E.U. grants Brexit extension

October 28, 2019 Chatham Financial

Prior week summary

The major U.S. equity indices moved higher last week as solid third-quarter corporate earnings results and U.S./China trade optimism boosted investor sentiment in the face of growing global growth fears and Brexit uncertainty. Third-quarter U.S. corporate earnings season has impressed thus far as roughly 80% of the S&P 500 companies that have reported have topped consensus estimates. While a better-than-expected corporate earnings season has been a welcomed surprise to many market participants, it is not without concerns as Caterpillar, an oft-watched economic bellwether, missed earnings expectations and lowered full-year earnings guidance, citing “global economic uncertainty” stemming from “trade tensions and other factors.” Economic data for the week was largely negative. The U.S. Markit manufacturing PMI topped consensus estimates, but new and existing home sales, durable goods orders, and a consumer confidence measure surprised to the downside.

In the U.K., Brexit drama ensued, dominating headlines and whipsawing the pound. Prime Minister Boris Johnson successfully passed his version of the Withdrawal Agreement Bill through Parliament on Tuesday, but suffered a defeat later the same day that saw his attempt for expedited implementation of the bill denied in favor of a deadline extension request to the E.U. With the October 31 deadline fast approaching, the E.U. unanimously decided on October 28 to extend the Brexit deadline to January 31. President of the European Council, Donald Tusk, indicated that the deadline extension is flexible and that the U.K. could leave prior to January 31 if a deal is ratified by the U.K. and E.U. parliaments before then. The three-month extension now increases the likelihood that Prime Minister Johnson will, with the help of Labour Party leader, Jeremy Corbyn, call for an early December snap election in an attempt to break the impasse in Parliament.

The look forward

Market participants are gearing up for a busy week as third-quarter GDP, the October non-farm payroll report, and the FOMC rate decision are all slated for release. The Fed Funds futures market is implying just over a 90% chance that the FOMC cuts the target range 25 basis points on Wednesday. Updated figures on construction spending, consumer spending, the ISM manufacturing index, and wholesale inventories also dot the economic calendar.

Rates snapshot

 

Market implied policy path (Overnight indexed swap rates)

Source: Chatham Financial

 

Fixed income snapshot

Source: Bloomberg Finance L.P.

Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal/notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 19-0276

Previous Article
Fed cuts but signals pause
Fed cuts but signals pause

The major U.S. equity indices continued to rally higher last week, touching all-time highs and notching a f...

Next Article
Third-quarter earnings season begins
Third-quarter earnings season begins

The major U.S. equity indices moved modestly higher last week, flirting with all-time highs as third-quarte...

×

Subscribe to Chatham's Weekly Market Insights

First Name
Last Name
Company Name
!
Thank you!
Error - something went wrong!