September 25, 2019 / 7:43 AM / 18 days ago

Daily Briefing: Markets watching Trump and Johnson, warily

There’s trouble at the White House and Number 10 Downing Street. Rising pressure on U.S. President Donald Trump and UK PM Boris Johnson has disturbed global stock markets, coming as they do amid investor worries about recession and growth-sapping trade wars.

Moves by U.S. Democrats to start impeachment proceedings against Trump, over allegations he attempted to influence Ukraine to smear a possible 2020 election opponent, Joseph Biden, came shortly after Trump lambasted China at the United Nations over broken trade promises that have led to tariff war of the past year.

Both events came on the same day the UK Supreme Court ruled Johnson’s move to suspend parliament for five weeks before the Oct. 31 Brexit deadline was unlawful and parliament was free to re-convene later today. The decision increased calls for Johnson to step down amid allegations he misled the UK Queen with his advice over the so so-called ‘prorogation’ of the assembly.

The issue for financial markets now is whether either development materially changes existing assumptions about the course of the Trump presidency or the probability of a negotiated Brexit deal.

Wall Street’s S&P 500 stock index dropped almost 1% late Tuesday, mainly on Trump’s bellicose UN trade speech. But they only returned to levels of two weeks ago and futures were flat overnight. Similarly, 10-year U.S. Treasury yields slipped back to about 1.62% but rose again overnight. The fresh trade worries have yet again seen the dollar strengthen.

Asia stock markets also fretted about the tone of his trade comments, with Shanghai, Hong Kong, Tokyo and Seoul benchmarks dropping 0.5% to 1.5%. earlier.

Market thinking on impeachment seems to assume it would not succeed in unseating Trump, since his Republican party still controls the Senate, which would conduct the trial. Some investors reckon the process could damage Trump’s re-election process regardless but fretted that a wounded president could double down on his trade war with China to lift his popularity.

In the UK, sterling rose about half a cent after the Supreme Court ruling on Tuesday. The assumption is that the decision undermines the prospect of a no-deal Brexit on Oct. 31 and gives parliament more time to tie Johnson’s hands should he attempt to face down new legislation demanding he seek an extension of the Brexit deadline if a deal is not secured by the European Union summit on Oct 18.

But the decision also increases uncertainties about the timing of a snap election and whether opposition parties might call a no-confidence motion on Johnson’s 63-day old government as soon as today.

Sterling, which also has to absorb increasingly worrying UK economic signals such as the Confederation of British Industry’s report of the biggest drop in UK business output expectations in 10 years this month, has given up about half of Tuesday’s gains against the dollar first thing today and was last trading about $1.2462.

Euro/sterling remained about 0.8820. With the UK political scene in fresh foment, Bank of England chief Mark Carney is due to speak in New York later.

Elsewhere, the growing European recession fears stoked by Monday’s flash PMI business surveys for September were eased somewhat on Tuesday by a better-than-forecast German Ifo survey.

But the wider global political and trade fears saw European stock futures fall about 0.4% ahead of the open, and two more profit warnings from German industrial firms on Wednesday added to the gloom.

Euro zone sovereign bond yields continue to trade at their lowest since the Sept. 12 European Central Bank meeting. New Zealand’s dollar edged higher after the Reserve Bank of New Zealand kept interest rates on hold, as expected.

In the European corporate world, profit warnings from Pfeiffer Vacuum and Kuka, the latest European (and German) industrial machinery company to cut guidance for the full year, weighed on the market. Pfeiffer says it is suffering order delays and expects weaker-than-expected fiscal-year results. Kuka, which makes robotics, says demand from auto makers has slowed.

Both are small companies by market cap, but the news will underscore concern about the health of Europe Inc before third-quarter results as companies suffer their third straight quarterly decline in profits.

Yesterday, German truck and trailer components maker SAF Holland issued a profit alert. Pfeiffer’s shares are down as much as 9.5% in pre-market trading and the news could hurt Comet Holdings and Assa Abloy.

Cosmetics and soap maker PZ Cussons has said it expects conditions in its key markets to remain challenging for the rest of the first half, as it reported declining first-quarter revenue in Asia-Pacific and Africa. Its shares are seen down 2%.

But consensus-busting results from Nike, the world's largest footwear maker, overnight could provide a bright spot for Adidas, and online fashion company BooHoo shares are expected to get a lift from its first-half results, highlighting the consumer shift to online from the high street.

Puma may not benefit from the warm glow from Nike, after Gucci-owner Kering announced it's issuing a bond that can be exchanged for shares in the German sports company. Kering owns a 15.7% stake.

News that ThyssenKrupp is preparing to replace its chief executive after only a year is expected to boost its shares. Utilities will be in focus - EDF shares are seen down 5% by one dealer after the French electricity company warned of spiralling costs from Hinkley Point. The UK's United Utilities forecast higher underlying profit and revenue for the first half.

— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —

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