The Market Today
Brexit Confusion Continues as Parliament Seeks Delay
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
A Quiet Week of Housing and Business Data: This week’s calendar is notably quieter with the Fed now in its silent period ahead of its next rate decision on October 30. Nonetheless, there will be several key reports on housing and the business sector. There are no reports scheduled for today, but existing home sales data on Tuesday and new home sales data on Thursday are both expected to reflect a modest decline in activity during September. Also on Thursday, September’s preliminary durable goods report is expected to show sluggish business investment has continued, and Markit’s PMIs will offer an early look at business trends in October.
OVERNIGHT TRADING ACTIVITY
Brexit Uncertainty Continues after Vote Delay: Despite another Brexit delay over the weekend, risk assets have performed well so far Monday on hopes PM Johnson will ultimately round up enough support for his deal, or that the EU will grant the latest request to delay the deadline. U.K. parliament was expected to vote on whether to support PM Johnson’s negotiated deal with the EU, but chose instead to delay any vote until a later date. As a result, Johnson, as required by a recently passed law, sent an unsigned request to the EU asking for the October 31 deadline to be extended. However, he also sent another letter saying he preferred they wouldn’t.
Investors Hold Out Hopes a No-Deal Brexit Won’t Occur: While the events extend the incessant confusion, U.K. yields and the British pound are higher on signs a no-deal Brexit may be avoided at the end of the month. Estimates show that Johnson could be close to enough support to pass his agreement if he elected to put it toward a vote, which his government has said they would like to do this week. Additionally, reports indicate that the EU could agree to another multi-month extension if his bill is voted down. The U.K. 10-year yield rose 4.7 bps overnight to 0.75%, near its highest level since July. The British Pound strengthened to its best level since May. In the U.S., Treasury yields had tracked the global move up in yields with the 10-year yield up 2.1 bps at 7:15 a.m. CT. Equity futures also rose amid the global firming.
ICYMI – October 18, 2019 Weekly Market Recap: Except for an upside surprise in the NAHB’s latest home builder confidence report for October, the general tone in last week’s economic data was disappointing. Housing starts and building permits were exceptionally weak despite small gains for the single family series. Even adjusting out a known drag from the GM autoworkers’ strike, both total industrial production and the manufacturing component weakened in September. More concerning was a surprisingly weak retail sales report that raised questions about the health of the consumer amid continued economic uncertainty elsewhere. The increased caution was echoed by the Fed’s Beige Book that said growth slowed to a “slight to modest” pace and businesses lowered their near-term outlooks. As a result, markets became more convinced the Fed will cut rates later this month, ending the week with odds of the action near 90%. More broadly, markets were weighed on by questions about the China trade deal and weak data out of the world’s second largest economy, but buoyed by a better-than-expected start to corporate earnings season and the U.K. and EU striking a Brexit deal. Ultimately, stocks closed up modestly while interest rates were little changed. Click here to view the full recap.