October 18, 2019
U.S. Futures Drift Amid Earnings; Dollar Drops: Markets Wrap
“U.S. equity-index futures fluctuated alongside European stocks as earnings season rolled on and investors reviewed a mixed bag of economic data from China. The dollar edged toward its weakest close since July and the pound drifted. Contracts on all three major U.S. gauges fluctuated in a small range, firming slightly as earnings from both American Express and Coca-Cola beat expectations. Drops in automakers and food shares weighed on the Stoxx Europe 600 Index after some less positive results. Renault plunged as much as 15% after the carmaker cut its full-year forecast, and rival Volvo declined after saying it was preparing for more output cuts for next year. Treasuries steadied while most sovereign bonds fell across Europe. Oil futures rose. The lira gained after Turkey and the U.S. agreed to a temporary cease-fire plan for Syria. While sterling was range bound it was still poised for a third week of gains before U.K. Prime Minister Boris Johnson seeks parliamentary backing on Saturday for his Brexit deal. Investors are seeking a fresh stimulus for equities as the weekend approaches. American earnings so far have been relatively upbeat, after Morgan Stanley became the latest big bank to buck concerns about weak growth. Traders will also be mulling the data from China, which showed GDP slow to 6% in the third quarter, with limited pick-up from domestic demand, but factory output improve and retail sales hold up. Earlier in Asia, shares closed down in Shanghai after Chinese GDP rose by the least since the early 1990s last quarter. Benchmarks in Japan and South Korea gave up gains to finish lower.”
Johnson Sells Brexit Deal to Parliament Before Knife-Edge Vote
“Boris Johnson is battling to sell his new Brexit deal to skeptical members of the U.K. Parliament ahead of a crucial vote on Saturday. The prime minister has no majority in the House of Commons but needs to convince his own Conservatives, as well as opposition politicians, to back the divorce accord he struck with the EU on Thursday. If he fails, he will face the choice of seeking to delay Brexit again or trying to take the country out of the bloc without a deal on Oct. 31. “This is our chance in the U.K. as democrats to get Brexit done,” Johnson told a press conference in Brussels on Thursday. “People want to move this thing on, it’s been going on for a long time.” He wouldn’t be drawn on what he would he do if he loses Saturday’s vote. Defeat could unleash a political crisis unparalleled in modern times: despite EU leaders leaving open the possibility of allowing Britain more time to leave, Johnson has repeatedly refused to contemplate delaying Brexit beyond Oct. 31. Any attempt to leave without a deal would face a legal challenge and he may have to allow his plans to be tested in a general election or even a second referendum. The parliamentary arithmetic is very tight. Johnson is trying to win Saturday’s vote without the support of Northern Ireland’s Democratic Unionist Party, which has categorically rejected the agreement he reached with the EU. To get the votes he needs, the premier is wooing reluctant members of his own side and trying to persuade opposition Labour politicians to back him. Former Conservative MPs who voted to block Johnson’s threat of a no-deal divorce last month — and were thrown out of the party as a result — have proposed an amendment to Saturday’s motion that seeks to force the government to request a delay to Brexit until a deal is passed.”
China’s Economy Slows on Weak Investment, Testing Global Growth
“China continued its grind to more moderate growth in the third quarter as investment slowed, providing little upside for a global economy flirting with its first recession since 2009. Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s and weaker than the consensus forecast of 6.1%. On the upside, factory output improved and retail sales held up, but slowing investment growth remained a concern. Policy makers appear to be allowing the world’s second-largest economy to drift lower as they seek to clean up the financial system and curb excessive credit growth while they fight a confidence-sapping trade war with U.S. President Donald Trump. With a drop off in exports to the U.S. expected to continue as long as tariffs remain, the economy is likely to keep struggling as falling factory prices hit company profits and rising consumer inflation hits spending power. Even with the slowdown, year-to-date growth of 6.2% suggests the government can hit its target of an expansion of 6% to 6.5% for 2019. Until now, officials have focused on limited, targeted measures such as reserve-ratio cuts and credit support, wary of expanding the nation’s already heavy debt load. A meeting of the Communist Party’s top leadership due in the coming days may present an opportunity to review stimulus settings. “China’s economy is grappling with both external and internal headwinds,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “Exports started to contract of late amid wobbly global demand and rising tariffs in the U.S. Despite some stabilization in retail sales and industrial production in September, overall demand continues to soften, reflecting still relatively tight credit conditions.” ”
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