Stocks up, impeachment proceedings widen, Brexit no-go
Always look on the bright side of life: major indices were
higher in September whilst bonds and gold weakened. But what shall October
bring us? Usually October can be pretty rocky. I blame the shorter days staring
to affect traders’ moods. Watch for volatility to spike in the coming days,
particularly as markets approach these Oct 10th trade talks with more optimism
than they deserve.
US stocks finished the day, month and quarter higher as
investors chose to focus on the positives. Easing in trade tensions keeps
getting sold as the narrative but I see no real relaxation, only noise and
distraction. Rallies are being sold, dips bought. Until we get a fresh signal
from either the Fed or the White House we could be oscillating around these
levels for a while yet.
Impeachment proceedings are the great unknown but
until now hasn’t bothered the market – this could change. Trump’s call to the
Australian prime minister Scott Morrison offers Democrats a new line of attack.
The situation could quickly get out of hand for the president. Three House
committees have subpoenaed Rudy Giuliani, the president’s personal lawyer, for
documents about his dealings with Ukraine, Ultimately though it’s all on
whether the Republicans stand firm. Even they have a breaking point.
The S&P 500 closed up half of one percent at
2,976.74, leaving it 1.7% higher in September and up 19% YTD. The Dow was 2%
higher last month. Both were 1.2% higher over the quarter.
Asian markets have been higher. Tokyo is up while China and
Hong Kong are closed for a holiday. Watch for Hong Kong protests to dampen the
holiday mood. European markets opened higher.
Data overnight continues to show weakness in the global
economy as declining trade chews up exports. South Korean exports fell
for the tenth month on the bounce, while sentiment among Japan’s manufacturing
companies fell to a six-year low. Meanwhile the sales tax hike in Japan finally
Brexit – the FT reports we will know by the weekend
whether there’s any chance of the UK making a new deal with Brussels before the
Oct 31st deadline. If it’s a no go then sterling bears will circle on the
carcass. Before this there is headline risk for the pound as we look to Boris
Johnson’s conference speech tomorrow. Meanwhile mooted suggestions to avoid the
backstop in Ireland have been dismissed as a non-starter again. There is no way
a deal can be done before the deadline. It’s revoke or no deal. GBPUSD
doing precious little right now as it treads water at the 1.23 marker.
Australia waltzes into low rate purgatory with
another cut to a record low 0.75%. And so now even Australia, that exceptional
land of continual growth and no recessions, cannot escape the jaws of easing.
Another, third, cut in just a few months signals no end to low rates. Will they
go lower? The RBA says it can see a ‘turning point’, but adds ‘an extended
period of low interest rates will be required’.
The US dollar continues to ramp in the absence of any other
major currency looking even remotely attractive. The least ugly sister, but how
much further can the dollar go? The euro suffered its worst quarter in over a
year, sliding 4%, and appeared to finally capitulate yesterday.
EURUSD broke key support at 1.09, but has since
stabilised. Nevertheless the breach could bring the 78% retracement at 1.0820
into play. Bulls need to clear the last big swing high at 1.10. Key inflation
figures out today could shape price action. Both core and headline inflation
are seen at a measly 0.9%.
Gold did capitulate in the face of the dollar
steamroller. The head and shoulders patter broke cleanly on the neckline and
the 50-day line couldn’t. We’ve seen prices rest a little above $1460, at
$1461, slap back on the 23.6% retracement of the rally off the lows last year
to the recent highs. If that goes then we do start to look again at $1400, the
next big Fib level.
Geopolitical worries tried to blind our minds eye to the
fundamentally bearish outlook for oil, but the lack of any escalation in the
Middle East has kicked those $100 calls into the long grass.
Oil suffered some heavy
selling in Monday as bears finally closed the gap and drive WTI to
briefly take a $53 handle. Prices are coming back a touch as we make $54.50
again. Bearish fundamentals have taken charge from the geopolitics.
Metro Bank debt downgrade
Fitch has downgraded Metro Bank’s debt to
“BB” from “BB+”. Well, thanks for that, always on the
case – Metro couldn’t get a £200m bond offer at 7.5% off last week, so
it’s hardly ground-breaking stuff. As we said then, it’s a worrying sign that
the bank is not able to raise fresh debt and/or capital when the going gets
tough. Management today say they remain confident the bank will meet its
MREL requirement as at 1 January 2020, citing ‘a number of different options
available to it’. The volatile shares plunged 5% at the open before paring
losses to trade –3% at send time.
JD Sports/Footasylum merger
Mike Ashley will be looking on with a mild
sense of schadenfreude. The merger between JD Sports and Footasylum could be
off, as the planned tie-up becomes subject to a more in-depth investigation by
the CMA. Last month the CMA said it was minded to refer the merger to a Phase 2 investigation unless JD
could come up with remedies. But JD is sticking to its guns and says the
acquisition would not result in a substantial lessening of competition. The incredibly
fickle CMA is very hard to predict, but one senses that JD’s failure to suggest
any kind of remedy at all won’t go down terribly well. JD
shares were a smidge lower.
Sainsbury’s loses heir apparent
John Rogers, the CEO of Argos, is
leaving the business to become CFO of WPP at the end of the month. This a blow
as he’s been a real strong performer at the retailer. Mr Rogers had been tipped
as the strongest candidate to take over from Mike Coupe. Indeed, it suggests
Mike Coupe has dug his heals in and won’t be going anywhere for a while despite
the botched Asda merger, horrible LFL sales, continued market share loss to
discounters and the rather lacklustre strategy update last week. Shares opened
0.4% higher and up to rally 0.9%.
Greggs rolls on
Sausage roll maker and vegan champion
Greggs continues to deliver depite the stronger year-over-year comparatives. Total
sales were up 12.4%, while like-for-like sales rose 7.4% in the third quarter.
Expectations for the full-year unchanged. Management say they are stockpiling
key ingredients ahead of Brexit. Grist for the mill. Shares rose 2.4% on the
open before trimming gains to trade up 1%.