Your Weekly Alpha: EU agree to Johnson's Brexit Deal
In this week's market brief, the top three market movers have been, Trump promises a phase 1 deal with China and Boris Johnson’s Brexit deal has been passed by the EU and Earning season begins an optimistic tone with banking stocks meeting expectations.
Here's what has been moving the markets this week, global markets become excited around EU, UK Brexit deal and the US and China are also trying to settle their own differences, at a time when China's economy is showing a lot more stresses than the US economy. The latest Chinese data has merely served to reinforce the importance of trying to advance the progress of some form of limited trade deal after China's third-quarter GDP came in at 6%, below expectations of 6.1%.
There was a significant improvement in industrial production in September, from 4.4% in August to 5.8%, while retail sales came in at 7.8%, up from 7.5% in August, however both readings appear to show an economy that is struggling to generate demand on a domestic level, despite recent easing measures.
The US has implemented tariffs on a record $7.5 billion worth of European goods, with Airbus, French wine and Scottish whiskies among the high-profile targets. The tariffs were imposed despite pleas from European officials for a last-minute reprieve and French Economy Minister warning of retaliation.
Prime Minister Boris Johnson got his Brexit deal. Three months after winning power in the U.K. on a pledge to depart the European Union by Oct. 31 "do or die," he is almost there. But the biggest obstacle remains, a weekend vote in Britain’s divided Parliament. The session will be just the fifth held on a Saturday in the history of the ancient house and it could be an exceptionally dramatic one as in the rush to a pact with Europe, Johnson failed to win the backing of a crucial group of Northern Ireland politicians. The fate of Brexit could hinge on whether he can win enough support without them.
Here are the key components of the agreement:
· The UK will continue to abide by EU rules until the end of 2020, and possibly longer, to allow businesses to adjust.
· The UK will still pay an estimated £33bn "divorce bill."
· The rights of EU citizens living in the UK, and UK citizens in the EU, will be guaranteed.
What is Different in the deal?
· Northern Ireland will be aligned to the EU single market.
· The controversial "backstop" - that critics feared could have kept the UK in a customs union with the EU indefinitely - has been removed.
· Northern Ireland will instead remain a part of the UK's customs territory, so it will be included in any future trade deals struck by the government after Brexit.
· Northern Ireland will also remain an entry point into the EU's customs zone. The UK will not apply tariffs to products entering Northern Ireland as long as they are not destined for onward transportation across the border.
· A joint EU/UK committee will decide which goods are at risk of entering the single market and the UK will collect EU tariffs on them on behalf of the EU.
· The Northern Ireland Assembly - which has been suspended since January 2017 - will get a vote every four years on whether to continue with the new trading arrangements.
The week has been a tight-range trading featuring lower-than-average volume on the indexes. This is not an unusual outcome for the first week of earnings season, and it shows that investors are patiently waiting for more news to become available about the current state of profitability in the corporate world. Early signs have been positive and helped boost stocks early in the week with beats in earnings by major S&P 500 components, Netflix and Morgan Stanley.
Bitcoin's volatility has been falling since it broke downwards of $9k on the 24th of September. Even the popular fear and greed index is calm, displaying stagnantly moderate levels of fear for the last four weeks. Such consolidation is normal as previously experienced between last November and February.
A top Federal Reserve official has said the U.S. central bank is talking about the potential issuance of a digital currency, as regulators worry the dollar’s status as the world’s reserve currency may be at risk. Speaking at a business event in Texas, Rob Kaplan, President of the Federal Reserve Bank of Dallas, said: "We have not at the Fed decided to pursue or drive to develop a digital currency, but it’s something we’re actively looking at and debating.
Bitcoin is back below $8,000 at the time of writing this report and markets are associating the recovery with Brexit optimism after the U.K. government and the EU announced a deal lacks substance, as the deal is yet to be passed by parliament. The downward pressure could be short-lived as prices remain on track to test recent lows near $7,750.