Asian equities are poised to open higher as technology stocks led the way higher in North America. Key data in Asia will see many investors focusing on both Japanese producer prices which are expected to rebound and core machine orders which are expected to fall sharply.
Brexit – May loses Brexit vote by a substantial 149 votes
Stocks – Modestly higher as softer inflation confirms Fed’s dovish pivot
Gold – Softer US inflation and Brexit spur demand
Oil – Saudis promise for further cuts have run its course
Brexit
Prime Minister May suffered another crushing defeat that will likely see her deliver an extension to Article 50, which might require new leadership. Tomorrow’s vote is widely expected to see the risk of a no-deal Brexit taken off the table and a Thursday vote should see Article 50 extended. Immediately following the 391-242 vote, PM May confirmed the agenda for the votes for the next two days. She noted that the House will have to answer if they want to revoke Article 50 or have a second referendum. The British pound spiked higher after the vote but quickly retraced back to the 1.3080 region. Brexit volatility is expected to remain high as any extension will need EU approval.
Stocks
Excluding the Boeing story and the its effect on the Dow, stocks continue to rally as mild inflation appears to be all that is needed to confirm investors expectations that the Fed is going to remain on hold. For stocks to attempt to recapture the highs from last year, the markets are requiring a conclusive trade agreement to be reached by the US and China.
The Treasury Curve saw yields continue to drop sharply, with the 10-year falling 4.1 basis points to 2.598%. The 10-year and 2-year gap narrowed to 14.4 basis points, to the lowest level of the month. Inversion concerns and the ultimate trigger of a recession have been alleviated but if we see continue to see yields under pressure, we may have lower baseline later in the year for the curve to invert.
Gold
The precious metal revisited the $1,300 an ounce level as muted inflation confirms the Fed is not raising rates anytime soon. Fed funds future expectations still see the next move for the Fed to be a rate cut, however that could quickly change after we see a trade deal in place. The stock market selloff that started at the end of last year is about to have all the major headwinds become tailwinds: A no-deal Brexit is close to be taken off the table, the Fed ended their tightening cycle, China softened their stance on deleveraging and lastly we may be nearer to a trade deal between China and the US.
Oil
West Texas Intermediate crude somehow manages to consistently rally on news the Saudis are committed to rebalancing oil markets and will do their share of heavy lifting with the production cuts. The rise in oil prices is being kept in check as the risks for rising US production and falling global demand starting to take focus. US inventories are once again expected to deliver another strong build tomorrow and rig count data at the end of the week could show some signs of stabilizing. Tomorrow, China will have key data that may help confirm the slowdown that has seen industrial production steadily decline over the past year.
