Market news 18 October 2019

Brexit – finally the white smoke?

• UK Prime Minister Johnson brought back a new Brexit 'deal' from Brussels; at the time of writing it looked likely to be voted down (narrowly) in the Parliamentary vote on Saturday due to lack of support not only from the opposition benches, but also from the Tories’ (former) political partners the DUP.
• However, the outcome is far from certain due to intense pressure from the UK media and the public to “just get it done”. In any event the likelihood of a “no-deal Brexit” has materially declined over the past few days.
• GBP continues to rally, touching its higher levels since May against EUR and USD.
• September UK retail sales data came in slightly ahead of expectations; on the other hand the unemployment rate ticked up to 3.9%, with 3m/3m job growth turning negative for the first time in a couple of years.

Chinese activity data show signs of stabilising

• Chinese Q3 GDP fell 0.2pp to 6.0% year on year (YoY) vs an expected 0.1pp drop, with investment and net exports primarily responsible for the slowdown.
• Auto sales rebounded to 7.8% as expected, led by auto sales; ex autos the growth rate slowed slightly. Fixed asset investment came in at 5.4% YoY YTD, whilst industrial production showed an unexpectedly strong recovery to a 5.8% YoY pace.

European stocks rebound

• “European cyclical value” was the big outperformer of the week, bolstered by positive Brexit developments and the ongoing tailwind from reduced trade tensions.
• European stocks rebounded, with Banks and Retail among the strongest sectors. Turkish equities were a top performer worldwide as a US-brokered ceasefire in northeast Syria paved the way for a suspension of US sanctions.
• European currencies were top performers worldwide – not only GBP, but also SEK, CHF and EUR. Government bond yields were moderately higher and inflation break evens widened.