A third-straight weak session for European gauges as Wall Street tentatively drifts higher.
Not much Mid-Term mystery
Some of the clear outperformance most global regions posted in October relative to the U.S. has been erased. Mid-terms don’t quite cut it as a pretext. ‘The jury,’ the electorate, will be out till first results begin to trickle in during Wednesday early hours. Even before then, according to polling data, voters made up their minds some time ago. In the graphic below, the gap between the ‘price’ of a Democratic and a Republican win of the 116th U.S. Congress has been clear for at least 90 days and the magnitude of the Democratic lead has also been quite consistent. The share of early voting is reportedly verging on a record for a mid-term election, with all demographics higher than the norm, though particularly among younger voters. In other words, there’s quite a sense that early voting intentions have been carried through to the ballot with great resolve. There is no electoral college (popular vote) dimension in mid-terms. We therefore struggle to find an element of surprise here.
Figure 1 – Price of a Democrat win of Congress vs. price of a Republican win
Apple share’s worst ever ‘quarter’
We need to look elsewhere for creeping risk aversion that held past the Continent’s mid-session before lifting late in proceedings. One weight, Apple shares, are continuing the bounce that began on Monday. These are tentative steps after a conservative sales outlook last week upended the stock. There may yet be more consolidation of the share’s best ever quarterly performance (to the end of September). However, suppose the 12.5% fall through October and over the last few days were also spread over a further quarter. It would already be Apple’s biggest three-month loss. Investor’s reaction suggests it’s already too implausible.
Figure 2 – Technical chart: Apple Inc. price (top chart) / absolute change (bottom chart) – quarterly
Source: Refinitiv/City Index
U.S., Italy yields back in focus
Lingering yield apprehensions may also account for equity market wobbles. The U.S. 10-year yield isn’t looking too shabby though a double top on its daily chart (a high of 3.210% on Monday, matched, so far, on Tuesday) will probably cap it this session. The shorter end is more in focus. The Treasury Department has the biggest sale of bills since February—$80bn—in the works. The 3-year spread to Germany has set a new 2018 high, above mid-October’s. The 3-year note yield has inched within 4 basis points of the year’s 3.002% high. Vestigial U.S. yield concerns have a more definitive European counterpart. Predictable failure of the Eurogroup meeting to find a way through the Brussels-Rome impasse was followed by euro commissioner Dombrovskis’s barely veiled threat of sanctions after a 13th November deadline. It was the pretext for a BTP yield and spread bounce. The 9.6bp 10-year BTP rise represented the first relapse in five sessions though is still fairly loose change. European markets are not positioned for sanctions on Italy, including the euro. It has finally stalled near a Friday hourly high of $1.1432 after a four-session run higher.
Sterling’s 0.9% rise so far in November also seems to mis-price the swirl of Brexit possibilities. The string of false dawns continues, yet the pound has returned little of the gains made on disproved news during that time. The less embittered atmosphere within the Dublin, Brussels and London triangle is clear enough and looks sterling-supportive. The next opportunity for a deal will be the late-November special summit. The risks are obvious.