Brexit delayed again; traders fret about global growth

Risk appetite remains feeble

The can was kicked a tiny-bit further down the road in Brexit on Saturday, after UK MPs failed to pass UK PM Boris Johnson’s Brexit-deal. The Pound remains elevated, however, as hopes for the passage of the deal remain high. That’s also pushing down on the greenback. Concerns about global growth were also piqued on Friday, after China’s monthly data dump revealed weaker than expected GDP growth. That lead to weakness in global equities on Friday, with the S&P 500 pulling-back, despite a so-far solid reporting season. And the Australian Dollar is also slightly stronger, after RBA Governor Philip Lower tempered expectations for more interest rate cuts.

Brexit delayed again

Just when the multi-year Brexit saga looked likely to come to an end, another obstacle has been thrown into the way. UK Parliament failed to vote on UK PM Boris Johnson’s withdrawal agreement during Saturday’s special parliamentary sitting, voting instead to delay deciding upon any agreement until an official extension of this month’s Brexit deadline was safely assured. That piece of legislation, known as the Letwin Amendment, passed the House on Saturday, forcing UK PM Johnson to request an extension of the October 31 Brexit deadline from his EU counterparts. PM Johnson’s deal is still live; but it won’t be voted on until some stage this week.

A “meaningful” vote on Brexit could come tonight

A Brexit deal being passed through the UK Parliament rests on matters of Parliamentary procedure, UK PM Boris Johnson’s ability to wrestle votes, as well as the EU’s willingness to grant an extension. Despite the latest twist in the Brexit-tale, hope in the market remains high that a deal will materialize. The Pound is trading above 1.29 this morning, even in light of the weekend’s events, suggesting that Johnson’s deal ought to have the numbers to get his deal through Parliament. The next “meaningful” vote on the deal could arrive today, with traders to remain on high-alert as the news flows through.

The USD victim of Pound and Euro strength

The burst in the Pound, and at that, the Euro, sent the USD tumbling at the back end of the week. The USD Index traded into the 97.00s on Friday night, as the Pound and Euro rallied, as traders assume a better than previously assumed growth outlook for the European region. Structurally, the USD hasn’t abandoned its uptrend yet. But following years in which safe-haven flows have been pointed away from the GBP and EUR, the prospect that both currencies could return to behaving like the G4 currencies that they are could bode poorly for the USD’s bull-trend.

China GDP stokes global growth fears

Concerns about the global growth outlook were stoked once again on Friday. China’s monthly data dump came during Asian trade, and revealed GDP growth in the Middle Kingdom’s economy softened to 6.0% on a year-over-year basis. Though the other data-points weren’t so terrible at all, the GDP figure, which showed economic activity at the very lower bound of the Chinese Communist Party’s 6.0 – 6.5% target range, re-inflamed concerns about the global economic outlook. Stock markets across the globe fell on Friday, largely due to this news, with the ASX 200, for one, shedding 0.52%.

US stocks fail to rally despite solid start to reporting season:

The S&P500 also pulled-back to end the trading week on Friday. The benchmark S&P500 proved unable to hold onto the 3000 mark once again. There is a tangible lack of upside momentum in risk-assets currently, and that’s best summed-up by price action in the S&P 500. Even despite progress in US and China trade-talks, as well as Brexit, global economic uncertainty is still stifling investor sentiment. This, too, comes even in light of what’s been a relatively solid US earnings season. At the end of the first week of the reporting period, roughly 80% of companies have beaten earnings estimates.

RBA pours cold water on rate-cut expectations

In news of local import on Friday, traders moved once again to lower their bets of further RBA policy easing before the end of the year. In a speech delivered at the IMF in Washington, RBA Governor Philip Lowe suggested that, given current circumstances, he sees Australia’s growth returning close to trend in 2020, and that, as such, further rate cuts should not be assumed as given. Backing-up Thursday’s better than expected local jobs data, the comments saw the market move to price-in only a 50-50 chance of another rate-cut this year. That’s pushed the Australian Dollar back to around the 0.6850 mark.