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Brexit extension and US-China trade lifts sentiment

Brexit extension and US-China trade lifts sentiment

Stocks are higher today on the back of the news that Brexit has been delayed until potentially the end of January 2020. 


The extension was granted this morning, and even though it wasn’t a surprise that Brussels agreed to the three month delay, the confirmation encouraged some buying. The focus will now be on UK politics. Prime Minister Johnson is hoping for a general election in mid-December. Mr Johnson will need the support of two thirds of MPs in order to press ahead with the pre-Christmas election. The Conservatives are doing well in the opinion polls which is why Boris is keen for an election. Jeremy Corbyn claims he will won’t support an election until the no-deal option is removed, but the Labour Party are performing poorly in the polls, and that’s the real reason why they don’t want an election in December.          

HSBC shares are in the red after the bank posted an 18% fall in third-quarter profit before tax. The bank derives the bulk of its revenue in Asia so the economic cooling of China as well as the political protests in Hong Kong caused problems for the group, but the region ‘held up well’ considering the landscape. Noel Quinn, the interim CEO, said the performance in Europe plus the US was ‘not acceptable’ Mr Quinn did not go into any detail, but he expressed a desire to trim the headcount. It is worth remembering the bank announced plans to cut 10,000 jobs last month. The finance house cautioned about ‘significant charges’ in the fourth-quarter, so traders are likely to tread lightly in the near-term.           

Cairn Energy confirmed the Alom-1 well has now been permanently plugged plus abandoned. The group has been involved in a legal battle with the Indian government in relation to the UK-India bilateral investment treaty. Arbitration is still ongoing but Cairn believe their chances are high of winning the $1.4 billion case. An announcement from the arbitration is due next summer.

Imperial Brands’ shares took a hit as RBC cut its target price for the firm to 1,600p from 2,100p.     

Bank of America Merrill Lynch downgraded Aston Martin to underperform from neutral, in addition the bank cut its price target to 400p from 550p.


The mood on Wall Street is bullish as the S&P 500 as well as the NASDAQ 100 both posted fresh intra-day record highs. The upbeat sentiment comes as earnings season carries on, plus the US-China trade talks are heading in the right direction. President Trump said he expects to sign a trade pact with China in the Asia-Pacific Economic Cooperation meeting next month. Things haven’t gone smoothly in the negotiation process but for now, the relations appear to be the best they have been in months.    

Tiffany shares have rallied following a bid from LVMH. The offer from the European group values the jeweller at roughly €14.5 billion. The New York-listed firm is considering the offer. LVHM is the largest luxury brands company in the world, and it is clearly seeking to continue expanding. There have been some signs of a slowdown in consumer confidence around the globe, but the super-rich tend to weather economic slowdowns better, which explains why LVMH is keen to expand. Tiffany has gone through a bit of a soft patch as Chinese tourists are spending less in the US stores, plus the unrest in Hong Kong is a factor too, which makes it easier for LVMH to put in a bid.

Walgreens posted a 55% fall in fourth-quarter net income as the cost of store closures ramped up. EPS were $1.43, while the consensus estimate was $1.41. Revenue for the three month period was $33.95, slightly ahead of forecasts. The group has upped its cost cutting programme as it now hopes to save $1.8 billion by 2022, while the previous target was $1.5 billion. The company is making good headway with its cost cutting scheme, and given the stock is off the August lows, it seems that market sentiment is ticking higher. The stock is showing modest gains.   


GBP/USD is higher on the back of the news that Brexit has been delayed. An extension essentially kicks the can down the road, but at least it removes the possibility of a no-deal Brexit for now. The pound might struggle to retest the 1.3000 mark as now traders have turned their attention to UK politics. Whether Boris Johnson can lock-in an election for 12 December remains to be seen, but dealers are not overly bullish about the prospect as he would need a large portion of opposition MPs to support him.

EUR/USD is slightly higher on the back of the dip in the US dollar, but the single currency can’t reply on the dollar’s weakness forever. There were no major economic announcements from the eurozone or the US today, hence why volatility is low. While the chatter of a Fed rate cut on Wednesday continues to circulate, the greenback is likely to remain under pressure.                


Gold has been pushed back below the $1,500 mark as traders are in risk-on mode. The metal usually outperforms when stocks tumbles as the asset is deemed to be lower-risk, and the opposite is true when stocks are powering ahead. If the metal holds below the $1,500 mark, it might retest the $1,480 area.

WTI and Brent Crude are in the red this afternoon as Chinese industrial profit declined by 3.3% on an annual basis in September, which was a slip from the 2% fall in August. China is a major importer of oil so any signs the nation is cooling down tends to have a negative impact on the oil market. Oil had a positive run last week, so the Chinese data acted as a good excuse for profit taking.


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