Politics dominates once again, with the UK deciding they had been in the US shadow for too long, and the UK High Court ruling that Article 50 cannot be triggered without a parliamentary vote. The government will now appeal this decision in the Supreme Court and clearly this muddies the waters and represents a setback for Teresa May and her government. It still seems unlikely that parliament will go against the will of the people though and vote against the referendum, but there could well be a process where parliament require a deeper understanding into the potential terms of negotiation and we also know the bulk of the UK House of Commons favours staying in the EU, so there is no certainty of a vote passing should the Supreme Court now rule in favour of a parliamentary vote in early December.
GBP has naturally been the big mover on this ruling, with GBP/USD rallying to test $1.2500 and of course this means selling down the FTSE 100 (-0.8%) given the earning hit from a higher GBP. GBP/AUD has traded to a$1.6287, but the easier money is to be made trading the GBP against the USD than the AUD, which is getting a boost from a 20-month low in its trade deficit. Another strong night for coking coal futures (+5.7%) and iron ore futures (+2.7%) is also helping here, and one wonders if these key terms of trade stay at these levels could we even see the deficit return to surplus in the new year.
Interestingly, AUD/USD is moving back into the top of multi-month trading recent range. Since 10 August moves into $0.7700 have been hit with a wall of supply, so traders will be watching price action to see if that remains the case. It is unlikely that today’s September retail sales (consensus is for 0.4% growth) or RBA Statement on Monetary Policy (also 11:30 aedt) rock the needle too greatly, but a daily close above the 20 October high of $0.7734 would be very positive for the Aussie.
US politics remains front and centre, with Donald Trump’s odds of taking the White House breaking the $3 level. There has been more negative press around the FBI’s investigation into potential corruption linked to the Clinton Foundation and on Twitter the hashtab #HillaryIndictment is getting traction. There have also been a slew of polls out, with the RealClearPolitics Average Poll putting Clinton modestly ahead with a split of 47.3 to 45.1. It’s no surprise then to see traders buying volatility structures and further hedging portfolios, with the US volatility (‘VIX’) index break above 20 and gaining 14% on the session. US equities continue to head lower, with the S&P 500 down 0.4% and falling for an eighth day, effectively matching the worst ever run set in 2008.
The S&P 500 has closed firmly below the 50% retracement of the June to August rally and while the market is now grossly oversold any snapback rallies are likely to be met with a wall of selling. In US trade tonight (23:30 aedt) we get the monthly US payrolls report, with the consensus calling for 175,000 jobs and hourly earnings growth of 2.6% yoy. I am putting limited interest into this number though as it is a lagging indicator and unless we see a terrible number (say below 100,000 jobs) then it will not alter the probability of a December hike.
Asian equities should remain under pressure on open, with the ASX 200 needing to close above 5283 to snap a three week losing streak. With our opening call at 5187 (-0.2%) one can safely say there is a little probability we can close the week higher and despite higher iron ore and coking coal BHP (NYSE:BHP) looks set to open lower (based on its American Depository Receipt). US crude has fallen 2.3% from the ASX 200 cash close so that is a headwind for energy names, while banks also look set for lower levels on open. Gold stocks have been the place to hide this week with names like Newcrest Mining (AX:NCM), Evolution Mining (AX:EVN) and Resolute Mining (AX:RSG) finding solid support in the market and this is an area where pullbacks should be nicely supported, with gold holding the $1300 level.