Stocks pullback as GBP remains sensitive to Brexit headlines

Summary:

  • Stocks pullback as US proposes new EU tariffs

  • FTSE MIB erases gain on GDP and budget deficit headlines

  • DE30: BASF to expand chemical production in Brazil

  • Backstop headlines reveal GBP’s sensitivity to rumours

  • Top 3 charts this week: US500, TNOTE and OIL.WTI

 

There’s been a bit of a pullback in stocks today, with declines seen in most of the major indices as risk sentiment has soured a little.  Reports overnight that the US is considering imposing new levies of roughly $11B worth of EU goods has come as a timely reminder that trade tensions aren’t reserved solely for the US and China. The move comes in response to subsidies support Airbus with the World Trade Organisation (WTO) finding these have a negative impact on the United States. Airbus is one half of what in effect is a duopoly with Boeing in airline manufacturing and the latter continues to feel the fallout from the recent crashes for its 737 max planes.    

 

FTSE MIB (ITA40) took a steep dive shortly after 1:00 pm CET. Bloomberg agency reported that the country is set to revise GDP forecast for 2019 from 1% to just 0.1% and to raise budget deficit forecast for 2019 to 2.5%. The Italian stock market index moved almost 0.5% lower during the first 15 minutes after the report was published and now trades among the biggest European laggards.

 

BASF (BAS.DE) is trading higher today following an expansion announcement. Namely, the German chemical company said that it will expand Brazilian sodium methylate production capacity. The company plans to increase output from 60k tons to 80k tons. Capacity boost is said to be completed in 2020.

 

In a clear example of how headline driven the pound is at present, there’s been a swift move higher and just as quick a drop back lower as the latest round of Brexit rumour and counter-rumour hit the news wires. Reports that German Chancellor Angela Merkel was willing to grant a 5-year time limit on the backstop saw traders rush to buy the pound in anticipation of  a breakthrough that could have potentially revived PM May’s deal by bringing hardline Tory Brexiteers and maybe even the DUP back onside. However, the gains were fleeting and they were promptly handed back when it was confirmed the reports were untrue and we can expect more of this sort of thing in the coming days. There remains an underlying feeling that a large and sustained move in the pound is just around the corner, but the problem for the here and now is that there will likely be several false dawns beforehand and heightened levels of volatility which lack a clear direction before that occurs.   

 

For the top 3 charts of the week we focus on the US500, TNOTE and Oil.WTI. Read more here.

 

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Morning wrap (27.11.2020)
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