Brexit set-back sends risk assets lower

A notionally risk-off day

The momentum from Monday’s positive start to the trading week proved short-lived. Wall Street indices generally failed to add to their gains, in the absence of a true risk-on catalyst. There wasn’t a great depth of high-impact news during overnight trade, so safe-havens only marginally outperformed risk assets. Brexit was the dominating story, with UK Prime Minister Boris Johnson facing another set-back in pulling the UK out of the EU by the end of the month. Canadians went to the polls and re-elected PM Justin Trudeau. The night’s trade has the ASX 200 set for modest gains this morning.

You win some, you lose some, Boris

The Pound whipped-about last night as UK Parliamentarians voted on UK Prime Minister Boris Johnson’s divorce agreement with the EU. The votes were broken into two parts. The first, was a vote, in principle, on the actual substance of the Withdrawal Agreement. The second, was a vote on the permissible timeline for Brexit – that is, whether it could be “rammed through” before the October 31st deadlines. In what proves that it’s a fine line between pleasure and pain in politics, UK MPs voted in favour of PM Johnson’s deal, but voted against rushing Brexit through by this month’s deadline.

A little more uncertainty than before

Having rallied on the passage of the Withdrawal Agreement, the Pound took a spill after MPs voted to effectively extend, once again, the Brexit deadline. The prospect of a no-deal Brexit – that which is considered the worst of all outcomes for the UK economy – remains low. Hence, the Pound has held onto the 1.28 mark this morning. But a series of variables open up now that kill the certainty for which traders had been hoping. Another general election is on the cards in the UK now. So too are possible amendments to the Brexit-bill, that could bring about new disagreements regarding the shape of Brexit.

Safe havens lift and stocks dip on Brexit vote

The set-back to an October Brexit has upset broader financial markets. The Euro has fallen with the Pound, and that’s driven flow back into the USD. Bond yields have fallen as investors sought out, very marginally, safe havens. That put a little light under gold prices in late US trade, which pushed back towards the $1490. The S&P 500 fell into the close following a middling day’s trade, closing below the 3000 mark again. As ever a proxy for risk-appetite, the Australian Dollar dipped after the vote in the house of commons, though it does remain safely around 0.6850, for now.

Confidence rattled by Brexit vote

Brexit is a kick in the guts for investors, but the blow would be far-less wrenching if market fundamentals were a trifle stronger. US reporting season remains at the core of investment market activity right now, and although corporates have delivered above average earnings beats, the focus remains fixed on downgrades for the future. Analysts have cut earnings growth forecasts for the year ahead by half-a-per-cent so far this earnings season. The results received last night were heartening it must be said, with likes of Procter and Gamble soundly beating estimates. Attention will turn now to heavyweights like Boeing, Amazon, Microsoft and Caterpillar, which report in coming days.

Oh Canada!

North of the US border, and one eye was being kept on Canada in global markets yesterday. The Loonie rallied briefly, after Canadian PM Justin Trudeau won re-election. Not necessarily the most pro-business candidate, the resolution of a knifes-edge election has proven good for Canadian assets. The Canadian Dollar itself has been a relative outperformer in foreign exchange markets this year, despite its status as a “growth” or “commodity” currency. With Canada’s economic fundamentals looking strong, and the US Fed looking prepared to cut rates next week, traders will be watching how the key 1.30 level for the USD/CAD holds ups going into the final stages of 2019.

ASX waiting for a strong lead

Locally, the ASX is set for a soft, albeit positive, start to today’s trade, with relatively little on the economic locally calendar, still, to drive financial markets in the next few days. Cyclical sectors outperformed yesterday, off the back of the night prior’s positive trade-war chatter from the Trump administration, carrying the broader ASX 200 0.3% higher. Investors will continue to take cues from international leads, especially as traders eye potentially market-moving US corporate results, as well as a spate of global PMI figures on Thursday, which could either relieve global-growth fears, or ignite them.