The European market (Stoxx-600) was trading around 359.42 in the mid-EU session Thursday, slips by almost -0.78% amid “risk-off” sentiment on Brexit nightmare and an open leadership challenge for the UK Prime Minister Theresa May from her own party. European under stress and GBPUSD tumbled to multi-week low on increased UK political risks as several British cabinet ministers quit in protest of Theresa May's Brexit draft deal. This throws doubt into Theresa May's ability to secure Parliament support for her Brexit plan, and even for her to survive as a leader as the UK could crash out of the EU either with no deal in place (hard Brexit) or no Brexit.
The UK banks & financials, home builders are under stress on Brexit turmoil amid rapid fire of Brexit resignations. Autos were also under pressure on fading hopes of China auto tax cuts. Overall, the earlier risk-on optimism after China delivered a written response to US demands for wide-ranging trade reforms ahead of an expected meeting between Trump and Xi faded amid Brexit “doomsday” like scenario and its overall impact on the European as-well-as global growth. Germany, France are in the deep red amid higher EURGBP, while UK is almost flat, thanks to a plunge in GBP. Energies are helping a bit on higher oil, while basic materials are also in green on mixed China data and US-China trade deal optimism.
The European market was under stress after the UK Brexit Secretary Raab resigned against the protest of Brexit deal under the current form, which was approved by the UK Cabinet late Wednesday (risk-off sentiment). In short, Theresa May’s leadership is now under serious threat. Theresa May “maybe” also thinking about “no Brexit” at all, which is another “political suicide”.
Earlier, the Stoxx-600 made a high of 364.02 on soft Brexit optimism as the UK cabinet has passed the Brexit draft late Wednesday after a “thrilling” meeting. Although Theresa May was able to pass the Brexit draft through her divided cabinet by a narrow margin after a 5-hour marathon meeting with a T-20 cricket match like suspense, the Brexit draft under the current form will face a significant barrier in the UK Parliament and the real beginning of the Brexit end game may just start now.
But at the same time, it’s a fact that no UK politician or political party is willing to take the “responsibility” of a hard Brexit, at least publicly. This is EU’s as-well-as Theresa May’s biggest advantage (leverage) in pursuing a Brexit deal, which is symbolic and in the name of “Brexit” only; it’s a backdoor re-entry in the EU even after the exit in the pseudo-name of “customs union” and “backstops of backstops”.
But, Theresa May is coming under increasing pressure over the Brexit deal, her cabinet agreed Wednesday as ministers start to resign. Among the three to announce they are stepping down the loss of Brexit Secretary Raab has been the biggest blow (till now) and the British pound stumbled.
Raab said the present Brexit deal the deal “presents a very real threat to the integrity” of Britain and gives the EU “a veto over our ability to exit.” In his resignation letter, Raab wrote, “I cannot reconcile the terms of the proposed deal with the promises we made to the country in our manifesto at the last election.”
Raab said he could not support May’s plan because it treats Northern Ireland’s future trading and customs relations with the European Union in a way that “presents a very real threat to the integrity of the United Kingdom and I cannot support an indefinite backstop arrangement. The terms of the backstop amount to a hybrid of EU customs union and single market obligations. The deal would lead to an indefinite, if not the permanent regime of being locked into EU rules. The backstop arrangement is now the starting point of talks for future ties that will severely prejudice the 2nd phase of negotiations”.
GBPUSD is currently trading around 1.2805, down almost -1.45% and so far it made a low of 1.2751, well-off the Wednesday’s Brexit deal optimism high of 1.3071. Mogg has called for a no-confidence vote against Theresa May and started the Conservative party process for the same. In short, Theresa May’s leadership is now under serious threat and Raab, Boris Johnson is now the leading PM candidates as May’s days are numbered. GBP came under further pressure after data shows that both the UK retail as-well-as core retail sales tumbled well below expectations in October.
Pivot: 1.283 Support: 1.275 1.26595 1.262Resistance: 1.291 1.308 1.318 Scenario 1: STRONG ABOVE 1.28300 Scenario 2: WEAK BELOW 1.28200 Comment: NEAR TERM RANGE: 1.26595-1.33000
US 500
The US index future (SPX-500) is now trading around 2697, edged down by almost -0.03% on higher US dollar index amid a plunge in GBP after the UK Brexit Secretary Raab resigned against the protest of Brexit deal under the current form, which was approved by the UK Cabinet late Wednesday (risk-off sentiment).
The US dollar index (DXY) is now trading around 97.20, surged by almost +0.40% and so far made a high of 97.39. Apart from European political risk, the USD was also boosted by some hawkish comments from the Fed Chair Powell on late Wednesday. Powell said, "we have to be thinking about how much further to raise rates and the pace at which we will raise rates”. Thus Powell/Fed will now debate about the neutral rate levels.
Earlier in the Asian session, the SPX-500 made a high of 2716.75 on optimism the US-China trade conflict will soon be resolved after a report said that China has outlined a series of potential specific trade concessions to the US. The Chinese offer was viewed as constructive ahead of the meeting between President Trump and Chinese President Xi late November at the G20 summit sideline in Argentina.
Pivot: 2750 Support: 2715 2680 2625Resistance: 2785 2805 2825 Scenario 1: STRONG ABOVE 2750 Scenario 2: WEAK BELOW 2740-2715 Comment: NEAR TERM RANGE: 2580-2825
Wal-Mart (NYSE:WMT)
Walmart is up by above 1% (102.06) in pre-market trading after Walmart reported Q3 (US comparable) sales ex-fuel rose +3.4%, better than consensus of +2.9%.
Pivot: 103 Support: 99.5 97.25 96.05Resistance: 104.85 106.1 110 Scenario 1: STRONG ABOVE 103.00 Scenario 2: WEAK BELOW 102.50 Comment: NEAR TERM RANGE: 92.95-106.10
Gold
In commodities, Gold jumped by almost +1.36% to around 1216 on European political risk and slump in equities (safe heaven appeal), despite higher USD.
Pivot: 1225 Support: 1200 1190 1160 Resistance: 1245 1265 1305 Scenario 1: STRONG ABOVE 1225-1245 Scenario 2: WEAK BELOW 1220 Comment: NEAR TERM RANGE: 1160-1245