This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2018/nov/06/markets-edgy-us-elections-shares-dollar-eurozone-slowdown-business-live

The article has changed 13 times. There is an RSS feed of changes available.

Version 8 Version 9
Pound hits two-week high after Brexit 'thumbs-up' - business live Pound hits two-week high after Brexit 'thumbs-up' - business live
(35 minutes later)
Despite Brexit secretary Raab’s cheeriness, the British cabinet still haven’t actually agreed the terms of the Irish backstop.
Theresa May’s spokesman told lobby reporters that an agreement won’t be reached “at any cost”. The key issue is how long the backstop would last (Brexiteers say it can’t be indefinite), and who could end it (Brexiteers want the power to end it).
The spokesman said (via our Politics Live blog):
[The PM] said that while 95% of the withdrawal agreement had been concluded, on the Northern Ireland backstop there are a number of issues that we still need to work through and these are the most difficult.
This includes ensuring that, if the backstop is ever needed, it is not permanent and there’s a mechanism to ensure that the UK could not be held in the arrangement indefinitely.
Main conclusion of Cabinet today: UK Govt now working up a backstop review mechanism to propose to the EU, to ensure it isn’t indefinite.
But; it appears this will take some time. No10: “Don’t be under the illusion that there isn’t a lot of work to do”. Tick tock...
Other sources say that Cabinet was told by the Attorney General that the EU’s shift in the last few days to consider an arbitration mechanism is “a major step”. And that went down quite well with the Pizza Club.
The pound has also nudged a five-month high against the euro, trading as high as €1.1465.The pound has also nudged a five-month high against the euro, trading as high as €1.1465.
Bloomberg is impressed by the power of Dominic Raab’s thumb to move markets:Bloomberg is impressed by the power of Dominic Raab’s thumb to move markets:
The responsiveness of the pound to headlines may be well documented, but its sensitivity reached new highs Tuesday as it rallied on a mere hand gesture.The responsiveness of the pound to headlines may be well documented, but its sensitivity reached new highs Tuesday as it rallied on a mere hand gesture.
Investors had been waiting for news on progress in the Brexit divorce talks with U.K. Prime Minister Theresa May gathering her Cabinet Tuesday morning. When BBC political editor Laura Kuenssberg tweeted that the Brexit Secretary Dominic Raab had said “thumbs up” on the way out of the meeting, it was enough to send the U.K. currency to the day’s high.Investors had been waiting for news on progress in the Brexit divorce talks with U.K. Prime Minister Theresa May gathering her Cabinet Tuesday morning. When BBC political editor Laura Kuenssberg tweeted that the Brexit Secretary Dominic Raab had said “thumbs up” on the way out of the meeting, it was enough to send the U.K. currency to the day’s high.
“Isn’t it wonderful to be working in a market where a simple thumbs-up moves a currency by 40 pips?” said Jordan Rochester, an analyst at Nomura International Plc.“Isn’t it wonderful to be working in a market where a simple thumbs-up moves a currency by 40 pips?” said Jordan Rochester, an analyst at Nomura International Plc.
The British pound rallies Tuesday on a mere hand gesture: a thumbs up https://t.co/z795saqvab pic.twitter.com/Sr9ZKLmtaVThe British pound rallies Tuesday on a mere hand gesture: a thumbs up https://t.co/z795saqvab pic.twitter.com/Sr9ZKLmtaV
The pound has jumped to a two-week high as Brexit speculation swirls.The pound has jumped to a two-week high as Brexit speculation swirls.
Somewhat astonishingly, the rally came after the BBC’s Laura Kuenssberg tweeted that Brexit secretary Dominic Raab had given reporters a verbal ‘thumbs-up’ following a crunch cabinet meeting.Somewhat astonishingly, the rally came after the BBC’s Laura Kuenssberg tweeted that Brexit secretary Dominic Raab had given reporters a verbal ‘thumbs-up’ following a crunch cabinet meeting.
‘Thumbs up’ - says Raab on his way out of cabinet‘Thumbs up’ - says Raab on his way out of cabinet
There’s no more detail about exactly what Raab meant -- whether he means progress on the Irish backstop, or simply that he’s still optimistic.There’s no more detail about exactly what Raab meant -- whether he means progress on the Irish backstop, or simply that he’s still optimistic.
But it’s enough to send sterling up to $1.3090, up half a cent against the US dollar, at its best position since 22 October.But it’s enough to send sterling up to $1.3090, up half a cent against the US dollar, at its best position since 22 October.
Pound leaps after journalist tweets about minister doing thumbs up. World. Mad. Gone. Has. https://t.co/52adfdmpexPound leaps after journalist tweets about minister doing thumbs up. World. Mad. Gone. Has. https://t.co/52adfdmpex
The pound had earlier lost ground after DUP chief whip Jeffrey Donaldson predicted that “we are heading for no deal.”The pound had earlier lost ground after DUP chief whip Jeffrey Donaldson predicted that “we are heading for no deal.”
This rapid rebound suggests the City is extremely anxious for signs that London and Brussels could reach an agreement to avoid the UK crashing out of the EU at the end of March.This rapid rebound suggests the City is extremely anxious for signs that London and Brussels could reach an agreement to avoid the UK crashing out of the EU at the end of March.
Rachel Winter, senior investment manager at stockbrokers Killik & Co,isn’t convinced that a Democratic-controlled House would force peace in the trade wars.Rachel Winter, senior investment manager at stockbrokers Killik & Co,isn’t convinced that a Democratic-controlled House would force peace in the trade wars.
She writes:She writes:
“The President uses the stock market as a barometer of his own success and is clearly keen to keep it at a high level. His plans for further expansionary fiscal policy, for example additional tax cuts and more infrastructure spending, would also have positive consequences for the stock market.”“The President uses the stock market as a barometer of his own success and is clearly keen to keep it at a high level. His plans for further expansionary fiscal policy, for example additional tax cuts and more infrastructure spending, would also have positive consequences for the stock market.”
“There is concern that a Democrat majority in the House would cause governmental gridlock, making it difficult to pass further legislative changes. Further tariffs on China might be difficult to implement, which would potentially be good for emerging markets. That said, Democrats have long been critical of the trade imbalance between the US and China, and many leading Democrats applauded Trump’s tariffs.”“There is concern that a Democrat majority in the House would cause governmental gridlock, making it difficult to pass further legislative changes. Further tariffs on China might be difficult to implement, which would potentially be good for emerging markets. That said, Democrats have long been critical of the trade imbalance between the US and China, and many leading Democrats applauded Trump’s tariffs.”
The New York stock exchange is expected to drop when trading begins in under two hours, as America heads to the polling booths.The New York stock exchange is expected to drop when trading begins in under two hours, as America heads to the polling booths.
The futures market is calling the Dow Jones industrial average down around 50 points, or 0.2%. Yesterday it gained 190 points, so that’s not a major reversal.The futures market is calling the Dow Jones industrial average down around 50 points, or 0.2%. Yesterday it gained 190 points, so that’s not a major reversal.
Cautious traders will be sticking to the sidelines until we have some idea of how the midterm elections have played out. Given recent political shocks, they’ll be treating opinion polls warily.Cautious traders will be sticking to the sidelines until we have some idea of how the midterm elections have played out. Given recent political shocks, they’ll be treating opinion polls warily.
As my colleague Tom McCarthy explains, many scenarios are possible:As my colleague Tom McCarthy explains, many scenarios are possible:
Election night could end with the Republicans retaining their majority in the House of Representatives and strengthening their majority in the Senate, despite a historic exodus of Republicans retiring from Congress, widespread disapproval of Trump and the customary strength of the opposition party at this stage in the elections cycle.Election night could end with the Republicans retaining their majority in the House of Representatives and strengthening their majority in the Senate, despite a historic exodus of Republicans retiring from Congress, widespread disapproval of Trump and the customary strength of the opposition party at this stage in the elections cycle.
Yet some prominent Democrats – starting with the House minority leader, Nancy Pelosi – are predicting a blue “wave” that will deliver a strong Democratic majority to the House. (Predictions of the Senate flipping blue are notably fewer.)Yet some prominent Democrats – starting with the House minority leader, Nancy Pelosi – are predicting a blue “wave” that will deliver a strong Democratic majority to the House. (Predictions of the Senate flipping blue are notably fewer.)
It’s worth remembering that Wall Street’s interests don’t always run parallel to Main Street’s.It’s worth remembering that Wall Street’s interests don’t always run parallel to Main Street’s.
Indeed, the two thoroughfares can diverge widely when it comes to the state of America, and the global economy. What’s good for The Market isn’t always good for The People.Indeed, the two thoroughfares can diverge widely when it comes to the state of America, and the global economy. What’s good for The Market isn’t always good for The People.
As analysts at FX Pro put it:As analysts at FX Pro put it:
Wall Street has its own interest.Wall Street has its own interest.
Financial institutions fear that a full control by the Democrats over both houses (the House of Representatives and the Senate) could lead to the restoration of the Dodd-Frank Act, which restricts the activities of banks and the abolition of recent tax cuts.Financial institutions fear that a full control by the Democrats over both houses (the House of Representatives and the Senate) could lead to the restoration of the Dodd-Frank Act, which restricts the activities of banks and the abolition of recent tax cuts.
Dodd-Frank imposed new rules on the banking sector to avoid a repeat of the 2008 financial crisis, ending the ‘Too Big To Fail’ scandal. It was partly repealed earlier this year, despite warnings that this would increase financial risks.Dodd-Frank imposed new rules on the banking sector to avoid a repeat of the 2008 financial crisis, ending the ‘Too Big To Fail’ scandal. It was partly repealed earlier this year, despite warnings that this would increase financial risks.
Donald Trump’s tax reforms dramatically slashed the corporation tax rate from 35% to 21%, alongside temporary tax cuts for individuals. That helped to drive stock prices up (as firms became more profitable), but has also pushed America’s budget deficit higher.Donald Trump’s tax reforms dramatically slashed the corporation tax rate from 35% to 21%, alongside temporary tax cuts for individuals. That helped to drive stock prices up (as firms became more profitable), but has also pushed America’s budget deficit higher.
US wages are now rising faster, finally clearing the 3%/year mark for the first time in almost a decade.US wages are now rising faster, finally clearing the 3%/year mark for the first time in almost a decade.
But while the economy is still growing robustly, business investment actually declined in the last quarter, suggesting the tax windfall isn’t being pumped into new equipment, machinery and infrastructure.But while the economy is still growing robustly, business investment actually declined in the last quarter, suggesting the tax windfall isn’t being pumped into new equipment, machinery and infrastructure.
European stock markets are falling deeper into the red as lunchtime approaches.European stock markets are falling deeper into the red as lunchtime approaches.
Britain’s FTSE 100 is now down 43 points, or 0.6%, at 7060. Germany’s DAX and the French CAC are both off around 0.2%.Britain’s FTSE 100 is now down 43 points, or 0.6%, at 7060. Germany’s DAX and the French CAC are both off around 0.2%.
Connor Campbell of City firm SpreadEx blames midterm jitters, as investors wonder whether the Democrats will claim a majority in the House of Representatives:Connor Campbell of City firm SpreadEx blames midterm jitters, as investors wonder whether the Democrats will claim a majority in the House of Representatives:
A tentative start turned resolutely negative as Tuesday went on, investors’ midterm election nerves perhaps becoming more pronounced as voting gets underway.A tentative start turned resolutely negative as Tuesday went on, investors’ midterm election nerves perhaps becoming more pronounced as voting gets underway.
Brexit worries are also weighing on traders’ minds, as Theresa May struggles to reach an agreement over the Northern Ireland backstop that will satisfy Brussels and her own cabinet.Brexit worries are also weighing on traders’ minds, as Theresa May struggles to reach an agreement over the Northern Ireland backstop that will satisfy Brussels and her own cabinet.
A senior member of the DUP (who are supporting May’s government) has predicted that Britain would leave the EU without a deal.A senior member of the DUP (who are supporting May’s government) has predicted that Britain would leave the EU without a deal.
Looks like we’re heading for no deal. Such an outcome will have serious consequences for economy of Irish Republic. In addition, UK won’t have to pay a penny more to EU, which means big increase for Dublin. Can’t understand why Irish Government seems so intent on this course. https://t.co/1L4WF1n85NLooks like we’re heading for no deal. Such an outcome will have serious consequences for economy of Irish Republic. In addition, UK won’t have to pay a penny more to EU, which means big increase for Dublin. Can’t understand why Irish Government seems so intent on this course. https://t.co/1L4WF1n85N
Many Americans have already made their choice of senator, congressman or woman, or governor, of course.Many Americans have already made their choice of senator, congressman or woman, or governor, of course.
Early voting has been particularly brisk, suggesting the overall turnout at these midterms could be sizzling high as both sides push hard to get the vote out.Early voting has been particularly brisk, suggesting the overall turnout at these midterms could be sizzling high as both sides push hard to get the vote out.
The polls are open, meaning early-rising Americans on the east coast can cast their ballots.The polls are open, meaning early-rising Americans on the east coast can cast their ballots.
#BREAKING Polls open in eastern US states for crucial midterm elections pic.twitter.com/zS2TxifnN2#BREAKING Polls open in eastern US states for crucial midterm elections pic.twitter.com/zS2TxifnN2
It’ll be hours until we get any exit polls, though. Most polling stations stay open until at least 7pm local time (so midnight onwards for UK readers).It’ll be hours until we get any exit polls, though. Most polling stations stay open until at least 7pm local time (so midnight onwards for UK readers).
Donald Trump’s trade disputes are being blamed for a slowdown across eurozone companies last month.
Data firm Markit has reported that private sector growth in the euro area slowed to a two-year low in October. Manufacturing and service sector companies both reported weaker growth, with some blaming “global protectionist measures” such as Trump’s tariffs on EU steel.
Germany is particularly exposed to trade wars, thanks to its strong export sector. Its private sector growth slumped to a 5-month low and the joint lowest in over two years,
The widerIHS Markit Eurozone PMI Composite Output Index dropped to 53.1 in October, down from 54.1 in September, showing a notable slowdown.
Analyst Emanuele Canegrati of BPPrime says it’s a bad start to the final quarter of 2018:
Very disappointing start of 4Q for #Eurozone business activity, weakened to lowest in over 2 years @IHSMarkitPMI data show. Eurozone Composite Output Index: 53.1 (September: 54.1) Eurozone Services Business Activity Index: 53.7 (September Final: 54.7) @graemewearden pic.twitter.com/IRdbD2fHIP
Investors are also speculating whether the midterms could intensify the legal pressure on the White House.
For the last 18 months, special counsel Robert Mueller has been investigating whether there was collusion between Donald Trump’s presidential campaign and the Russian government to affect the 2016 election, and whether obstruction of justice has taken place
There’s been little news from Mueller recently, but analysts believe the probe could burst back into the headlines after the elections. Many US newspapers have reported that Trump advisor Roger Stone is in Mueller’s cross-hairs. In August, Stone himself suggested he might soon be indicted.
As The Hill reported last weekend:
Robert Mueller continues to zero in on Roger Stone as speculation builds that the special counsel could take a major overt step in his Russia investigation following the midterm elections next week.
Stone, a longtime adviser to President Trump who briefly worked on his campaign, is viewed as central to the question of what, if anything, members of the Trump campaign knew in advance about Democratic emails hacked by Russian operatives and then released by WikiLeaks.
Stephen Innes of foreign exchange trading firm OANDA says investors should keep a close eye on the Mueller probe:
The markets are understandably fidgety given the next 48 hours of headline risk....
However, flying under the radar is that these midterm elections carry a sizable legal risk for the GOP which could dent investor confidence as we will likely hear much more from Robert Mueller sooner rather than later.
Asia-Pacific stock market have closed higher tonight, apart from China which lost ground.
APAC Closing Prices:#ASX 5875.2 +0.98%#NIKKEI 22147.75 +1.14%#HSI 26120.96 +0.72%#HSHARES 10632.64 +0.83%#CSI300 3243.15 -0.60%
Here’s AFP’s take:
Asian markets mostly rose Tuesday as focus turned to the US midterm elections, which could impact Donald Trump’s presidency, while Apple suppliers suffered on reports the tech titan had cancelled plans to ramp up output of its new iPhone.
All eyes are on the US mid-term elections today, says currency expert Kit Juckes at French bank Société Générale.
He writes:
Opinion polls point to policy gridlock with a GOP Senate and DEM House, limiting the scope for further fiscal stimulus as the support from current measures fades.
That’s the corner-stone of what feels like a consensual view that growth will slow, and rate speak (near 3%) in late 2019, supporting the dollar now, but pointing to a turn in its trend in the second half of 2019.
Juckes says there are two scenarios which would really rock the markets [reminder, the Republicans currently hold the upper and lower houses of Congress]
DEM Senate and DEM House: This would be the most dollar bearish scenario, trigger fears of a lame duck presidency and potential impeachment proceedings. While the Fed would continue the tightening path, political confrontation in Washington would weigh on the dollar.
GOP Senate and GOP House (least likely): An all-Republican Congress is the scenario would elicit the strongest market reaction, with the dollar rallying on expectations of further fiscal stimulus.
As Donald Trump never tires of pointing out, the US stock market has surged by around 40% since his shock election win two years ago.
That’s largely due to the tax cuts which the president pushed through last year, which boosted company profits. That’s catnip to Wall Street (other Trump policies, such as his anti-immigration rhetoric, don’t move the markets)
That fiscal stimulus is also inflationary, meaning the US Federal Reserve is under pressure to keep raising US interest rates.
So, a strong night for the Democrats could spark a dollar selloff, explains Jasper Lawler of London Capital Group:
Dollar bulls are looking for a Republican win, which will supportive of more of Trump’s expansionary fiscal policies being pushed through. A Democrat win, and the resultant political deadlock is considered more bearish for the US dollar and US equities although we expect this to be a short-term reaction.
The unexpected result of a blue wave with Democrats taking both the Senate and the House would likely shock the markets resulting in an aggressive selloff in the greenback and US equities.
It’s worth noting that the stock market also had a good run under president Obama:
@Nate_McMurray When the #GOP brags about how great the economy is since they took control under Trump, please take another look. Who couldn't stimulate the stock market with a $1.9 trillion deficit?? Check out Obama's Dow Jones record after inheriting the great recession. pic.twitter.com/xJoCuh4EPr
Subdued trading this morning has seen London’s main stock index, the FTSE 100, dip into the red
It’s accompanied by most other European markets, as traders ponder whether today’s US elections will embolden or restrict president Trump.
Here’s our guide to the midterms:
The midterm elections have been a bruising experience for many presidents over the years.
Losing the House of Representatives in 2010 was a major blow for Barack Obama, for example, making it rather harder for him to push his agenda.
Bill Clinton had a similarly bad night in 1994, as the Democrats lost control of the House for the first time in 40 years. That dominance had meant the Republican presidents such as Ronald Reagan and Richard Nixon had lacked a majority on Capitol Hill.
But surprisingly, this situation hasn’t been bad for asset prices. Quite the reverse. Shares often rise during times of political deadlock -- after all, there’s a reassuring certainty if politicians can’t get anything done.
Hussein Sayed, Chief Market Strategist at FXTM, has crunched the numbers, and explains:
The combination of a Republican President and a split Congress have produced an average return of 15.7% on the S&P 500 in the 12 months following every mid-term election since 1950. These strong returns suggest that investors prefer a gridlock, a situation when different political parties control the two legislative houses. While such anomalies are difficult to explain, investors may find that a gridlock produces more predictable political outcomes to model and value equities against. In the case of a gridlock, Democrats cannot roll back recent tax cuts, neither they can tighten the Dodd-Frank banking rules. It may just mean that Trump will face more difficulties in passing new laws.
However, in the current tense environment it seems Wall Street will prefer Republicans to retain both legislative houses. That’s simply because a new tax cut will be expected to take place, further deregulation, and probably additional fiscal stimulus. While such measures are not necessarily good for the longer run as deficit and debt may get out of control, many investors will take advantage of these policies in the shorter run. Given that the polling industry got it wrong in 2016 and Trump became President, history may repeat itself this time again.
It would be more surprising if Democrats managed to win both houses. This will be a nightmare for Wall Street, as the Trump impeachment threat will become more real, but still, this would require help from some Republicans. Even if he doesn’t get impeached, the President will no longer have the power to pass bills and probably lead to pulling back some of his deregulatory actions, which definitely is not liked by corporate America.
The Chinese stock market lost ground today, as traders worried that the midterms won’t blunt Trump’s trade war instincts.
The CSI 300 closed 0.6% lower today, back towards the four-year lows hit last month.
Other markets were in better mood, though, with Japan’s Nikkei ending 1% higher and Hong Kong up 0.6%.
📈 Asian shares inched up on Tuesday, supported by Wall Street gains although momentum was tempered ahead of the U.S. midterm elections... https://t.co/eH0g3bR5Zu #Nikkei #Shanghai #CSI $AAPL #stocks #shares #asia pic.twitter.com/7PiyHdLz0W
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a buzz of election fever in the markets, as Americans prepare to head to the polls in the midterm elections.
As usual, the midterms are partly a referendum on the White House’s performance, potentially strengthening or loosening a president’s grip on the levers of power.
Investors around the globe are watching nervously to see whether the Democrats can seize control of the lower House of Representatives. Polls suggest they’ve got a good chance. Republicans, though, will probably maintain their grip on the Senate.
US midterms are expected to result in a divided Congress as Democrats are likely to flip the House but are unlikely to take the Senate. pic.twitter.com/mLFl59HG3x
A good night for the Democrats could allow them to block Trump from further tax cuts and other fiscal stimulus. They could also try to restrict his ability to launch destabilising trade wars with other nations (although the president has plenty of unilateral powers here too).
That could weaken the dollar (as it removes some pressure to raise interest rates), bringing relief to emerging market currencies.
A Democrat-controlled House could (and surely would) also launch fresh investigations into the president’s conduct, casting the shadow of impeachment over the White House. That could send stocks sliding on Wall Street.
But if the Republican vote holds up, Trump would be re-energised to continue pushing his America First strategy - creating more volatility in the markets, and possibly intensifying the trade dispute with China.
So currencies, stocks and bonds around the world will be affected by where millions of Americans put their cross today.
Tom Fitzgerald, co-manager of the Amity International Fund at EdenTree Investment Management explains:
So far, Republican control of the legislative powers – the House of Representatives and the Senate – has made possible President Donald Trump’s large fiscal package and his deregulation agenda, as well as protected him from various ongoing investigations. An election outcome favourable to the Republicans, maintaining both the House and Senate, could set the global economy and markets on a very different path at a time when both Europe and China are showing signs of weakness. In such a scenario, President Trump would have broader policy options, including on the fiscal front and the ability to carry on with his deregulation agenda. The market could perceive this scenario as the most pro-growth, as it would raise the chances of larger tax cuts and additional spending.
In contrast, in a scenario of favourable election results to the Democrats, giving them control of the House and Senate, President Trump would have very limited policy options for the rest of the legislature. As further fiscal easing may not be possible, President Trump might focus policy efforts on the trade war against China or implement trade threats against the EU. Europe would therefore be negatively affected by such shocks, given the large impact of car tariffs on Germany and Europe.
Also coming up today
New surveys of purchasing managers at service sector companies across the eurozone are released. They’re expected to confirm that growth slowed in October, matching the slowdown at UK services firms that was reported yesterday.
But there’s better news from Germany this morning; factory orders rose by 0.3% in September, stronger than expected.
Good econ news for a change: German factory orders unexpectedly rise as domestic demand gains. Orders rise 0.3% vs. estimate for 0.5% decline. Domestic demand climbs 2.8%, investment and consumer goods up. (via BBG) pic.twitter.com/RvkBVIlRW1
The agenda
9am GMT: Eurozone service sector PMI for October
10am GMT: Eurozone producer prices index for September