterling hit by polls as traders weigh hung parliament chances
Sterling remains highly susceptible to polls and
specifically exposed to big downside moves on anything other than a solid Tory
majority: last night’s MRP edition from YouGov showed a sizeable narrowing in
the Conservatives’ lead and raised for the first time the possibility of a hung
parliament. The central case remains for a Tory majority of 20-30, but we are
dealing with fine margins for error. Markets for the first time need to worry
about a hung parliament and what that might mean in terms of more uncertainty
over the economy and Brexit.
For traders – it means election night could be
very interesting indeed. We’ll be increasing staffing overnight, looking
particular at the exit poll at 22:00, and preparing for a potentially highly
volatile session, with all that would normally imply in terms of reduced
liquidity for GBP pairs and U.K. assets anyway. Then it’s going to be all hands
on deck on Friday morning as the markets reopen to whatever brave new world the
voters have chosen for us. Spreads may widen out of hours for assets like the
FTSE and GBP crosses, whilst gapping even in FX pairs may occur. A hung
parliament takes back to a 1.27 handle on cable, and could see UK-focused
stocks on the FTSE 250 hit hard.
Having been bid up ahead of the poll’s release, the pound
took fright at the poll data and GBPUSD plunged nearly one big figure
from north of 1.32 to around 1.3110. The pair has pared losses overnight to
The good news is the polling is just about over – the
next major one is the exit poll just after 22:00 on Thursday. This has been
very accurate over the last 25 years.
Yesterday, Wall Street slipped as the tariff deadline
comes into view and markets stand by for the Federal Reserve decision today.
Trade talks appear their usual on-again, off-again self.
Stocks were mixed but generally flagged. The S&P 500
eased back 0.1% but had been positive at times, while the DAX was down 0.3%.
The Stoxx 600 pared losses of 1.1% at one stage to close down 0.3%.
European markets this morning are set to open flat with
the FTSE 100 at 7235 off the back of the pound’s fall since the close
FOMC on tap at 19:00 GMT. The Fed is likely going
signal it’s sticking to its dovish mantra. Whilst no rate cut is anticipated,
we may well see evidence of a noticeable shift in the Fed’s stance:
specifically that it’s now willing to do whatever it takes to stimulate the
economy. Powell has already said it will take a sustained and significant
uplift in inflation to warrant a hike, whilst there’s chatter about essentially
parking the 2% inflation target to let the economy run hot.
The persistent lack of inflation means it has a free hand
to go as low as it likes, it’s only maintaining the mask of prudence by not
cutting more aggressively. Moreover the drag lower from trade, global economic
stress and the move to lower rates in other major economies means this is by
far the path of least resistance. Out go concerns about financial stability or
asset bubbles. The danger now is the Fed is becoming the monetary policy wing
of the White House.
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OPEC risks disappointment, US jobs report on tap
OPEC and allies are poised to formally agree to a
policy of deeper production cuts, but there’s not a lot for bulls to be glad
about. The 500k bpd increase to 1.7m bpd sounds good but only reflects existing
over-compliance, led by Saudi Arabia, which has been pumping less than it is
allowed, and it’s going to be short-lived. The deal looks at the moment to only
extend through the first quarter of 2020. If OPEC doesn’t extend the curbs
through to the end of next year it could act as a de facto loosening of supply
that markets would punish with lower prices. There’s a real risk that even with
deeper cuts OPEC fails to live up to expectations. We could of course see
another meeting soon after this one to agree an extension – critical to today’s
formal announcement therefore is whether there is any extension beyond March
2020. And we’ll wait to see if any arm-twisting by the Saudis forces Iraq and
Nigeria into complying – but why would they bother now when they’ve not
complied thus far?
Oil prices are reflecting a tinge of disappointment with WTI
softening to $58.40 after hitting a high above $59 yesterday. Brent meanwhile
has eased back off the $64 level to trade around $64.30 – importantly on Brent
we failed to beat the November high, a sign that the market isn’t buying into
this deal. The 200-day moving average remains a hurdle a little above $64.
Prices for WTI and Brent are simply back to where they were before the attacks
on the Aramco facilities in September. It’s all got a buy the rumour sell the
fact look about it. But we must stress that if OPEC accompanies the deepening
of cuts with an extension, at least to the next scheduled meeting in June, but
perhaps until Dec 2020, prices could enjoy more upside.
There was good news for Saudi Arabia as Aramco
priced well at the top of the range and raised $25.6bn in its IPO. A record
listing values the company at $1.7tn, but we shall see where the shares head on
day one. Regional and domestic investors have come good but the worry is that
the big foreign institutional demand has not been there – if you’re just
recirculating oil money among Arab states and Saudi households (levered) then
what good has this float actually done?
In equities, Asia has been broadly higher amid more
upbeat sentiment around trade talks.
Equities stumbled in Europe yesterday but the good old
cocktail of trade optimism and a Friday mean they are pointing higher. However
some very nasty German industrial numbers have taken the shine of European
stocks ahead of the open.
Wall Street was steady with the Dow and S&P 500
trading mildly higher yesterday. Futures indicate more gains today. Trade will
be the deciding factor.
After the usual pump and dump comments from Trump saying
that trade talks are ‘moving right along’, we got more concrete news on trade
as China agreed to cut tariffs on some pork and soybeans from the US,
although it did not mention the quantities involved. This could be due to
necessity from a shortage of pork because of African swine fever, more than
desire to get a trade deal done, but nevertheless it’s pointing in the right
direction. Nevertheless, the toing and froing of trade talks continues – we’ll
be waiting for any fresh signal and will only believe a deal once it’s been
served up on the table, not when the chefs say it’s in the oven.
In FX, the US jobs report is the big set piece
event. A very weak ADP reading this week has forced some to revise forecasts
for the NFP, although as always stressed, the ADP number is not always a
reliable predictor for the NFP. Consensus is 180k but this is affected by GM
workers returning. The three bears likely won’t be happy – expect more low
unemployment, which is seen at 3.6%, and decent wage growth (3%). But markets
are in a reasonable nervous frame of mind right now – a big miss could signal
weakness in the US economy – bears are sniffing around for anything that
points to recession.
Last month’s reading showed US
labour market strength remains intact: we saw a strong beat for the US labour
market report with nonfarm payrolls up 128k in October, well ahead of the 85k
expected, whilst there were upward revisions to the prior two months. The
August print was revised up 51k to 219k and the September number was hiked by
44k to 180k. The 3-month average at 176k against the 223k average in 2018
Momentum behind sterling remains solid. GBPUSD has
continued to drive higher and has consolidated around 1.3160 – perhaps resting
for the assault on the May high at 1.31750. Looking at the charts it’s just one
bull flag after the other, but possible 14-day RSI divergence should be
watched. A debate tonight between Boris Johnson and Jeremy Corbyn may produce
some moves – the election is Johnson’s to lose so he simply needs to avoid any
booby traps. Polls as ever need to be heeded – latest from BritainElects shows
the Tory lead down to just under 10pts. At present it does not look like the
gap is narrowing quickly enough for Labour to mount a serious challenge, but upon
such complacency have many best laid plans gang aft agley.
The euro remains steady with EURUSD holding onto
1.110, despite some very nasty looking German industrial numbers – down 1.7% vs
+0.1% expected. The collapse in German manufacturing is staggering. Whilst PMIs
are indicating recovery, these numbers suggest the very opposite. USDJPY has
steadied above 108.60 having found decent support on the 50-day moving average.
Elsewhere, gold was down at $1473 having
encountered firm resistance on the 50-day line at $1482. At send time gold was
trading at $1473, with November lows sitting at $1445.
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Two-week high for cable as Conservatives extend election poll lead
GBP/USD has climbed 0.6% higher to break above $1.2985 today after a series of weekend election polls show that the Conservative Party has extended its lead over Labour.
Markets have moved to price in higher odds of a Conservative Party victory at the upcoming December General Election on the back of the latest polling data.
Data released over the weekend shows the Tories leading Labour by 15%-17%. A poll released this morning by Survation put the Conservatives at 42% and Labour at 28% – a 14-point lead.
Brexit party threat diminishes
Markets are also relieved to see that Nigel Farage’s Brexit Party is polling at just 5%. Even though Farage announced that Brexit party candidates would not stand in the 317 seats won by Conservative MPs during the 2017 election, there were still concerns that, by challenging Labour, the party would split the Brexit vote.
This risked diluting Tory support and potentially granting victory to Labour or Liberal Democrat candidates in hotly contested areas.
With support for the Brexit Party so low, markets are now betting that Boris Johnson will win enough support to form a majority government. Any Brexit Party candidates in Parliament would likely have advocated for a harder Brexit than the one outlined in Boris’s Withdrawal Agreement. In sufficient numbers, they could also have attracted the support of Tory rebels and pressed for more talks, or even a no deal exit.
UK on track for January 31st Brexit?
A solid majority for Boris Johnson means that it is likely the Prime Minister will be able to pass his Withdrawal Agreement bill by the new Brexit deadline of January 31st. This would finally put an end to the uncertainty that has gripped the UK economy for over three years and will allow politicians to focus once more on the domestic agenda.
Cable has twice tested and rejected the $1.30 handle in the past few weeks. There are still 24 days until the election, which is plenty of time as far as politics is concerned for everything to change. This, combined with the memory of the referendum and the 2017 election, could mean it takes more than just a few polls to fuel a rally above $1.30 ahead of December 12th.
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