Stocks pull down as risk appetite fades away

Summary:

• Asian stock markets trade lower along with the SP500 futures on the back of news related to Huawei

• Labour’s Jeremy Corbyn calls for a second referendum, more tensions with the Conservative Party ahead of a series of votes

• Chinese President Xi Jinping stresses the need to maintain political stability

Extradition

The US has sent a message to the Canadian government that it plans to proceed with a formal request to extradite Huawei Chief Financial Officer Meng Wanzhou on allegations concerning violation of US sanctions on Iran, according to Globe and Mail. Let us remind that Wanzhou was detained on December 1 at the airport in Vancouver, Canada at the request of the United states. Huawei declined to comment on the matter, while the US Justice Department officials have yet to be reached to get some details. While Canada’s ambassador to the US did not point any specific date until extradition must be made, the Canadian press suggested that the date to submit a request expires on January 30. Given the fact that this story could be tied to a trade war between the US and China, it has caused some declines across stock markets on the back of a fading risk appetite. China’s Shanghai Composite is trading 1.2% down while the Hang Seng (CHNComp) is losing almost 1.5%. At the same time, the SP500 futures are trading 0.7% lower signalling a possible red opening on Wall Street. The US 10Y yield pulled down over the Asian session as well and it keeps hovering slightly above 2.75%, down from 2.785% seen on a Friday’s close. On the currency front we have the Japanese yen which is outperforming its all peers, however, the gains against the US dollar have been moderate (0.2%) as of yet. The biggest loser in early trading in Europe is the Australian dollar being traded 0.35% lower. The Norwegian krone and the Canadian dollar are also moving lower which could be tied to sliding oil prices (-1%).

The NASDAQ (US100) has bounced off the resistance placed in the vicinity of 6860 points. This level coincides with the 50% retracement of the slide taking place during the second half of 2018. Taking into account simmering trade tensions, risks to the global economic outlook and still highly valued US stocks one may arrive at a conclusion that ‘lower for longer’ could be a base scenario. Source: xStation5

Corbyn calls for another referendum

After PM Theresa May outlined her plan B regarding Brexit Jeremy Corbyn, the Labour Party’s leader, proposed to hold a second Brexit referendum. He wants to give MPs the final say next week to hold a new vote that could lead to Brexit being reversed. Given the fact that Corbyn’s backing for this idea is quite high one may expect that a vote on this matter could take place on January 29, when a May’s revamped Brexit deal is to be voted as well. Let’s recall that Prime Minister Theresa May rejected calls for a second referendum from MPs on all sides warning that it would “damage social cohesion by undermining  faith in democracy.” Other amendments proposed by the Labour Party include the opposition party’s alternative plan for a permanent customs union with the EU. Meanwhile, as much as 40 MPs could resign next week if Conservative members are banned from voting for a plan to stop a no-deal Brexit, according to The Times. Business minister Richard Harrington, digital minister Margot James and defence minister Tobias Ellwood are among those considering a resignation from their posts. The pound is trading barely changed this morning after it gained somewhat following May’s appearance in the House of Commons.

If the EURGBP pushes through the orange trend line, it could be allowed to move even toward 0.83. Assuming that a lot of negative news regarding Brexit are already priced in, one may expect the pound to be one of the best trading opportunities in the G10 basket this year. Source: xStation5

In the other news:

• Chinese President Xi Jinping stressed the need to maintain political stability, he also added that the party was facing long-term and complex tests in terms of maintaining long-term rule, reform and opening-up, a market-driven economy, and within the external environment

• The IMF expects the global economy to expand by 3.5% this year, down from 3.3% predicted recently