Boris deal reveal, stocks pummelled after manufacturing miss

Morning Note

Boris Johnson is set to deliver a take-it or leave-it offer to the EU today. The final tabled offer will fall short of what the EU requires. It will be rejected. Boris knows this – the only narrative that matters is the one that shows the will of the people being frustrated by recalcitrant MPs and perfidious foreigners. The PM will ‘sell’ this pup to the Tory faithful in his conference speech but it’s all optics. He knows it won’t wash with either  the EU or Parliament. What the market needs to know now is: does Boris circumvent the Benn bill, and how? 

Sterling was weaker with these chief headline risks in focus. GBPUSD sank to the low 1.22s but has found comfort on the 50-day moving average around 1.2260. 

Stocks suffered a nasty bump after the weakest US manufacturing data in ten years spooked investors. Wall St got October off to a rocky start with a drop of over 1% for the broad market.

The S&P 500 was going well at 2992 ahead of the print but sold off heavily as the market saw this data as a recession figure, hitting 2966 at first before a brief rally attempt was snuffed out and market closed at its lows at 2940. Does this sap the bulls’ conviction? I think not quite yet with the Fed ready to act. 

Asian shares have been weaker taking the cue from Wall Street and the events in Hong Kong. North Korea is adding to the mix by firing ballistic missiles. Hong Kong protests remain a big underestimated risk. August retail sales for HK are due today and expected to show a total collapse. Luxury names in focus. Also continue to watch China exposed banks like HSBC and Standard Chartered. 

European shares were pummelled as they got caught up in a broader risk-off move following those US manufacturing numbers. The FTSE 100 is testing support around 7315 at send time. Some big name moves will draw the headlines – Dave Lewis stepping down at Tesco after completing the turnaround. Martin Gilbert is drawing a close to his career at Standard Life Aberdeen. And Metro Bank founder Vernon Hill is standing down amid a lot of investor pressure to do so. Shares in Metro rose on the news of Mr Hill’s departure, but it will not paper over the cracks for long – the market is worried about more fundamental issues than who the boss is and what the corporate governance is like.

US yields rose and the dollar came off its highs. The fall in yields and the USD was good news for gold which firmed up to $1475 having consolidated around the support of the 23.6% retracement of the rally off the lows last year to the recent highs at $1461. This needs to hold for bulls to remain in the game.

The headline manufacturing PMI came in at 47.8 against the 50.1 expected. New orders came in at 47.2. Construction spending was also weaker at +0.1% against the 0.5% expected. At last it looks like the US has been dragged down by trade wars and tariffs to where the rest of the world is. 

Lacklustre PMI readings did nothing for oil, which continues to be squeezed lower. WTI has recovered $54 after sinking close to the $52 handle. Inventory data today expected to show 2m barrel build. EURUSD has regained the 1.09 handle but the trend remains bearish – need 1.10 to break the downward pressure.