Oct 26, 2018, by Lorcan Roche Kelly
Yesterday’s higher close for the S&P 500 Index – the first in seven days – may prove short-lived as global equities come under pressure again this morning. Overnight, the MSCI Asia Pacific Index slipped 0.4 percent while Japan’s Topix index closed 0.3 percent lower as both measures clock up their worst weeks since February. In Europe, the Stoxx 600 Index was down 1.5 percent at 5:45 a.m. Eastern Time as disappointing earnings from U.S. tech giants weighed on sentiment. S&P 500 futures were off by more than 1.4 percent, the 10-year Treasury yield was at 3.089 percent and gold was higher.
Today’s third-quarter U.S. gross domestic product data at 8:30 a.m. carries more weight than usual — it’s the last reading ahead of midterm elections that will determine which party controls Congress. Economists forecast a 3.3 percent expansion in the period, below the prior quarter’s 4.2 percent, but still very strong by recent standards. While it’s hard to determine how much a GDP beat or miss would influence electoral sentiment, President Donald Trump has promised “outstanding” growth. The president, who has been hitting the campaign trail hard, has also thrust the immigration issue back to the fore in recent days.
The prospects for a deal on the U.K.’s exit from the European Union seem no closer today after a disagreement within Prime Minister Theresa May’s cabinet put top-level negotiations with the European Union on hold. Royal Bank of Scotland Group Plc said it was setting aside 100 million pounds ($128 million) to reflect greater uncertainty around Brexit. Sterling has come under pressure again, dropping to $1.2802 by 5:45 a.m.
China’s currency again came close to breaching the seven-to-the-dollar level during Asia trading. The currency, which has fallen 9 percent in the past six months, slipped closer to the weakest level since May 2008 before rebounding at the end of the session. Analysts expect authorities in Beijing to defend the 7 level, as hitting it may lead to further weakness. For the wider market, concerns about China’s economy are showing up in companies that rely on the country for a large proportion of revenues, with their stock getting hit harder than others.
On Sunday, voters in Brazil pick their next president, with Jair Bolsonaro still holding a strong lead over Workers’ Party candidate Fernando Haddad in the latest polls. Bolsonaro, a right-wing candidate in the Trumpian mold, said at a campaign event yesterday that he would keep Brazil in the Paris Climate Agreement, maintain good relations with Argentina and do what he can to help resolve the crisis in Venezuela. In the currency market, forecasters say the real’s gains may soon come to an end as most of the optimism for a Bolsonaro win is already priced in.