Morning Minutes 11/01/2018

Brexit Progress Boosts Sterling and Stocks; Nonfarm Payrolls Preview

November 1, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Much of the volatility that rocked world markets through October has started to ease into November, although some pockets of uncertainty remain.

So far the biggest story to kick off the new month has been out of Europe where reports have been circulating overnight that the UK and EU have agreed on a Brexit deal for the financial services sector, a development that could set the stage for a wider Brexit deal which the UK’s Brexit minister has been suggesting could be achieved this month. A lot can happen in negotiations and nothing has been signed yet, but the street has been viewing progress toward a Brexit deal as a positive for both sides today. The FTSE is up 0.25% today while the Dax is up 0.6%.

Sterling and the Euro are both up against the US Dollar today, gaining 1.25% and 0.8% respectively. The Bank of England maintained its benchmark interest rate at 0.75% at today’s meeting. The US Dollar has been knocked back by these gains, enabling gold to jump 1.25% back up toward $1,230/oz and the Canadian Dollar to gain 0.55%.

US stock markets appear set to kick off November on a positive note, building on this week’s rebound. Dow futures are up about 125 points or 0.5%, looking to extend yesterday’s 241 point or 0.97% rally. The Technology sector, which has been volatile in both directions, appears to be attracting particular attention from bargain hunters as the NASDAQ rallied 2.0% yesterday and NASDAQ futures are up another 0.5% this morning.

Some of the pressure on China appears to be easing for the moment as well. Overnight, the Hang Seng rallied 1.75%, Shanghai surged 0.75% and copper climbed 0.65%. Commodity market action overall has been mixed. Crude oil has been attempting to stabilize in the wake of yesterday’s big selloff with WTI trading just above $65.00/bbl and Brent trading just below $75.00/bbl.

There is still quite a bit of news to come this week. Later this morning, US manufacturing PMI, construction spending and natural gas storage reports are due with the latter two particularly significant considering that construction related stocks have been crushed in the last month and natural gas has been active on speculation over whether there is enough natgas in storage to get through the coming winter.

Apple reports earnings tonight and then tomorrow brings employment reports for the US and Canada. US nonfarm payrolls are widely expected to rebound to 190K from 134K last month. Considering yesterday’s big 227K increase in ADP payrolls the street may be conservative and I think last month’s disappointment could be revised upward as well. I’m thinking 225K for payrolls and a 20K upward revision. For Canada jobs, the street is expecting a retrenchment back to 10K growth from 63K last month. The last two months have been distorted by big swings in part-time employment. With the USMCA trade deal done and the North American economy humming along, I’m thinking a 25K increase for Canada appears possible.

Trade balances for the US and Canada are also due out Friday morning. Although the results are unlikely to move the markets, politicians could attempt to use the results to stir the pot ahead of next week’s US midterm elections.

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