US stocks are poised to have a lackluster open as stocks inch higher in the pre-market. Earnings results will pick up tomorrow and with no major economic data releases, markets will focus on any incremental trade update, Brexit progress, and geopolitical risks.
Brexit
Time is running out to get a Brexit deal pushed through by October 31st. Over the weekend, UK MPs were unable to deliver a conclusive Brexit vote. The Letwin amendment got voted through, thus making it nearly impossible to have an accidental Brexit at the of the month. Optimism is growing on Boris getting Brexit done, though it will likely be shortly after the October 31st Brexit deadline passes. All eyes are on UK Parliamentary Speaker John Bercow, who will decide if we get a vote on Johnson’s parliamentary vote on his Brexit plan today.
It seems another next big step in Brexit will be if we see Labour’s custom amendment gets added to Boris Johnson’s Brexit deal. The scenarios for Brexit still remain plentiful, but it is very apparent that Johnson getting his Brexit deal pushed through is becoming the base case for many traders. Markets seem to have already priced in almost two-thirds of a chance of Brexit getting done and that could mean we could see a limited pound rally on a favorable Brexit vote for Johnson.
The British pound looks like it is trying to consolidate around 1.3000 and possibly target 1.3350 -1.3450 on a Brexit deal getting done. Some analysts have been sticking to their calls of 1.40 but that may be too aggressive as the details of the deal will not include a free trade deal with the EU.
Oil
Oil prices are sagging at the start of the week on rising bearish bets from hedge funds and after Russia did not hold up to their end of the supply reduction pact. The smart money has turned very bearish on WTI, with bearish bets rising almost three-fold according to the Commitment of Traders Report which highlights data for the week ending October 15th.
Russia’s temporary violation of the supply reduction commitment last month was mainly attributed to ramping up their natural gas condensate output for winter. Russia’s rhetoric has been very supportive of keeping these production cuts going and we are not likely see this story continue to weigh on prices.
Another bearish driver for oil was the negotiations between the Saudis and Kuwaitis to restart a joint fields in the Neutral zone. While any output here would see reductions elsewhere in order to observer the OPEC + production cut pact, this does help bring up spare capacity to a vulnerable region.
West Texas Intermediate crude should still remain supported around last week’s low and only see a break of the $50 barrel level if we see a complete setback in US-China trade talks.
Gold
Gold prices are doing nothing until we get a meaningful update on the trade war or Brexit. These two tail risks will continue to drive the gold trade in the short-term as we don’t see any major economical data releases over the next couple of days.
Massive worldwide monetary policy stimulus and fiscal measures are providing a nice backdrop to thwart of global recessionary concerns and that should be very helpful for gold prices.
