Intraday Market Thoughts

US Stocks Highs, UK December Elections

by Adam Button
Oct 29, 2019 14:33

The S&P 500 hit a record on Monday as commentary from executives so far points to a modest economy but not a recession. The pound regains the 1.2890s after UK Labour leader Corbyn announced his party's backing for a December election (more below). One of the final inputs for the Fed is release of the October consumer confidence report from The Conference Board, which slipped from 126.3 to 125.9. Pending home sales edged up 1.5% from 1.4%, while house price data was mixed. The mystery charts below will be discussed in the Premium Video later this today.

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US Stocks Highs, UK December Elections - Mystery Charts Oct 29 2019 (Chart 1)

Towards UK December Elections

Labour Leader Corbyn finally agreed to holding a general election in December on certainty that there will not be a no-deal Brexit. Now we move into several votes amending elections laws. The rationale explaining GBP's moves nearing elections has been discussed in last week's piece here.

Stocks are in the spotlight after Monday's record high in the S&P 500, breaking the double top at 3029. The jump came on the anniversary of Black Monday exactly 90 years ago – an event that led to an 89% drop in the Dow.

There are historical parallels with the trade war and rising protectionism but some lessons have certainly been learned. Trump has halted his offensive against China and a Phase One deal is now likely fully priced in. Given the proximity to the 2020 election, the likelihood is that we get an extended pause. Central banks have also learned lessons with a wave of global easing accompanying the trade war.

Yet there are similarities as well. The global trend of voters shifting to the fringes is well-underway. In a state election in Germany on the weekend, Merkel's CDU finished in third place behind far-left and far-right parties. Huge protests have erupted in Chile, Lebanon and Hong Kong. Westminster is so dysfunctional that an election is held up on a three-day discrepancy in voting dates.

The break in stocks signals some resilience in the economy. Commentary from CEOs outside of the hard-hit automotive industry talk about slowdowns, poor investment and sluggish orders but few are bracing for a recession.

Looking ahead, Wednesday's looming FOMC decision will probably keep a cap on volatility in the day ahead. The market is pricing in a 92% chance of a cut but the odds of another move in Dec have fallen to 22%.

Act Exp Prev GMT
HPI (y/y)
2.0% 2.1% 2.0% Oct 29 13:00
CB Consumer Confidence
128.2 125.1 Oct 29 14:00

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