Boris deal reveal, stocks pummelled after manufacturing miss
Boris Johnson is set to deliver a take-it or leave-it offer
to the EU today. The final tabled offer will fall short of what the EU
requires. It will be rejected. Boris knows this – the only narrative that
matters is the one that shows the will of the people being frustrated by
recalcitrant MPs and perfidious foreigners. The PM will ‘sell’ this pup to the
Tory faithful in his conference speech but it’s all optics. He knows it won’t
wash with either the EU or Parliament. What the market needs to know now
is: does Boris circumvent the Benn bill, and how?
Sterling was weaker with these chief headline risks in
focus. GBPUSD sank to the low 1.22s but has found comfort on the 50-day
moving average around 1.2260.
Stocks suffered a nasty bump after the weakest US
manufacturing data in ten years spooked investors. Wall St got October off to a
rocky start with a drop of over 1% for the broad market.
The S&P 500 was going well at 2992 ahead of the
print but sold off heavily as the market saw this data as a recession figure,
hitting 2966 at first before a brief rally attempt was snuffed out and market
closed at its lows at 2940. Does this sap the bulls’ conviction? I think
not quite yet with the Fed ready to act.
Asian shares have been weaker taking the cue from Wall Street and the events in
Hong Kong. North Korea is adding to the mix by firing ballistic
missiles. Hong Kong protests remain a big underestimated risk. August
retail sales for HK are due today and expected to show a total collapse. Luxury
names in focus. Also continue to watch China exposed banks like HSBC and
European shares were pummelled as they got caught up
in a broader risk-off move following those US manufacturing numbers. The FTSE
100 is testing support around 7315 at send time. Some big name moves will draw
the headlines – Dave Lewis stepping down at Tesco after completing the
turnaround. Martin Gilbert is drawing a close to his career at Standard Life
Aberdeen. And Metro Bank founder Vernon Hill is standing down amid a lot of
investor pressure to do so. Shares in Metro rose on the news of Mr Hill’s
departure, but it will not paper over the cracks for long – the market is
worried about more fundamental issues than who the boss is and what the
corporate governance is like.
US yields rose and the dollar came off its highs. The
fall in yields and the USD was good news for gold which firmed up to
$1475 having consolidated around the support of the 23.6% retracement of the
rally off the lows last year to the recent highs at $1461. This needs to hold
for bulls to remain in the game.
The headline manufacturing PMI came in at 47.8 against the
50.1 expected. New orders came in at 47.2. Construction spending was also
weaker at +0.1% against the 0.5% expected. At last it looks like the US has
been dragged down by trade wars and tariffs to where the rest of the world
Lacklustre PMI readings did nothing for oil, which
continues to be squeezed lower. WTI has recovered $54 after sinking close
to the $52 handle. Inventory data today expected to show 2m barrel build. EURUSD
has regained the 1.09 handle but the trend remains bearish – need 1.10 to break
the downward pressure.