Brexit hits another impasse, as new extension looms

Brexit and US earnings the big themes

Markets continue to amble as traders enter the final stanza of the trading-week. Brexit developments remain the dominating issue, with hope briefly springing last night after the UK and EU announced a new and highly anticipated accord. The positivity was short-lived, however, as the UK’s parliamentary arithmetic continues to stand in the way of any deal becoming law. Stateside, the S&P 500 edged higher with little conviction as earnings season rolls-on. Locally, jobs numbers yesterday were better than expected, and lowered the odds of an RBA cut next month. And in the Asian session today, the big news will be China’s monthly data-dump.

Temporary euphoria on Brexit-deal

The ticker-tape parade had set-off in European trade last night, upon news that UK Prime Minister Boris Johnson and his EU counterparts had struck a new Brexit-deal. The new agreement would see the replacement of the controversial Irish-backstop replaced with a customs border in the Irish Sea, removing the risk of a physical border on the Irish mainland. This would have the effect of taking the entire UK out of the EU’s customer union, but allow for customs checks of goods going between the UK and Northern Ireland. The Pound rallied into the 1.29 handle upon the announced agreement, as traders priced-in an October 31 “soft-Brexit”.

DUP says “no dice” to Johnson deal

The euphoria proved fleeting, however, after the Democratic Unionist Party released a statement suggesting it would not be support PM Johnson’s new-deal. "These proposals are not, in our view, beneficial to the economic well-being of Northern Ireland and they undermine the integrity of the Union” the statement read. The crux of the DUP’s concern: despite the new deal providing for a mechanism for North Ireland to remove itself from the arrangement in future, at present, the new deal would create a divide between itself and the UK mainland, as well create economic barriers not in Northern Ireland’s interests.

Another extension to the Brexit-deadline likely

There’ll be cattle trading going on for the next 24 hours as UK PM Johnson’s government attempts to change the DUP’s mind. But the problem appears intractable. That means that tomorrow, Parliament will sit in a special convening of the House of Commons to vote on a deal that’s seemingly dead in the water. If a Brexit-law can’t be passed through the House, then the next step is that the Benn Act comes into play. That is: PM Johnson must go back, cap-in-hand, to the EU to ask for another extension to the Brexit deadline, to the end of January 2021.

S&P500 bumps its head on a psychological barrier

Things were much less complicated in Wall Street trade overnight. US stocks rallied, but again with little vigour, with the S&P 500 playing-around with the key 3000 level once more. Market sentiment was notionally positive during US trade, after another US bank – this time Morgan Stanley – beat earnings expectations. It’s still early days, and basically only handful of banks and industrial firms have reported, but 80 per cent of companies that have reported have beaten estimates so far. Things will really heat-up from next week now, when the meatier part of the reporting period begins, and some of the US tech giants are scheduled to report.

Aussie jobs data lowers chance of RBA cut

Australian jobs numbers was the market moving event yesterday. The Aussie Dollar popped half-a-per-cent, while the ASX 200 fell and bond yields climbed, after the unemployment rate fell to 5.2% in September. The fall in the jobless rate only really came courtesy of a drop in the participation rate, with the total jobs added to the economy last month coming in at a modest 14k. The slack in the economy appears not to be getting any worse, for now though. The need for another RBA cut next month is limited, with traders pricing in only a 20% chance of that occurring.

A health-check on China

Today’s trade in Asian will be centred around a health check of the Chinese economy. It’s that time of the month where traders get the Middle Kingdom’s big data-dump. GDP data is also released as a part of this tranche of data, and is expected to show China’s economy expanded by 6.1%. Having spent the last week dialling-up the optimism regarding global growth following last week’s US-China trade-truce, the markets have the opportunity to get a read on what damage has already been done by the trade-war. Another underwhelming batch of Chinese data could return global growth concerns to the fore today.