Pound swoons as May aborts key vote; Stocks fall further

Summary:

• GBP drops to 18-month low as May pulls key vote

• UK economy slows as summer bump fades

• US stock sink below October lows

• Fresenius a rare bright spot for the Dax

• More declines in crypto as Ethereum developers set a point for hard fork

The pound has dropped to its lowest level in 18 months and come within a whisker of breaking below $1.25 today after PM May announced she had pulled a key Brexit vote. The move may have spared an embarrassing parliamentary defeat for the PM but it will no doubt see those calls for her to be replaced grow ever more vociferous. The negative reaction in the markets is more likely due to what it means for her position rather than the failure to win the vote - with even her staunchest supporters already highly skeptical as to whether the bill would pass - as it now seems increasingly likely that a long-touted leadership challenge will ensue.

The pace of economic growth for the UK has slowed of late after a surprisingly large increase over the summer as Brexit uncertainty continues to provide a headwind. On a rolling 3-month basis GDP to October increased by 0.4% compared to 0.6% for the previous period as the strong reading from July rolls out of the data set. In month-on-month terms it looks a little better as there was a rise of 0.1% which ended two consecutive readings which showed no growth on the previous month. It’s not hard to see that the ongoing uncertainty surrounding Brexit is weighing on the economy, with the negative impact increasing as we approach the Article 50 deadline next March.

Stock markets have endured a tough time of late and there seems to be little let up in the negative outlook with markets in both the US and Europe seeing more selling today. There were gaps lower over the weekend as US trade representative Lighthizer reaffirmed that the 90 day pause in the US-China trade war was a “hard deadline” and even though there was an attempted recovery throughout the morning session sellers have stepped back in towards the European cash close. The US500 has broken below the low of 2603 seen in October and the market has now opened up the chance of a retest of the 2530 low from the start of the year.

The DE30.cash fell further today also with the benchmark dropping below 10600 but one rare bright spot is Fresenius. The company won favourable court ruling in the United States. The Delaware Supreme Court ruled that a rapid deterioration in Akorn’s (AKRX.US) generic drug business is sufficient reason for Fresenius to withdraw from taking over the company. The Akron’s business downturn became evident after the deal was announced but before it was closed. Let us note that Fresenius shares underperformed as of late as investors were concerned that the Akorn acquisition will turn out to be a drag and a hurdle for the German company.

The majority of crypto markets are in the red today with Litecoin, Stellar and Ripple the worst hit and lower by around 5% at the time of writing.  The capitalization of the whole market stands around the $113 billion mark whereas Bitcoin accounts for 55.0% of this value. Ethereum core developers agreed about the point of next hard fork on Friday during the  biweekly developers meeting. Developers proposed a block 7,080,000 as an activation point for Constantinople, a long-awaited code change. This implies that Constantinople is expected to go live between January 14 and 18. This change will give users the option to update the blockchain with additional features. On top of that, developers also discussed Ethereum 1x, another upgrade that is currently targeted for proposal in 2019, concluding that progress of work is an early stage. Ethereum is in the red by around 2.7% at present.