The Pound Is Being Held Hostage by Politics Again
As if the drawn-out Brexit uncertainty wasn’t enough, the pound is now at risk from the battle over the U.K.’s leadership.
Investors are watching for signs whether a much-anticipated challenge to U.K. Prime Minister Theresa May will actually materialize, and the outcome of a meeting of Conservative Party backbenchers Wednesday could be crucial. Long-time sterling bull Nomura International Plc switched to a neutral stance Monday, recommending a flat position amid reports of mounting opposition to May from within her own party.
While sterling gained Tuesday on optimism the European Union is preparing to offer a solution for the Irish border issue, political risk could yet set the currency back, according to Credit Agricole SA and Nomura. The prospect of a leadership threat has reappeared on traders’ radar since the weekend press reported that the number of lawmakers rallying against May was approaching the number required to officially mount a challenge.
“Any indication that political risks are on the rise in Westminster could fuel fears about a ‘no-deal’ Brexit and sink the pound,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole. “While we still hope for a last-minute Brexit deal, we maintain a rather cautious stance on the pound for now.”
EUR/USD: Risk-on & upbeat PMIs may not translate into major gains as Italy concerns linger
The EUR/USD defended the key support zone yesterday, but a strong bounce may not materialize, courtesy of lingering Italy concerns.
At press time, the currency pair is trading at 1.1470, having clocked a low of 1.1461 earlier today.
The common currency avoided a channel breakdown in Asia, possibly due to an uptick in the Chinese stocks. As of writing, the Shanghai Composite is reporting a 1.5 percent gain and the S&P 500 futures have recovered losses to trade flat-to-positive.
As a result, the major European indices may report gains in early trade, helping stabilize the risk sentiment. Further, the EUR may pick up a bid if the Eurozone and Germany preliminary PMI numbers beat estimates.
However, gains, if any, will likely be short-lived as Rome and Brussels remain at odds over Italy’s national budget.
Italy believes that the only way to cut public debt is by boosting economic growth. Meanwhile, the Commission believes Italy’s growth assumptions are overly optimistic, making the debt reduction plan questionable.
Stock Market News
Inside S&P 500, most stocks in correction or bear market
The S&P 500 may not yet be in correction territory, but the vast majority of the index’s components have already gotten there.
Spooked by fears of a slowing Chinese economy and the effects of tariffs after weak quarterly reports from Caterpillar Inc and 3M Co, the benchmark index fell 0.55 percent on Tuesday, bringing its drop since a Sept. 20 record high close to nearly 7 percent.
On the New York Stock Exchange, 1,256 stocks hit 52-week lows, with only 21 establishing new highs, a pattern similar to selloffs on Oct. 10 and Oct. 11 that took the S&P 500 down a combined 5 percent.
While the S&P 500 has yet to decline 10 percent from its high – what many investors consider a correction – three quarters of its components have fallen that much, or worse.
About 353 S&P 500 stocks have fallen 10 percent or more from their 52-week highs. Of those, 179 stocks have fallen by 20 percent or more from their highs, establishing them in a bear market by many investors’ definitions.
Apple Inc, whose $1 trillion market value makes it by far the most heavily weighted stock within the S&P 500, has fallen 4.6 percent from its October 3 record high. That has helped the S&P 500 itself remain out of correction territory.
Asian Markets Turn Positive as Chinese Stocks Reverse Losses
Asian markets turned positive in afternoon trade on Wednesday as Chinese shares reversed losses on stimulus hopes.
China’s Shanghai Composite and the Shenzhen Component climbed 1.2% and 0.5% respectively by 1:30 AM ET (05:30 GMT), while Hong Kong’s Hang Seng Index gained 0.5%.
Reuters reported on Wednesday that China’s state planner approved fixed investment projects worth 697.7 billion yuan from January through September.
Last week, President Xi Jinping offered support to the country’s private sector, while the State Council also said on Monday that it would support bond financing by private firms, adding that the People’s Bank of China will provide funding to facilitate this, although the central bank did not provide any details of the size of the plan or a timeline at the moment.
Coinbase Adds Its First Stablecoin Tied to the US Dollar
Crypto exchange Coinbase announced support for the Circle-issued stablecoin Tuesday.
In a blog post, the exchange said U.S. customers outside the state of New York can now buy, sell, send and receive the USD//Coin (USDC) through the company’s iOS and Android apps, as well as coinbase.com, which was first announced last month. It intends to offer the coin to customers in different regions going forward.
USDC is the first stablecoin supported by Coinbase, and is only the second ERC-20 token the exchange’s customers can trade after it added the 0x token earlier this month.
“The underlying technology behind the USDC was developed collaboratively between Coinbase and Circle, in our capacity as partners and co-founders of the new CENTRE Consortium,” the post explained.
Each token is backed by U.S. dollar holding at a 1:1 ratio, the post stated, meaning it is 100 percent collateralized.
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