European shares have steadied, making modest gains on Wednesday morning with US futures pointing to a rise at the open.

 

Now just waiting for trade Talks

This week’s US-China trade talks now look over before they’ve even began so markets are re-evaluating the chance of progress. It's now priced in that positions have hardened on either side so investors have dimmed the selling while they wait for the talks to begin.

 

Merkel crushes any lingering Brexit deal hopes

The pound is down but no out following the latest Brexit twist. In the space of a month, German Chancellor Angela Merkel has gone full circle from the beacon of hope to the bearer of bad news on Brexit. A war of words between Downing Street sources and EU officials has seen a souring of the mood. There is a glimmer of hope from a scheduled meeting between the British and Irish Prime Ministers this week, but we like most, think a deal at this late stage is lost. The fall in Sterling in our view is not so much disappointment that a (never very likely) deal will now not get though. This new stand-off means a higher chance that Boris is forced to run any election campaign on No Deal.

As we noted yesterday, legal texts saying the PM will extend on October 19 limits the downside for Sterling. Boris sneaking a No Deal through a legal loophole / backdoor wouldn’t be a good look for any forthcoming election, so we don’t see it as a likely proposition. For now our base case is a “reluctant extension” and a modest recovery in Sterling.

 

GVC shares looks good after OTC pickup

Shares of GVC rose over 2% after the betting firm raised its full-year guidance in its latest update. The stake-limit has killed off the Fixed Odds Betting terminals business so its welcome to see other areas of the business taking some of the slack. Online gaming has been a steady source of growth for GVC so the positive surprise was the pickup in the OTC (over-the-counter) business. Gains were capped by a warning from the company about the regulatory uncertainty in Germany. We view the regulatory interventions in the UK and Germany as an opportunity to position for the long-term potential growth from US sports betting at a lower valuation.

 

Gold gains may not last as Fed restarts asset purchases

Some are taking a positive view that the Fed re-starting asset purchases is the first step towards QE and that should be good for gold. Indeed gold prices are higher since the announcement. We are a little more glass half-empty on the yellow metal short term. We take the Fed at their word on this, that the resumption of asset purchases is to fix issues in the repo market, nothing else. If this is not an under-the-table-QE, then it is more evidence of reluctance from the Fed to acknowledge they have begun a full-blown easing cycle. The gains in gold were probably more a reaction to Fed Chair Powell making a robust signal that another rate cut is coming October, which does slightly improve the allure of non-interest-bearing assets. Our expectations are for another drop through $1485 per oz, though this view will need re-evaluation if gold rise above $1535.

 

US opening calls

S&P 500 to open 10 points higher at 2903

Dow Jones to open 93 points higher at 26,257

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