Europe rallies on Brexit delay hopes, Draghi reaffirms views

CMC Markets

Stock markets are higher heading into the close as the ECB keep rates on hold. 


The speculation that Brexit will be delayed is still circulating, which has lifted sentiment too. Mario Draghi, the head of the ECB delivered his final press conference as the bank’s chief. The central banker reiterated a lot of his previously held views. Mr Draghi said that risks still remain to the downside, plus he feels that headline inflation is likely to fall. The central banker called on governments in the currency bloc to use fiscal policy to help economic growth in the region. When a central banker says that an ample degree of monetary policy is still needed, in addition to fiscal policy, it underlines the problems in the area.

Traders are content to twiddle their thumbs in the Brexit waiting room as there is a belief in the markets the EU will grant the UK an extension in regards to leaving the trading bloc. It is clear that both parties want a deal, but it might entail some more waiting around, which equity dealers don’t mind as long as it points to an orderly departure.         

The ghost of payment protection insurance (PPI) is still haunting RBS as the bank has set aside another £900 million for the mis-selling of PPI in the third-quarter. The write-down caused the company to register a loss of £8 million for the three month period, while equity analysts were expecting a profit of £720 million. The investment banking division – NatWest markets, described trading as ‘challenging’, and the unit underperformance weighed on the group figures too. RBS said that retail and commercial businesses saw income drop by 3.1%. To add insult to injury, costs rose as the cost to income was 92.9% for the quarter, while the year-to-date figure was only 67.5%. Despite the subpar quarter the bank maintained its outlook which is why the share price hasn’t been hit too hard today.

Metro Bank shares are in demand today despite the poor third-quarter figures that were announced yesterday after the closing bell. The bank swung to an underlying loss before tax of £2.2 million, which was a marked difference from the £6.7 million profit in the second-quarter. Metro assured the market that it has strengthened its balance sheet, and that is why the group swung to a loss. The number of customer accounts ticked higher, but net interest income declined by 7%. The company will issue an outlook when the full-year figures are released, which seems like the firm doesn’t have anything positive to say. It appears that much of the negative news was already priced in, hence why the share price is higher today.               


The S&P 500 is fractionally higher as the US-China trade situation has taken another positive step. China announced they are willing to purchase $20 billion worth of US agricultural goods in year one if Washington DC agrees to a partial trade deal. When it corms to trade between the two sides, the sum of money isn’t huge, but it’s a good starting point, which could lead to further talks.

US durable goods fell by 1.1% in September, which undershot the -0.8% forecast. The report points to a more fragile consumer climate, which doesn’t bode well for the economic outlook as consumer spending is vital to keep the economy moving. 

Tesla shares are driving higher after the company announced a bullish quarterly update last night. EPS was $1.86, which was miles better than the loss of 42 cents per share the market was expecting. Revenue was basically in line with forecasts at $6.3 billion. Not only were the numbers good, the group confirmed it is ahead of schedule for the Model Y as well as the new plant in Shanghai. The group has had its fair share of setbacks over the years, but now it seems to be moving up a gear.

Twitter posted disappointing figures, hence why the stock has sold-off aggressively. Third-quarter EPS came in at 17 cents, which missed the consensus estimate by 3 cents. Revenue for the period was $823.7 million, which undershot the $874 forecast. Advertising revenue climbed by 8% to $756 million, but it was shy of traders’ expectations. In the three month period, the firm identified issues which impacted their ability to target ads, but they are working to overcome them now. The problems will spill over into the fourth-quarter, which prompted the group to lower its fourth-quarter guidance.   


EUR/USD is in the red as traders tuned in for Mario Draghi’s last press conference at the ECB. The update didn’t really highlight anything new. The central banker cautioned that risks to the economic outlook remain to the downside, and that headline inflation is likely to decline further. Earlier this morning, the French manufacturing as well as the services PMI report showed slight improvements on the month. The German manufacturing reading pulled back from the decade-low level, but the services update showed expansion at a slower rate.

GBP/USD has been pushed lower by the broadly higher US dollar. The talk of an extension being granted to the UK regarding Brexit is still doing the rounds, which is why the pound has managed to retain most of the gains that were racked up recently. Sterling is likely to stay in demand as long as the prospect of no-deal Brexit seems to be extremely low.         


Gold just traded above the $1,500 mark – a level it has struggled to break above in recent weeks. The metal has seen a series of higher lows for over one week, so the momentum appears to be to the upside. A sizeable break above the $1,500 mark, could bring the $1,520 area into play. The rally in gold today is all the move impressive seeing as global equities and the greenback are higher.

WTI and Brent crude hit levels last seen in late September as the US-China trading relationship seems to be on the mend. The trade spat between the two largest economies in the world is holding back the global economy, so positive signals have helped with the macroeconomic mood. The fall in the US as well as gasoline stockpiles yesterday is still playing on traders’ minds, as it suggests that demand is rising.