Stocks pull back while GBP in focus at start of big Brexit week

Summary:

• US indices begin the week a little lower

• Boeing shares fall on broker downgrade

• DE30: BMW’s warning put German carmakers under pressure

• Pound in focus at the start of a big Brexit week

There’s been a bit of a pullback for the US markets to start the new week with all the indices trading in the red by the European cash close.  The final session of last week saw the US30 surge higher to trade at its 2019 peak after the strong NFP report, but there was a lack of follow through and price ended the day back near where it was ahead of the jobs report. A potential evening star could be forming in the US30 with today’s close key.

One of the chief reasons for the underperformance in the US30 compared to the other large cap benchmarks in the past month or so is due to Boeing. With the airline manufacturer seeing its stock price fall after the Ethiopian Airlines crash and with this accounting for a greater than 10% weight of the index, it is clearly having an adverse impact. Boeing is trading lower by around 4% this afternoon after Bank of America Merrill Lynch has cut its outlook saying the recent troubles are worse than expected. BofA now estimates delays with the 737 to last six to nine month, longer than the three months originally forecast. BofA cut its rating to neutral from buy and lowered its price objective to $420 from $480.

Shares in Europe have also moved lower with the DE30.cash trading back down below the 12000 handle once more. BMW (BMW.DE) can be found among DAX underperformers today. The company announced that it may take a charge exceed €1 billion in the first quarter of the year. The charge is related to the ongoing European probe that seeks to find evidence of collusion between the German car manufacturers. BMW said that the charge will impact first quarter earnings and put pressure on margins. Note that other automotive stocks may find themselves under pressure today as well.

The pound is trading a little lower at the start of what could be a decisive week for the currency with Brexit once more at the front and centre of traders’ minds. With the UK government asking for another extension last week, the most likely outcome seems to be that this will be granted by the other 27 EU members but the chances of a no-deal are creeping higher. It is now abundantly clear that none of the key decision makers in the process desire a no-deal outcome, but that’s not to say it won’t happen and as Friday’s current deadline draws closer the chances of the UK crashing out of the EU remain uncomfortably high.  

1.2960 remains a potentially key level to watch in GBPUSD this week with prior swing lows coinciding with the 200 SMA. 1.3195 and 1.3380 resistance. The range is remarkably narrow of late (circa 400 pips for 7 weeks). Price could be coiling ahead of a big move with Brexit developments almost certainly holding the key.