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Is a Soft Brexit close? - EMEA Brief 5 Nov


IG-Andi

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  • May seems to have secured concessions from Brussels to let her keep all of Britain in a customs union and avoid a hard border. How close is a Brexit deal? 
  • Sterling briefly jumped to a two-week high on Monday on growing hopes of a smooth Brexit.
  • The U.S. dollar struggled on Friday. The dollar index, which measures the greenback against a basket of major currencies, was last off 0.1 percent at 96.459.  Against the safe haven yen, the dollar held at 113.25 . The euro was flat at $1.1389 .
  • Asian equities followed suit, with HK’s Hang Seng falling as much as 2.4%. President Xi Jinpings’s vow to cut import tariffs at the expo in Shanghai carried little market reaction.
  • US sanctions on Iranian oil will be effective again from today. However, US crude oil inventories rise for the fifth consecutive week, the longest since March 2017. Amidst excessive supply concern, WTI crude lost 0.8%.
  • Yesterday in Qatar, younger royals were elevated to executives. The country faces regional isolationism since the embargo in 2017 by Saudi Arabia and its allies. Analysts agree the changes could accelerate economy growth of the state. Qatar is the world’s top Liquified Natural Gas exporter.
  • 10-day historical volatility for Bitcoin is lower than the S&P500. Swings in October, one of the worsts for bulls, sent the Nasdaq into correction territory and the S&P500 on the edge of one.

Asian overnight: Stock markets are in decline at the start of the week, with the Asia Pacific session showing widespread selling. Hong Kong’s Hang Seng fell as much as 2.4% while Japan's Topix fell 1.1 percent at the 3 p.m. close in Tokyo. President Xi Jinpings’s vow to cut import tariffs at the expo in Shanghai carried little market reaction as there was no decisive hint. Meanwhile, BOJ Governor Kuroda hinted that Japan is no longer in a situation where it’s best to be "decisively implementing a large-scale policy to overcome deflation”. The central bank still needs to stick persistently with its stimulus program to achieve its 2% inflation target.  Japanese treasuries to be monitored.

UK, US and Europe:  The prolonged silence over Brexit was broken as May was reported to have secured concessions to keep the UK in a customs union. May is due to discuss the latest proposals with her cabinet tomorrow. According to Mizuho Bank Ltd. The GBP could jump past $1.35 within two days if a divorce is agreed. The GBP is down more than 10% from pre-Brexit vote and, according to a Bloomberg survey, it could regain about half of that in case a deal is reached. Pound swings could be looming.

The conundrum of the Italian budget plan keeps widening as Lega Nord and 5 Stelle fought over the weekend on amendments after the initial rejection from the EU. The government has until the 14 November to submit a revised plan (with deficit less than 2% of GDP, against the 2,4% of the current one). Today, EU finance minister will gather in Brussels to discuss the situation. Italian sovereign debt modestly slid on the weekend but held flat overnight.

US Treasury will auction a record $83bn in notes and bonds this week as budget gap grows and fiscal stimulus unwinds. Markets are expected to be skittish ahead of U.S. congressional midterm elections on Tuesday.  Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump's Republican Party likely to hold the Senate. Trades hedging the risk of higher rates over the coming days piled up. Meanwhile, yield on US 10-year Treasuries fell 1 basis point to 3.207%.

Economic calendar - key events and forecast (times in BST)

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Source: Daily FX Economic Calendar

09:30 -  UK Markit services PMI: consensus at 53.3, previous at 53.9

13.25-  Bank of Canada Governor Poloz holds a speech in London

15:00 - USD ISM Non-Manufacturing services Composite: consensus at 59.1, previous at 61.6

Corporate News, Upgrades and Downgrades

  • Micro Focus said that annual revenue guidance will be at the higher end of the expected range, with an improved revenue trajectory in the second half.  
  • Hiscox reported that gross written premiums increased in double digits in the nine months to 30 September. Despite a strong Q3, growth is expected to moderate towards year-end. 

Barclays upgraded to buy at Bankhaus Lampe
ING upgraded to buy at Kepler Cheuvreux
Paddy Power raised to equal-weight at Morgan Stanley
SKF upgraded to buy at Kepler Cheuvreux

BPER Banca downgraded to sell at Goldman
Hoist Finance downgraded to equal-weight at Morgan Stanley
Intesa downgraded to sell at Goldman Sachs

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