Brexit to keep rolling-on; risk assets climb to begin week

Risk assets pop, though uncertainty persists

It’s been a generally quiet beginning to the week. Brexit remains the issue of highest priority to traders, and it hit another speedbump overnight, despite overall optimism that a Brexit-deal will pass through UK Parliament. Positive headlines regarding the US-China trade-war also bolstered sentiment, and that supported yesterday’s stock-market rally. This came even as several data-points confirmed the current slowdown in international trade. Nevertheless, Wall Street equities rallied, even as analysts begin a new round of downward revisions for future earnings growth. All-in-all, it was a notionally risk-on day in global markets, and that’s setting up the ASX for positive start this morning.

Pound whipsaws as Brexit stays on knife’s edge

The Pound traded in a volatile fashion again yesterday, as UK PM Boris Johnson’s Brexit-agreement teeters on a knife’s edge. Last night, PM Johnson’s bid to hold another “meaningful vote” on his withdrawal agreement was slapped down by UK Speaker of the House, John Bercow, who asserted that it was against Parliamentary convention to discuss and debate an issue twice in the same Parliamentary sitting. PM Johnson’s government is being forced into abiding by Parliamentary procedure to ram his Brexit-deal into law, with the first of several stages of the Withdrawal Agreement Bill now likely to be tabled before the House tomorrow.

Markets optimistic Brexit will get done

Though roadblocks seem aplenty, the broad view is still that UK PM Johnson will indeed “get-Brexit-done” soon. Despite experiencing a high level of chop on Monday, a resilient Pound suggests confidence is high a Brexit-deal will be accomplished. Having swung in a 1% range to begin the week, the GBP/USD is trading robustly at present in the high 1.29-handle. The market clearly thinks Johnson possesses the numbers to win the next “meaningful vote” on Brexit. This notion is being backed-up by betting markets: punters ascribe an approximately 65% chance a deal will be done.

Trade-war headlines supports Wall Street rally

Positive trade-war headlines provided a marginal boost to stocks during North American trade. Hopes for progress in US-China trade-talks were ostensibly stoked by comments from US President Donald Trump’s economic advisor, Larry Kudlow, that should current trade-talks go well, the US would consider removing the tariff-hikes planned for December. Certainly, running commentary from the Trump administration about trade-negotiations is hardly the stuff to hang one’s hat on. Nevertheless, in the day-to-day noise of financial markets, the comments were welcomed. Stocks rallied with other growth-sensitive assets like the AUD overnight, while safe-havens like government bonds, the JPY and gold fell.

Global trade still slowing down

In seemingly pricing-in greater optimism regarding the trade-war, traders looked through a spate of economic data that showed the consequences of weakening international trade-flows. Trade data was published out of Japan and South Korea yesterday, and showed that both countries experienced a significant year-over-year contraction in exports last month. The South Korean numbers were especially striking. Often considered a “canary in the coalmine” for the global economy, given its strong trade relations with both the US and China, South Korea’s trade data revealed a -19.5% fall in exports in September, implying the global economy is some way off shaking-off its recent malaise.

US earnings season solid, but comes with downgrades

So much is still being baked into earnings forecasts for US stocks. As the US reporting period rolls on, stock-analysts have begun lowering their expectations for earnings growth amongst US corporates in the year ahead. According to Bloomberg data, Wall Street analysts downgraded earnings growth estimates for the year ahead by -0.5%. This comes despite what has been a surprisingly strong US reporting season, so far. Of the companies that have reported, over 80 % have beaten of firms have beaten estimates. The market’s mettle ought to be better tested this week, as traders prepare for reports from the likes of Amazon, Microsoft, Caterpillar and Boeing.

ASX subject to lukewarm sentiment

The ASX 200 ought to open roughly 20 points higher this morning courtesy of Wall Street’s positive lead, according to futures markets. It backs up what was a tepid day’s trade for the ASX, which after sustaining early losses on Monday, scrambled to close the session practically flat. A stronger currency and higher bond yields has curbed upside momentum in stocks in recent days, as an appetite to take-on greater risk clearly wanes across the market. Economic and corporate data are light in the week ahead, so the ASX will likely continue to take its cues from overseas markets for the time being.