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THE DAILY MACRO BRIEF: A wave of optimism on Brexit

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10/16/2019 | 10:05am EST

Equity markets closed Tuesday's session up, helped by the first quarterly results in the United States, particularly on the large bank stocks side. Despite the increasing number of contradictory economic signals, investors have clearly taken the side of the glass being half full. The downward revision of the IMF's macroeconomic forecasts or the absence of any real trade progress between the United States and China did not weigh heavily in yesterday's balance against the reassuring results of American companies and a wave of optimism about the outcome of the Brexit.

Corporate results will continue to set the pace for the session with new American financial heavyweights (Bank of America, US Bancorp, PNC Financial, Bank of New York Mellon...), the European champion of semiconductor production machines ASML or the British Segro and Asos.

But all this remains very fragile, as the headlines of the night prove: the beautiful Sino-American facade is being undermined yet again after the US House of Representatives voted for a text supporting the anti-establishment movement in Hong Kong. Beijing has already threatened to react. If the text is adopted, “it wouldn't only harm China's interest in China-U. S. relations, but would also seriously damage U.S. interests", said Aft a spokesman for China’s foreign ministry. He added that China "will definitely take strong countermeasures in response to the wrong decisions by the U.S. side to defend its sovereignty, security and development interests."

In London, Irish Unionists have spoiled the enthusiasm by stating that there is still some way to go before an agreement is reached, although there was further positive signals from the EU/UK negotiations. The negotiations are far from over, but a legal text will be presented this morning to the national delegations. In response, the pound jumped to $1.2790, a 4-month high. However, caution must be exercised if an agreement is reached, as it will have to be presented to the British Parliament. Boris Johnson knows the importance of having the support of the DUP (Irish Unionist Party) as well as members of the British Conservative Party, in order to avoid the same rebuke that Theresa May faced a few months earlier.

Strange turnaround in China. Beijing had previously declared that cryptocurrencies were an instrument in the service of criminal activities. However, the country is expected to launch its own virtual currency, which will be combined with electronic payment methods such as WeChat or Alipay. No timetable has been specified, but some speculation remains around 11 November. Facebook's Libra seems to be stirring up the whole world, even Paris is (for the moment) opposed to the development of the virtual currency of the American giant on European soil. To be continued.

The Dutch central bank calls on banks to arm themselves. DNB has asked its country's commercial banks to raise €3 billion in additional equity capital. The authority believes that banks underestimate the risk associated with mortgage lending in the event of a fall in house prices (a mechanism that has already caused havoc in 2007).

5th consecutive reduction in growth forecasts by the IMF. The organization reports a general slowdown in the world's largest economies, partly due to trade tensions. The world economy is expected to grow by 3% in 2019 (the figure was 3.2% in July). The growth rate for 2020 has also been revised downwards, with risks seeming to dominate the outlook.


Romain Fournier
© MarketScreener.com 2019
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