Mid-Day Update: Brexit Draft Deal Bubble Ready to Burst, Solid start for Earnings Season

The British pound continued to rally after the forex market began pricing in chances of a Brexit deal getting done.  Perhaps, all this optimism will be for nothing and today will feel more like the scene in Dumb and Dumber when Lloyd, Jim Carrey’s character says, “So you’re telling me there is a chance.”

Brexit will likely be delayed, but the recent progress shows that we could see PM Johnson deliver a deal done over the next year, if he wins the general election, which is likely to be the next step after this week’s developments.

Britain seems they are getting closer to a Brexit deal with the EU, but it will probably be highly unlikely for enough progress to be made before the EU summit on Thursday.  The DUP has been fairly vocal they will not support a Brexit deal that has Johnson making more concessions to the EU, so expectations are high for Johnson to avoid seeking their support. 

The EU summit is a key deadline that could very well lead to Johnson abandoning his promise of hard Brexit and conceding to an extension of Article 50.  Traders will need to decide before markets close on Friday if they want to hold a position over the weekend.  Saturday is the deadline for the Benn Act, the do or die time to have a deal approved in Parliament, otherwise Johnson needs to ask for an extension.

Earnings

The big banks kicked off earnings season and a mixed start saw JP Morgan outperform, while Goldman Sachs, Citigroup and Wells Fargo disappointed, but still saw their shares rally on the overall broader market rally.  Johnson and Johnson delivered strong results and raised their guidance despite a wrath of legal settlements.  United Healthcare rose sharply after a strong beat, raised guidance and after their medical-loss ratio (MLR) was driven higher on a health insurance tax deferral. 

Tech stocks also rallied strongly after Apple made a fresh record high.  Apple is benefiting on improving demand for iPhones and progress in diversifying revenue flows with streaming and other products.    

The start of earnings season has so far delivered a strong vote of confidence for the US consumer, but the outlook remains vulnerable to geopolitical risks that include tensions with global trade.  

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