Daily Market Color November 15, 2018More Market Volatility with Heightened Brexit Uncertainty Jeff Davenport DisMAY in the UK Political turmoil in the UK rattled global financial markets as British Prime Minister Theresa May received the resignations of six government ministers who were unhappy with the recently presented terms of the nation’s departure from the European Union. Reports have stated that members within Theresa May’s Conservative Party have even been plotting to activate a no-confidence vote to try and sway their PM to restructure the agreement. Much of the dissatisfaction with the current deal relates to the fact that the UK would remain closely entwined with EU for a number of years past the formal exit scheduled for March 29, 2019. PM May attempted to soothe concerns in a press conference this afternoon, explaining that “this is a Brexit that delivers on the priorities of the British people,” and a rejection of it “would be to take a path of deep and grave uncertainty when the British people just want us to get on with it”. The British pound tumbled with the escalating uncertainty, dropping 1.6% against the US dollar on the day. Equity Selloff Ends In US equity markets, the S&P 500 and Dow Jones Industrial Average experienced a wide swing on the back of the news out of the UK, trading down as much as 2% before rallying and ending the day up 1.06% and .83%, respectively. Positive retail sales data assisted in pushing stocks into the black, as purchases at US retailers rose 0.8% in October. The figure exceeded median forecasts of +0.5%, driven by sales of clothes, sports equipment, and electronics. Looking ahead, it is expected that the upcoming holiday season will buoy sales through the end of 2018, but growth in 2019 may begin to pullback as the positive effects from the tax cuts begin to subside. Other key economic data on the day included weekly initial jobless claims, which were reported to hold near 49-year lows as data continues to provide affirmation of a tight labor market. The number of Americans filing for unemployment for the first time increased by a marginal 2,000 to a seasonally adjusted 216,000 last week. The four-week moving average of new claims also remained near the lowest level in nearly a half a century at 215,250. Separately, continuing claims increased by 46,000 to 1.680 million for the week ended November 3rd. Yields Continue Lower Bond markets also experienced a fair share of volatility as Treasurys caught a risk-off bid early in the day, pulling rates down before reversing much of that move and ending the day with the 10 year yield closing at 3.11%. Odds of a rate hike later this year remained unchanged at around 72% likelihood. Federal Reserve Chairman Jerome Powell reiterated last night that he’s pleased with the state of the US economy in spite of “global headwinds”. In energy markets, US crude oil continued to bounce back from its year to date lows closing up to $56.50/barrel. The rally came in spite of new data showing growth in domestic crude supplies and record output. On the flip side, Natural Gas reversed its recent surge falling nearly 20% on the day to $3.90.
