Wall Street trade calm, but Brexit stokes fresh-fears

Stocks climb in relatively calm session

Sentiment in the stock market was rather flat overnight. The VIX was back below 20, so fear in the market is tangibly lower. And the result, ultimately, was a positive day for Wall Street equities. However, there lacked any meaningful conviction behind the gains. Volume was 20%t below the monthly average, and visibly, the market remains comfortably within its recent range. There is also still going on plenty of the unconventional, counterintuitive price action that’s characterized market action, of late. Bond yields continued to fall, albeit very marginally, in the last 24 hours, as investors still position for what is an expected global economic slowdown.

No-trade Tweets, no problems

There was a dearth of high impact news in North America to really get prices moving, hence the lull in trade. And by that, nowadays we mean that US President Trump failed to incite any degree of madness because of some erratic, hostile Tweet. The market is singularly focused on how the trade-war plays out. Assumptions about the future – from global economic strength, to central bank policy, to the earnings outlook – stem from there. Nothing has improved on that front this week. The bias seems to be that it can still get a lot worse. But last night, there was an apparent ceasefire, and that was enough to boost risk assets, just for one-day.

Brexit developments spark fears

The same can’t be said for European trade. It’s of secondary concern, it must be said, but European politics is a potential cinder-box. Brexit took an arguably nasty turn, with some suggesting the latest developments in that battle could bring about a constitutional crisis. The catalyst was news that the Queen had approved UK Prime Minister Boris Johnson’s request to suspend Parliament in the lead-up to the October 31 Brexit deadline. The decision effectively stifles the ability of anti-Brexiteers to delay Brexit further – in particular, to ram through a successful no-confidence motion in the Johnson Government that would send the UK to a fresh general election.

Pound tumbles, as risk to UK economy grows

The Pound fell as the Brexit developments played-out during European trade. Any optimism Boris Johnson’s fledgling government could be ousted before the Brexit deadline is being quashed once more. The Cable isn’t trading anywhere near its recent lows yet. However, a 0.6% fall in the last 24 hours suggest the Sterling could be heading back towards that point very soon. A recession in the UK is looking increasingly likely. The Bank of England ought to be cutting rates soon. However, market pricing still suggests that the BOE will have little choice but to wait for the outcome of Brexit before making a decisive move.

The Dollar a sleeping giant

The overflow from a weaker Cable – not to mention Italy’s own political chaos – has contributed to flow moving away from riskier-currencies and European currencies into the USD. The Greenback climbed during Wall Street’s session, as the pull of safety and tasty-enough yield drive investors into US Treasuries. The Dollar remains the sleeping giant in financial markets currently. It’s recent trend hasn’t been explosive, but it has mean consistent: the Dollar is grinding higher, as investors flocked to the safest and most liquid assets available. A Dollar break-out could be destabilizing, and spark massive volatility in global currency and fixed income markets.

A bigger crude drawdown eases growth-fears

A streak of notionally good news came from the oil market last night. US crude oil inventories data was posted for the week, and showed a much bigger than expected drawdown in inventories. It calmed some of the concern – very, very slightly – that demand for oil has fallen of a cliff, because of the unfolding slowdown in global economic activity. Trade in oil is a curious, and an uncertain reality right now. OPEC and other oil producing nations are doing their best to manage production to stabilize prices. But the fear of a global recession is keeping upside in crude limited, with an overall downtrend in its price seemingly still in place.

CAPEX data to highlight economic calendar

The local economic calendar will be highlighted by private CAPEX data today. After yesterday’s print of much worse than expected local construction numbers, and leading into next week’s GDP release, traders are slightly more sensitive to CAPEX numbers than they might have been in the past. There’s the burgeoning fear that business activity and investment in the Australian economy could be slowing down at a rate worse than previously thought. Market participants are increasing bets, once again, that an October rate cut could be on the cards. That dynamic has driven the AUD/USD back into the low 67’s once again.