Brextension, Fed Funds, US GDP and Apple Earnings
It’s been a pretty eventful couple of days so far and we’re only half way into a busy week . On Monday the EU agreed to approve an extension to the UK’s Brexit deadline of October 31 until January 31,2020. In a Tweet by EU Council president Donald Tusk, the word “flextension” was used, meaning that the UK is free to leave before that final deadline.
Meanwhile back in London yesterday, MPs voted to approve a snap election after Prime Minister Boris Johnson failed to get parliament to fast-track a vote for his approved European Union Withdrawal Agreement Bill last week. The election will be held on December 12, just two and a half years after the nation voted Theresa May into office.
It will be the second such election to be conducted under the shadow of Brexit. Far from being a formality before the UK’s long-awaited exit from the European Union, this snap election threatens to muddy the waters even further as candidates bring their own causes to the table.
The EU27 has agreed that it will accept the UK’s request for a #Brexit flextension until 31 January 2020. The decision is expected to be formalised through a written procedure.
— Donald Tusk (@eucopresident) October 28, 2019
Pro-EU candidates such as Jo Swinson of the Liberal Democrats and Nicola Sturgeon of the Scottish National Party are seeing the election as another opportunity to avert Brexit. Meanwhile the leader of the opposition, Jeremy Corbyn has referred to it as an opportunity that comes “once-in-a-generation”.
The reaction in UK markets has been muted. The Sterling is currently sitting at 1.28 against the US dollar and 1.15 against the euro. This is after last week’s rally following the UK finally reaching an agreement with the EU.
Federal Reserve Interest Rate Decision
Today it’s going to be all about the Fed as the Federal Funds rate is announced. While the markets are broadly expecting a 25 basis point cut, it won’t be the announcement itself but how Fed Chair Jerome Powell sets the stage for future expectations that market participants will be closely watching.
According to the CME’s FedWatch tool there’s currently a 96.2% probability of a 0.25% rate cut. Nearly 80% of 43 respondents to CNBC’s Fed Survey expect that later today the Fed will initiate its third rate cut this year. For an interest rate surprise, the Fed will either have to hold off on cutting rates or cut them by more than 0.25%, both of which seem highly unlikely.
Another thing to keep an eye out for will be the breakdown of how all the individual FOMC members voted, last time round there were three dissenting votes including one to hold off on a cut and one in favor of a 0.50% cut.
Before the Fed fireworks (or lack thereof) we have Advance quarterly GDP readings out of the US. With the previous reading having been subsequently revised down from 2.1% to 2.0%, and evidence of a lagging US economy building, it’s likely that we’ll see GDP growth significantly below President Trumps 3% sweet spot target.
Markets are expecting a quarterly GDP reading of 1.6%, so anything significantly below this will be bad news. Even if the figures do happen to be in line with analyst forecasts, keep an eye out for downward revisions after the fact that have the effect of breaking bad news much more gradually to the market.
Finally, after the closing bell today Apple announces its quarterly earnings figures midway into earnings season. As of this Monday, 77.2% of the 202 S&P 500 companies to have reported earnings have beat the forecasts of analysts. This is largely due to analysts having lowered their expectations by around 9% due to growing fears of an economic slowdown.
Why is this earnings release an important one to look out for? At $1.1 trillion, Apple is currently the most valuable publicly traded company. If there were a single stock that could embody the US market’s hopes and aspirations, it would be AAPL. It smashed through its former all-time highs earlier this month, well ahead of the S&P 500 as a whole, which tentatively followed suit this week.
But what’s particularly interesting about this Apple earnings release, is that it includes all sales that the company had made up to September 30. Apple released three of its new iPhone 11 models on September 20, so this earnings data will also include some key information on how the newest version of the company’s flagship product is performing. Analysts are expecting an EPS reading of $2.84 per share, with revenues of $62.9 billion. This is definitely one to pay attention to later today as it sets the tone for how consumer confidence is faring and how Trump’s trade war is affecting US tech companies.
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