Markets cancel Mayday on Brexit
Lots of noise, but precious little to show for it: this sums up Wall Street overnight. All three major indices rallied intraday on much higher than expected US Consumer Confidence, only to retreat as US residential housing starts fell 11.2% in December. Once the dust had settled, the S&P, Dow Jones and Nasdaq all closed down 0.1%.
Federal Reserve Chairman Powell navigated his first day of testimony on Capitol Hill overnight, reiterating the Fed’s, “All we need is a little patience,” mantra with regards to interest rates. Powell said the Fed had growing concerns about China and Europe and were happy to wait for more data to clarify the picture. He heads back to the Hill again today, but the chances of a surprise are low. We expect him to repeat yesterday’s comments, albeit dressed up in a slightly different way.
The UK sterling (GBP) rocketed above 1.3200 against the dollar overnight as PM May caved to demands for a binding vote from Parliament to ask for a Brexit delay should her next “Brexit deal” proposal be hung from the gates of the Tower of London.
The second Trump-Kim nuclear summit kicks off today in Hanoi, but don’t expect the meeting to deliver anything of substance given the question, “What is the definition of denuclearisation?” remains on the agenda. At a denuclearising summit, this is never a good start to proceedings. Still, they can enjoy Hanoi’s amazing food, and if the President gets bored, there’s always his social media account to give a spark to global markets.
Both globally and regionally, the data calendar is quiet today suggesting a dull trading day across the financial markets with intra-day spikes in volatility driven by news headlines, not data.
FX
The greenback fell across the board overnight with the US dollar index down by 0.4%. The rotation out of safe-haven dollars and into more risk-seeking majors and emerging market currencies continues apace post the Trump extension to the China tariff cut-off date.
The GBP was the star of the show overnight, rocketing 1.20% higher to 1.3260 on Brexit delay hopes. The street is clearly second-guessing both the UK Parliament and the European Union, moving to a Brexit delay followed by a Brexit deal scenario. This seems like a perilous game to play, but the momentum of this hope-versus-reality trade could push the GBP to much higher levels yet. Be warned though that a disappointment in this glossy scenario could see just as ugly a move back down.
Equities
With Wall Street lacking in direction, attention will turn to China again today. After the breathless rally of the last seven days, it was unsurprising that both Shanghai and Shenzhen gave up some of their gains yesterday. Regional bourses will follow China’s lead intra-day.
Oil
Oil clawed back some of its losses overnight with Brent climbing by 0.9% to USD65.40 per barrel and WTI up 0.3% to USD55.60 per barrel. This rise is entirely technical given the scale of the losses from the day before. The technical picture for both contracts continues to look constructive, with Monday’s drop bringing a welcome reduction in some overbought technical indicators.
Gold
Gold holds steady yet again at USD1,330.00 an ounce caught between the cross-currents of a weaker dollar and rising risk sentiment.
