Lunch wrap: bulls limp, pound holds losses

Forex

Bulls have been a bit limp, stumbling out of the gate with their tails up but quickly getting bogged down on decidedly heavy going turf.  European markets perked up early but ran out of steam heading towards lunch. Having initially popped higher the Euro Stoxx 600 turned negative, sliding 0.3%, while the DAX edged 0.4% lower before paring losses a touch. The FTSE 100 held onto slim gains as sterling softened as the odds shortened considerably on the Bank of England cutting interest rates this month.

Chinese trade delegation is said to have left Beijing, on their way to Washington to sign phase one deal.

GBPUSD is softer, beating a retreat under 1.30 as markets aggressively reprice for a BoE rate cut this month following comments from rate setter Vlieghe and weak eco data (See earlier note, BoE: Stitch in time saves 9). EURUSD has been steady at 1.112 but USDJPY is firming with the pair crossing key resistance around the 200-week moving average around 109.70/80, to hit 109.9  

Crude oil is steady at $59 with little in the way of catalysts. Lots on the wires from Saudi Arabia on production but long and short is they are looking to extend output curbs agreement come March. Likewise, gold held the line around $1550 but is showing no real direction. 

US pre-mkts 

US stock futures indicate a solid open with the Dow eyeing a c70pt gain, having earlier looked at a triple-digit gain when the cash equity market opens. 

Lululemon shares rose c2% pre-mkt after it said raised its guidance, saying Q4 revenues would be between $1.37bn and $1.38bn, from previous guidance of $1.32bn to $1.33bn. 

Alphabet is on the verge of joining the $1 trillion market cap club. Shares were a little higher pre-mkt after Evercore ISI raised their price target on the stock to $1600 from $1350.  

Tesla bears are throwing in the towel. Shares were up 2% pre-mkt to $488 after Oppenheimer raised its price target to a Street high $612 from $385. Microsoft price target raised to $180 from $155 at Credit Suisse, whilst Apple’s price target was raised to $375 from $300 at Davidson. 

Stocks firm before NFP, Dax bulls eye all time high

Forex
Morning Note

Fading Middle East tensions and a US-China trade deal so close you can smell it helped lift the three major US indices to record highs yesterday.

The Dow rallied 200pts and got within 12pts of breaking the 29k level. Overnight futures prices have ramped higher, taking the Dow through this level and indicating it could open around 29,040 when the cash equity market opens. The S&P 500 ran into a brick wall at 3275 but futures imply a breach today on the open to 3283. This steamroller is not one to get in front off to pick up pennies.

Apple shares smashed new all-time highs to hit $310 with data showing an 18% surge in China sales. The stock has already rerated to trade about 25x forward – much upside left? Needs solid EPS growth which I think we will get in Q4. We’ve already had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward. 


Asia has been broadly higher and European equity markets are on a firm footing again.

The DAX is looking to open higher, through 13,520 adding to yesterday’s 1.3% gain. A tilt at the all-time high and a breach of 13,600 is on the cards if sentiment holds.

Today’s nonfarm payrolls are the main economic event. Markets anticipate payrolls +162k, with average earnings +0.2% and unemployment at 3.5%.

Remember last month a blowout jobs number sent equities higher along with the US dollar and Treasury yields, as it suggested the US economy was doing better than many corners of the market feared. The headline print was miles ahead of expectations, coming in at 266k vs 180k expected. Unemployment at 3.5% was exceptionally strong, too.  September was revised up 13k to 193k, while October was also revised higher by 28k to 156k. Private payrolls also very strong at 254k. Should we worry about the Fed pivoting again? I don’t think so and the market clearly thinks the same.

The Fed can stand this sort of hot reading for a while yet – jobs growth is averaging only 180k this year vs 223k last year. And whatever privately you might think about whether the Fed should be maintaining an easing bias in this environment, it’s made it very clear that it will take a sustained and pronounced rise in inflation to warrant a hike.

The Fed has made it clear it will let inflation and the economy run hot, so today’s numbers can’t really miss as far as equities are concerned. A weak reading only raises prospect of quicker policy response and may lead to the USD handing back some of the recent gains. 

Oil remains weaker having taken a decisive step under $60 to trade through the bottom of the rising channel it’s tracked since Oct. Support is clear at $59, where our lower trend line meets the 50-day moving average, and this may be where longs stage their defence.

Gold likewise seems to have based for the time being with support holding around $1545. In early European trade we saw a push back to $1550. Real yields are not supportive of pricing as they creep back higher.

In FX, the dollar is still bid. USDJPY is facing double resistance. Having cleared the 200-day and other MAs bulls are looking to break the trend line drawn from the falling highs since the swing high of Oct 2018, at 109.50. Then there is long term 61% Fib level to cross at 109.60 where we have seen rallies hit a wall several times lately. This area is offering a decent amount of resistance as a result but if taken out could see a sharp spike higher.
EURUSD was little changed at 1.11090. Yesterday’s doji candle looks more like indecision than reversal but having touched on the 50-day moving average and rejected it, bulls may sniff something. However the momentum remains with the bears.

GBPUSD has come off its lows to trade at 1.3080, following Mark Carney’s outgoing speech which the market decided was more dovish than before. He’s on the way out anyway, two doves are already voting for cuts – the BoE will cut this year. What Carney says is no longer relevant.

Midday wrap: Europe higher as risk appetite returns, DAX near ATHs

Forex
Indices

European markets enjoyed solid gains Thursday as risk appetite returned. But the rally hardly betrays a wanton desire for equities because a) we’re already at or near record highs and b) the selloff had not been especially deep despite US-Iran conflict fears seeing havens enjoy firm bid. Even a shaky ceasefire is enough right now to support the bulls. Stronger-than-expected German industrial production figures (+1.1% vs -1.7% prev and 0.8% est) are helping sentiment, particularly in Frankfurt.

The DAX has led the charge with a 1.25% push higher to 13,485, having earlier touched a high of 13,522. With investors apparently keen to load up on risk with US-Iran tensions easing and a US-China trade deal baked in, we may well see the drive to January 2018’s all-time high just shy of 13,600. Geopolitical risks remain of course with the situation in the Middle East still fluid, but you get the sense the bulls are keen to push this over the line. 

The FTSE 100 added 0.5% to break 7600 with resistance seen at 7675, the high posted Dec 27th.  A softer pound is compensating for the weaker oil price.

Elsewhere US markets are firmer again with the Dow shaping up for a triple-digit gain on the open.

Oil has held just short of $60 with no further losses while gold is also holding the line around $1545. 

In FX, the pound took a drubbing as the market decided Bank of England governor Mark Carney’s comments were more dovish than before. GBPUSD slipped the 1.31 handle to test support on the 50-day moving average around 1.3010. I don’t see much in what he said as particularly more dovish than in the past. Commentary around the likelihood of the UK agreeing a trade deal with the EU before the end of 2020 is also weighing on the pound today. 

Meanwhile, as flagged in the morning note, the bullish engulfing daily candle for USDJPY is resulting in further gains today with the pair moving to 109.50 and momentum in favour of USD across the board. Having cleared the 200-day and other MAs bulls are looking to break the trend line drawn from the falling highs since the swing high of Oct 2018. Big 61% Fib level to cross at 109.60 where we have seen rallies hit a wall several times lately. This level will offer a decent amount of resistance as a result. 

US pre-mkts 

Cowen has come out with a bunch of price target upgrades 

Facebook raised PT to $245 from $240 

Alphabet raised PT to $1575 from $1525 

Twitter raised PT to $34 from $32 

Elsewhere AMD shares are up c2.5% pre-market after Mizuho raised the stock to buy. 

Benchmark has initiated Lyft with a sell rating , price target of $35, which is $10 below yesterday’s closing price. 

Boeing shares are up a touch pre-mkt despite Berenberg cutting to hold. After enjoying a thumping 5% jump yesterday, Tesla shares are a touch softer pre-market after being cut to neutral at Baird, a long-time bull which seems to think the recent rally has run its course. They said: “we would not short the stock and remain positively biased over the long run.” See yesterday’s Equity Strategy: US earnings Q4 preview: Two major stocks to watchfor more on Tesla.

Stocks bounce, oil + gold rallies fizzle

Forex
Morning Note

There has been an abrupt reversal in risk appetite after Donald Trump’s measured respond to the Iranian strikes. Far from stoking tensions, he used the moment to step back from the brink, saying Iran appears to be standing down and raising economic sanctions. It looks as we called it – Iran saves face with those air strikes but the regime made damn sure the US wouldn’t escalate. In short, it looks like the shooting war is over for now, but there is always the potential for escalation at any point. But the relative calm should mean the focus will come back to the economic data and US-China trade deal.

US stocks made gains as investors turned risk-on with the Nasdaq setting a fresh intra-day and closing high, rising 0.7%. The S&P 500 made a new intra-day high, but dipped at the death on some sketchy reports of rockets being fired in Baghdad to finish 0.5% higher at 3,253. The Dow’s gains were held in check by Boeing but still rallied 161pts to mark a near 700-pt swing off the lows of the day hit before the cash equity market opened.

On Thursday, US stock futures point to modest gains. Asia rose overnight with the Nikkei jumping more than 2%.

European markets won’t miss out on the party and are set to bounce amid this broad relief rally. The DAX is looking to open up about 100pts higher around 13,445 while the FTSE is shaping to rally 30pts for a 7600 handle.

Oil has completed an 8% round trip to $65 and then back below $60. Certainly the geopolitical risk premium is vastly diminished, but the genie’s out of the bottle and we may expect the gently rising slope of price action to continue once it bases. Yesterday’s outside day bearish engulfing candle points to near-term downside risks. Crude prices are starting to test 50% Fib level of the decline from the 2018 high to the low the same year around $59.60, with the 50-day MA coming in at $59. Even the lower end of the uptrend channel is starting to come into view – could start to see a bounce but hard to say when the base is found. Bearish US inventory data added to the pressure on oil prices as EIA data showed a build of 1.2m barrels, following draws for the last three weeks.

Gold was also substantially weaker, slipping to the $1545 region having earlier smashed through $1600. Another bearish engulfing candle suggests near term weakness and the rout has continued into today’s session.

USDJPY also shows a big engulfing candle – this time bullish –  pointing to the recent downward move ending and offering near-term upside potential. The falling trend line from the 2018 high is coming into play and offering resistance around 109.30. Clearance of the 200-day moving average is bullish.

Elsewhere in fx the euro and sterling are softer vs the buck but not tumbling. GBPUSD is finding round number support at 1.31 and has rallied from last evening’s lows. The failure of EURUSD to break 1.12 to the upside continues to back a bearish near term view but the extent of the pullback is up for debate. Rising trend support around the 1.110 has been tested and held for now. On the 4-hr chart the hammer candle points to a bullish reversal on the rising lower trend line of our channel. 4hr moving averages turning south however.

Sterling finds support at 23.6% Fib level

Forex

Sterling has found support at the 23.6% retracement of the rally from the Sep 2019 lows to the post-election euphoria highs. GBPUSD pushed through 1.32 at one stage on Tuesday, moving firmly clear from the support level at 1.3140.

The move erases much of the declines from last Thursday and Friday and may signal a recovery that bulls can use to base for a push north of 1.32 again. 50-day moving average support appears at 1.30 and is rising.

The rally ran out of legs at the 50% retracement of the decline from the Dec highs to the recent lows around 1.3220. Corresponding to this move, it’s the 38.2% retracement at 1.3140 that offers support near term. Double Fib support looks powerful.

Sterling trips on new cliff edge, Unilever dips

Forex
Morning Note

Sterling tripped over its heels as Boris Johnson is looking to legislate for Britain to leave the EU fully in Dec 2020 with or without a trade deal. That means no possible way to extend the transition period. I must confess to believing he wouldn’t need to be so drastic, that a large majority offered the flexibility yet strength a government craves in deal making. This sets up another cliff-edge and could create yet more months of uncertainty for investors just when we thought all was squared away.

GBPUSD plunged to the 1.3240 area before paring losses to trade around 1.3260. Elsewhere in FX, the Australian dollar was softer as the RBA signalled it’s looking at further cuts, possibly in February. AUDUSD traded at 0.68580 as of send time, its weakest since last Wednesday. EURUSD steady at 1.1140. Signs in the dollar index that it’s rolling over.

Equity markets remain buoyant but we are seeing some softness in Europe on the open. We’ve had a really good run for the last two or three sessions so it’s a good time for a pause and consolidate around this level. In particular we need the FTSE 100 to hold this 7500 level.

The S&P 500 made a fresh record top, though Boeing’s travails left the Dow glittering a little less. Europe’s Stoxx 600 made a record high. Asia took the cue to make 8-month highs overnight. 

Equities

Unilever shares fell 5% in early trade as it warns that sales growth is more meagre than expected. Management expects underlying sales growth for 2019 to be slightly below its guidance of the lower half of its 3-5% multi-year range. 

The company puts it down to economic malaise in South Asia, with the CEO on the conference call saying it’s down largely to India’s rural markets, although these are expected to bounce back in the second half of next year. Meanwhile management says trading conditions in West Africa remain difficult. Developed markets continue to be challenging, but management did point to ‘early signs’ of improvement in North America as it picks up ice cream market share.

Earnings, margin and cash are not expected to be impacted. Weaker sales growth is a problem, but lately we have been encouraged that earnings growth is being driven by price rather than volume. However, the problem for fast-moving consumer goods giants with the big brand names is that consumers have a lot more choice and are more discerning than ever.

UK assets surge on huge election win for Boris Johnson

Forex
Morning Note

Sterling jumped sharply, enjoying its best gain in a decade as the Conservatives romped home to a convincing victory, while the FTSE also rose as investors enjoy the Boris Bounce. Broadly equity markets were well bid as hopes of a US-China trade deal crystallise into something more concrete.  

Huge win for Conservatives in UK general election

The Conservative Party has secured an historic mandate with a thumping victory, providing clarity for investors where there was confusion. For the markets and for business this is the perfect result – a clear majority for the Tories, the Corbyn risk nullified entirely, a major reduction in uncertainty around Brexit and even a quick Budget to inject the economy with some added impetus. The only doubts are around the next phase of Brexit – the future relationship – but with a large majority the government will be in a better place to negotiate and do what it needs to do.

GBP/USD, MARKETSX, 10.50 GMT, December 13th 2019

Sterling was heavily bid on the news. The going was looking a tad heavy but the ground firmed once we had the exit poll. GBPUSD surged to as high as 1.35 but pared gains a touch to trade around 1.3470 heading into the morning session. Near-term a look to 1.36 and thence to 1.37 seems feasible.

UK stocks surge on Tory election win

The FTSE 100 rose over 100 points to trend above 7,388, moving higher despite a clear drag from the stronger pound, which will cap gains. The City has awoken and the relief rally on a massive Tory win has begun. I think 8,000 looks overly bullish as a target, but something like 7700 before the year is out is doable. Near-term, 7440 offers a big test.

FTSE 100, MARKETSX, 10.50 GMT, December 13th, 2019

Now calls for a rebound in confidence in UK plc. Fundamentally undervalued UK equities – forward PE multiples have been very cheap versus European and US peers of late – will now look especially appealing as they have largely missed out on the rally seen elsewhere. The FTSE 250 put in more considerable gains – up 1,000 points to easily take out 21k and hit an all-time high. Sterling and UK equities are in for a Boris Bounce.

Remember just how cheap UK equities had become – trading on 12-month PE multiples of about 13 vs about 15 in Europe and 18 on the S&P 500. The FTSE 250 nearly made it to 22k but topped out an all-time high at 21,910. The FTSE 100 added about 100 points.

UK equities were basking in the warm glow of the Tory victory as investors threw out their worst-case scenarios for the British economy. There are some seriously relieved investors – and bankers and corporate financiers.

In particular, we are seeing some absolutely stonking moves among the UK-focused equities. Anything largely exposed to the UK economy took off at the open, while the drag on dollar earners from the stronger pound was not so large as to worry the market. It all points to a huge vote of confidence in the prospects for the British economy as a result of the Tory win. You just cannot understate the sense of relief here in the City.

Utilities had been suffering from a significant Corbyn discount and exploded as the threat of nationalisation evaporated with the Labour vote – United Utilities, Severn Trent and National Grid all jumped around 8%, while Centrica jumped 9%. 

Housebuilders were also undervalued and caught a bid on hopes that construction will benefit from the Conservative victory. We should also consider the potential risk that a Labour government could have posed to their profits being removed. Barratt Developments and Taylor Wimpey both rose more than 10%, while Persimmon was among the top movers at +14%. 

Banks were also bid – with the most heavily exposed banking stocks to the UK economy enjoying the biggest gains. RBS and Lloyds both rose 11%, with Barclays up nearly 8%. Investors are also needing to dial back their expectations for a Bank of England rate cut so this is an important boost for the banking sector in the UK, with Lloyds in particular the most exposed to the mortgage market.

Elsewhere retailers found new support with Dixons Carphone shooting 16% higher, with Marks & Spencer and Sports Direct +6%.  

Property, retail, banking, utilities – the whole lot is seeing a huge rotation.

Asian stocks higher on trade sentiment

Asian markets have rallied strongly overnight, taking their cue from the records on Wall Street as it seems a phase one trade deal is as good as done. Although not quite signed, sealed and delivered, it seems like the US and China have come to terms. 

The White House will cancel the planned tariffs on $156bn in Chinese goods scheduled to take effect on Sunday, whilst also cutting by half the existing tariffs on around $360bn of Chinese goods.

Does it mean we get a comprehensive deal in 2020? Hard to say, but it this has created the necessary Christmas cheer for a decent Santa Rally. It does rather look like some of the worst risks and headwinds are fading away – a phase one deal complete, greater political certainty for the UK and even a slightly upbeat ECB. 

Some doubts creeping in about whether China has accepted this deal – of course if it were to be scuppered now there would be a sizeable downside for equity markets given the ramp we have seen.

Tokyo surged 2.5% to its best level in over a year above 24k. Hong Kong rallied 2% and mainland China is up over 1%. 

Earlier US equity markets had surged to new all-time highs after Trump first tweeted the deal was oven ready. 

European indices are pointing broadly higher.

The dollar was offered with DXY down to a 96 handle and its weakest since July. EURUSD has rallied through 1.1170 and held the gains.  

Risk-on moves hammer bonds, gold dragged lower

Bonds were crushed by the risk-on sentiment from the trade deal – US 10s taking 1.95% at one point.   Higher yields knocked gold but prices haven’t capitulated entirely. Having traded at a high of $1486, gold has retreated to $1467 having hit a low of $1462. The fact prices haven’t retested the earlier Dec lows suggests there is still bid there. Crude oil held gains with WTI above $59.50.

Sterling hit by polls as traders weigh hung parliament chances

Forex
Morning Note

Sterling remains highly susceptible to polls and specifically exposed to big downside moves on anything other than a solid Tory majority: last night’s MRP edition from YouGov showed a sizeable narrowing in the Conservatives’ lead and raised for the first time the possibility of a hung parliament. The central case remains for a Tory majority of 20-30, but we are dealing with fine margins for error. Markets for the first time need to worry about a hung parliament and what that might mean in terms of more uncertainty over the economy and Brexit.

For traders – it means election night could be very interesting indeed. We’ll be increasing staffing overnight, looking particular at the exit poll at 22:00, and preparing for a potentially highly volatile session, with all that would normally imply in terms of reduced liquidity for GBP pairs and U.K. assets anyway. Then it’s going to be all hands on deck on Friday morning as the markets reopen to whatever brave new world the voters have chosen for us. Spreads may widen out of hours for assets like the FTSE and GBP crosses, whilst gapping even in FX pairs may occur. A hung parliament takes back to a 1.27 handle on cable, and could see UK-focused stocks on the FTSE 250 hit hard.

Having been bid up ahead of the poll’s release, the pound took fright at the poll data and GBPUSD plunged nearly one big figure from north of 1.32 to around 1.3110. The pair has pared losses overnight to reach 1.3140.

The good news is the polling is just about over – the next major one is the exit poll just after 22:00 on Thursday. This has been very accurate over the last 25 years.

Yesterday, Wall Street slipped as the tariff deadline comes into view and markets stand by for the Federal Reserve decision today. Trade talks appear their usual on-again, off-again self.

Stocks were mixed but generally flagged. The S&P 500 eased back 0.1% but had been positive at times, while the DAX was down 0.3%. The Stoxx 600 pared losses of 1.1% at one stage to close down 0.3%.

European markets this morning are set to open flat with the FTSE 100 at 7235 off the back of the pound’s fall since the close yesterday.

FOMC on tap at 19:00 GMT. The Fed is likely going signal it’s sticking to its dovish mantra. Whilst no rate cut is anticipated, we may well see evidence of a noticeable shift in the Fed’s stance: specifically that it’s now willing to do whatever it takes to stimulate the economy. Powell has already said it will take a sustained and significant uplift in inflation to warrant a hike, whilst there’s chatter about essentially parking the 2% inflation target to let the economy run hot.

The persistent lack of inflation means it has a free hand to go as low as it likes, it’s only maintaining the mask of prudence by not cutting more aggressively. Moreover the drag lower from trade, global economic stress and the move to lower rates in other major economies means this is by far the path of least resistance. Out go concerns about financial stability or asset bubbles. The danger now is the Fed is becoming the monetary policy wing of the White House.

OPEC risks disappointment, US jobs report on tap

Forex
Morning Note

OPEC and allies are poised to formally agree to a policy of deeper production cuts, but there’s not a lot for bulls to be glad about. The 500k bpd increase to 1.7m bpd sounds good but only reflects existing over-compliance, led by Saudi Arabia, which has been pumping less than it is allowed, and it’s going to be short-lived. The deal looks at the moment to only extend through the first quarter of 2020. If OPEC doesn’t extend the curbs through to the end of next year it could act as a de facto loosening of supply that markets would punish with lower prices. There’s a real risk that even with deeper cuts OPEC fails to live up to expectations. We could of course see another meeting soon after this one to agree an extension – critical to today’s formal announcement therefore is whether there is any extension beyond March 2020. And we’ll wait to see if any arm-twisting by the Saudis forces Iraq and Nigeria into complying – but why would they bother now when they’ve not complied thus far?

Oil prices are reflecting a tinge of disappointment with WTI softening to $58.40 after hitting a high above $59 yesterday. Brent meanwhile has eased back off the $64 level to trade around $64.30 – importantly on Brent we failed to beat the November high, a sign that the market isn’t buying into this deal. The 200-day moving average remains a hurdle a little above $64. Prices for WTI and Brent are simply back to where they were before the attacks on the Aramco facilities in September. It’s all got a buy the rumour sell the fact look about it. But we must stress that if OPEC accompanies the deepening of cuts with an extension, at least to the next scheduled meeting in June, but perhaps until Dec 2020, prices could enjoy more upside.

There was good news for Saudi Arabia as Aramco priced well at the top of the range and raised $25.6bn in its IPO. A record listing values the company at $1.7tn, but we shall see where the shares head on day one. Regional and domestic investors have come good but the worry is that the big foreign institutional demand has not been there – if you’re just recirculating oil money among Arab states and Saudi households (levered) then what good has this float actually done?

In equities, Asia has been broadly higher amid more upbeat sentiment around trade talks.

Equities stumbled in Europe yesterday but the good old cocktail of trade optimism and a Friday mean they are pointing higher. However some very nasty German industrial numbers have taken the shine of European stocks ahead of the open.

Wall Street was steady with the Dow and S&P 500 trading mildly higher yesterday. Futures indicate more gains today. Trade will be the deciding factor.

After the usual pump and dump comments from Trump saying that trade talks are ‘moving right along’, we got more concrete news on trade as China agreed to cut tariffs on some pork and soybeans from the US, although it did not mention the quantities involved. This could be due to necessity from a shortage of pork because of African swine fever, more than desire to get a trade deal done, but nevertheless it’s pointing in the right direction. Nevertheless, the toing and froing of trade talks continues – we’ll be waiting for any fresh signal and will only believe a deal once it’s been served up on the table, not when the chefs say it’s in the oven.

In FX, the US jobs report is the big set piece event. A very weak ADP reading this week has forced some to revise forecasts for the NFP, although as always stressed, the ADP number is not always a reliable predictor for the NFP. Consensus is 180k but this is affected by GM workers returning. The three bears likely won’t be happy – expect more low unemployment, which is seen at 3.6%, and decent wage growth (3%). But markets are in a reasonable nervous frame of mind right now – a big miss could signal weakness in the US economy  – bears are sniffing around for anything that points to recession.

Last month’s reading showed US labour market strength remains intact: we saw a strong beat for the US labour market report with nonfarm payrolls up 128k in October, well ahead of the 85k expected, whilst there were upward revisions to the prior two months. The August print was revised up 51k to 219k and the September number was hiked by 44k to 180k. The 3-month average at 176k against the 223k average in 2018

Momentum behind sterling remains solid. GBPUSD has continued to drive higher and has consolidated around 1.3160 – perhaps resting for the assault on the May high at 1.31750. Looking at the charts it’s just one bull flag after the other, but possible 14-day RSI divergence should be watched. A debate tonight between Boris Johnson and Jeremy Corbyn may produce some moves – the election is Johnson’s to lose so he simply needs to avoid any booby traps. Polls as ever need to be heeded – latest from BritainElects shows the Tory lead down to just under 10pts. At present it does not look like the gap is narrowing quickly enough for Labour to mount a serious challenge, but upon such complacency have many best laid plans gang aft agley.

The euro remains steady with EURUSD holding onto 1.110, despite some very nasty looking German industrial numbers – down 1.7% vs +0.1% expected. The collapse in German manufacturing is staggering. Whilst PMIs are indicating recovery, these numbers suggest the very opposite. USDJPY has steadied above 108.60 having found decent support on the 50-day moving average.

Elsewhere, gold was down at $1473 having encountered firm resistance on the 50-day line at $1482. At send time gold was trading at $1473, with November lows sitting at $1445.

Two-week high for cable as Conservatives extend election poll lead

Forex

GBP/USD has climbed 0.6% higher to break above $1.2985 today after a series of weekend election polls show that the Conservative Party has extended its lead over Labour.

Markets have moved to price in higher odds of a Conservative Party victory at the upcoming December General Election on the back of the latest polling data.

Data released over the weekend shows the Tories leading Labour by 15%-17%. A poll released this morning by Survation put the Conservatives at 42% and Labour at 28% – a 14-point lead.

Brexit party threat diminishes

Markets are also relieved to see that Nigel Farage’s Brexit Party is polling at just 5%. Even though Farage announced that Brexit party candidates would not stand in the 317 seats won by Conservative MPs during the 2017 election, there were still concerns that, by challenging Labour, the party would split the Brexit vote.

This risked diluting Tory support and potentially granting victory to Labour or Liberal Democrat candidates in hotly contested areas.

With support for the Brexit Party so low, markets are now betting that Boris Johnson will win enough support to form a majority government. Any Brexit Party candidates in Parliament would likely have advocated for a harder Brexit than the one outlined in Boris’s Withdrawal Agreement. In sufficient numbers, they could also have attracted the support of Tory rebels and pressed for more talks, or even a no deal exit.

UK on track for January 31st Brexit?

A solid majority for Boris Johnson means that it is likely the Prime Minister will be able to pass his Withdrawal Agreement bill by the new Brexit deadline of January 31st. This would finally put an end to the uncertainty that has gripped the UK economy for over three years and will allow politicians to focus once more on the domestic agenda.

Cable has twice tested and rejected the $1.30 handle in the past few weeks. There are still 24 days until the election, which is plenty of time as far as politics is concerned for everything to change. This, combined with the memory of the referendum and the 2017 election, could mean it takes more than just a few polls to fuel a rally above $1.30 ahead of December 12th.

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Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

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