The AUD continues to trade lower following the Chinese ban of Australian coal to its Dalian port. The ASX has benefited for the weaker exchange rate as it is trading at its highest level since October.
Trump yesterday tweeted about not inhibiting technology from coming to the US with specific references to 5G networks implemented by the Chinese firm Huawei. This suggests a softer stance towards the Chinese firm which recently saw governments stating they would no longer allow the company to be involved with their infrastructure upgrades.
Brexit woes have continued as more conservative members have warned they may rebel against the party in order to stop a no-deal Brexit. Amendments for Wednesday the 27th include a vote on preventing a no-deal Brexit and a vote to delay the deadline at the end of March.
The Dow fell 100 points yesterday on the back of poor economic data. USD durable goods orders missed forecasts by 0.5% whilst existing homes sales fell by 1.2% when they were expected to rise 0.2%
The FTSE followed suit with a loss of 0.85% over the main session. UK Net public sector borrowing was up over 4.5 billion.
Brent and WTI oil both softened yesterday on US data. US inventories rose to over 450 million barrels and production has reached 12 million barrels per day, the highest production rate any country has ever achieved.
Cotton is trading 3.7% higher following trade talk discussions with the US that stated they have committed to buying $30 billion of US agricultural goods.
Kraft Heinz has fallen over 20% as they have disclosed they are cutting their dividend and announcing they have been served a subpoena by the SEC in relation to their procurement accounting policies.
The search engine Baidu gained over 4% yesterday as they beat earnings estimates by 18c per share
Asian overnight: A mixed affair in Asia saw Chinese and Australian gains despite losses throughout Japan and Hong Kong. The US-China trade war remains the hot topic, with Donald Trump now scheduled to meet with the top Chinese negotiator, Liu He. Fears over the rejection of Australian coal in China has not been allayed, with coal miners understandably losing ground over the course of the session.
UK, US and Europe: Looking ahead, the focus remains on the eurozone, with the and final CPI and German Ifo business climate figures expected to bring euro volatility. Meanwhile, the afternoon sees Canadian retail sales followed by appearances from a host of Fed members. Crude traders will be keen to watch for the Baker Hughes rig count figure too
South Africa: After a soft close for US markets overnight, Index futures out of the region are starting to rebound this morning as are Chinese equity markets. US China trade talks continue today, while the UK is expected to ask the EU for an extension on the Brexit deadline. It is an otherwise light calendar, in terms of scheduled economic data. The dollar has softened slightly to aid gains in commodity prices. The rand has managed to claw back further strength and trade back below the R14/$ mark. Tencent Holdings is down 0.6% in Asia, suggestive of a similar start for major holding company Naspers. BHP Group is 0.4% lower in Australia suggestive of a flat to lower start for local miners.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9am – German IFO index (February): business climate index to fall to 98.5 from 99.1. Markets to watch: EUR crosses 10am – eurozone CPI (January, final): CPI to fall to 1.4% from 1.6% YoY. Markets to watch: EUR crosses
5:30pm ECB President Draghi Speaks (EU)Market to watch EUR Crosses
Corporate News, Upgrades and Downgrades
Centrica has renewed a series of debt facilities worth a combined £4.2 billion with 21 banks. The new debt will mature in February 2024.
Pearson reported a 46% rise in annual profit for 2018, to £590 million, although adjusted operating profit was down 5% to £546 million. The dividend was raised by 8% to 13p per share.
Merlin Entertainments has sold its Australian ski resorts to Vail Resorts for £95 million.
Dairy Crest has agreed to a takeover by Canada’s Saputo Inc for £975 million, or 620p in cash for each Dairy Crest share.
Codemasters upgraded to buy at Berenberg
DKSH raised to neutral at Credit Suisse
DNB upgraded to overweight at Morgan Stanley
Leroy upgraded to buy at Fearnley
Centrica downgraded to neutral at Goldman
KAZ Minerals downgraded to sell at VTB Capital
Nordea cut to equal-weight at Morgan Stanley
Retail Estates cut to hold at Kepler Cheuvreux
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Wall Street pulls back: On balance, and with Wall Street a few hours from ending its session, it's been a soft 24 hours for equities. The often heard calls of a looming "new-peak" in the market in the shorter term can be heard from some. Momentum has certainly slowed down. The S&P500 has its eyes one 2815 again - that crucial area where that index sold off on three occasions from October to December last year. It could be a slow drive to arrive at a challenge of that level now. The dovish Fed will keep the wind behind US stocks; but the earnings outlook, post reporting season, has dimmed on Wall Street, while positive regarding the trade war has already been heavily juiced.
Trade war truce already priced in? Markets are positioned for a relatively positive outcome in the trade-war, and that's manifesting in pockets of market activity. A true resolution in the trade war isn't expected, however an extension to be March 1 trade-truce-deadline seems to be. The overnight fall in US Treasuries, coupled with a topside break of copper's recent range, is a testament to this sentiment. The yield on the US 10 Year note has jumped back towards 2.70 percent, while the 3 month copper contract on the LME leapt another 0.83 per cent overnight. In G4 currencies, the US Dollar is stronger against the Euro and Pound, albeit very, very marginally, but weaker against the Yen.
The curious case of gold: Gold prices have dipped slightly courtesy of the stronger Dollar and greater confidence in the policy-outlook for the world's major central banks. The price of the yellow metal is sitting just above $1325 presently, as it continues its short term trend higher. One of the more divisive debates amongst traders currently is the outlook for gold. Like any market, time horizons are crucial to illustrating the trend for an asset's price. For gold, the short term trend is certainly higher, but with signs of "toppy-ness". The medium term trend, though perhaps posting some higher-lows in the price, is sideways at best. The long-term, secular trend though for gold prices is irrefutably pointing higher.
The gold debate: There is several aspects of this price dynamic, and elegantly indicates the different types of traders that move a price over certain time horizon. The immediate-term outlook for gold is naturally speculative, and pertains to the swings-and-arrows relating to stories about the trade-war, global growth, and short term rates. The medium term activity in gold certainly tracks the changing yield environment and vacillations in the credit and monetary policy cycle - primarily of the Fed. In the longer-term, where time scales of decades are spoken of, gold prices are angling higher, seemingly as global central banks buy the metal to hedge their US Dollar dependence.
Global growth outlook dims further: At the risk of flying off into paradigm after paradigm: a health check on economic data from the past 24 hours is in order. A mixed bag of data pertaining to global economic growth shaped the "global growth narrative" last night. It was a big PMI day in Europe and Asia, and while there weren't as many shockers, the numbers showed a greyer outlook for the global economy. Japanese Manufacturing PMI deeply contracted once more, Australian PMI figures dipped, while European numbers were relatively better, however did little to ameliorate the concern that European growth is sliding. It was a notion backed-up by last night's ECB minutes: policy makers can see what's happening to growth, and now future monetary policy is on notice.
Australia's wise-old uncle calls RBA cuts: Centring on the Australian experience, and a headline grabber yesterday was the Australian Dollar's wild ride. Labour market figures popped a rocket under the Aussie in early trade, after it was revealed that the local economy added 39k jobs last month - enough to keep the unemployment rate at 5 per cent despite, despite a climb in the participation rate. It all came undone for the currency quite quickly, however, after Australia's wise-old-uncle on RBA policy, Bill Evans, announced his view that a forecast fall in domestic GDP to 2.2 per cent and a subsequent rise in the unemployment rate to 5.5 per cent would prompt to RBA to cut rates to 1.0 per cent this year.
ASX to open soft: To add insult to injury, the AUD/USD was slapped down below 0.7100, after China announced a ban on Australian coal imports. This story aside, which dropped after the ASX200's close, the fall in the currency, and the fall in Australian Commonwealth Government bond yields, proved a positive for the ASX200. It closed 0.7 per cent higher for the session at 6139, and now eyes the next resistance level around 6160. The developments regarding the ban on Australian coal going into China, concerns about Australian fundamentals, and a bit of selling into the close on Wall Street should drag on stocks today. SPI futures indicating a 4 point drop for the ASX200 this morning.
Written by Kyle Rodda - IG Australia
Samsung announced the Galaxy Fold the first consumer available phone to feature a folding display. The new phone also comes with a $1,980 price tag.
Barclays report full-year net profit of £1.4 billion for 2018, pulling back from 2017's significant losses.
Theresa May reports positively about Brussels talks but is it too little too late after three Tory MPs quit the party to join an independent group yesterday.
Google have stated that the omission of the Nest Guard home alarm featured microphone on tech spec was merely an "error", and that the microphone was not meant to be kept secret.
Both Asian and U.S. stocks rose after reported stated that the negotiators have begun to outline a deal to end the ongoing trade war.
Nike Inc have come under fire on twitter after a star U.S. college basketball player's shoe split mid-game.
Despite positive jobs report AUD/USD tumbled 0.9% after report that China's Dalian port banned Australian coal imports to levels not exceeding 12m tons this year.
Crude prices rose more than 1% on Wednesday to 2019 high, aided by U.S. sanctions on the Organization of the Petroleum Exporting Countries (OPEC) members Iran and Venezuela.
Asian overnight: Asian markets enjoyed a pick-up in bullish sentiment, with today’s resumption of the US-China trade talks helping boost sentiment. The renminbi hit a seven-month high at one point, reflecting this optimism over the potential for a positive outcome. The Australian dollar saw a volatile session, with a positive employment change figure (39.1k from 16.9k) being counteracted by news that Dalian has started turning away Australian coal imports. Elsewhere, the Japanese flash manufacturing PMI number fell sharply, dropping well into contraction territory at 48.5 (from 50.3).
UK, US and Europe: Looking ahead, today marks the pinnacle of the week from an economic calendar perspective. The morning sees a focus on the eurozone, with PMI surveys spanning across both services and manufacturing for France, Germany, and finally the eurozone as a whole. UK public sector net borrowing should help the pound play a role, yet the euro is certain to take the main focus. In the US, durable goods, Philly Fed manufacturing survey, manufacturing and services PMI surveys will ensure volumes and volatility is elevated for the dollar. Also keep a close eye on the latest US crude inventories amid a recent bullish breakout for crude.
South Africa: Global equity markets are trading flat to marginally firmer this morning as easing US China trade tensions combine with a dovish interpretation of the US Federal Reserve's minutes from the last meeting. Gold trades flat this morning while platinum trades lower and base metals trade mostly higher in early trade. The rand has managed to claw back most of its losses which accrued leading into yesterdays Budget Speech by Tito Mboweni. Gains on our local bourse are being led this morning by Financial and Resource counters, while Industrial counters are the current underperformers of the day.
Economic calendar - key events and forecast (times in GMT)
8.15am – 9am – French, German, eurozone services & mfg PMI (February, flash): fears of a eurozone recession are rising, and further weakness in these PMIs would suggest that the eurozone is heading further towards a period of negative growth. Markets to watch: EUR crosses
1.30pm – US durable goods orders (December): forecast to grow 1.8% MoM. Markets to watch: US indices, USD crosses
2.45pm – US services & mfg PMI (February, flash): services to fall to 53 from 54.2 while mfg drops to 53 from 54.9. Markets to watch: US indices, USD crosses
4pm – US EIA crude inventories (w/e 15 Feb): stockpiles rose by 3.6 million barrels in the preceding week. Markets to watch: Brent, WTI
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Barclays reported attributable profit of £3.5 billion for 2018, below forecasts, while it has taken a £150 million provision against Brexit losses. Pre-tax profits were flat on the year, but total income rose to £21.136 billion, and operating costs fell 2% to £13.9 billion.
Standard Chartered continues discussions with US authorities relating to sanctions violations, and Q4 results will include a $900 million provision for potential penalties.
Purplebricks now believes that revenue for the current financial year will be in the £130-140 million range, from a previous £165-175 million forecast. Slow progress in the US has hit performance, while the Australian division has also seen some headwinds.
ElringKlinger upgraded to neutral at Oddo BHF
Apetit downgraded to reduce at Inderes
Sainsbury downgraded to equal-weight at Barclays
BBGI SICAV downgraded to hold at Jefferies
Intertek downgraded to hold at Berenber
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
On the back of client feedback and to make the platform easier to navigate, we have now made the ‘show’ button easier to find by adding the toggle to the top of the charts.
By clicking this button, you will be able to customize the information that appears on your charts. These functionalities were previously available by right clicking on the graph, however due to significant and continued client use they’re now only one click away.
Graph features you can add:
HLOC: By enabling HLOC data you will be able to see the high, low, open and close prices by hovering over a candlestick on your chart.
Drawings: The drawings button will enable you to see or hide any drawing you may have set up. This button will make it easier to work with drawings, as you can hide them all at the same time without having to discard each drawing individually.
Indicators: As like with drawings, this button will make it easier to hide all indicators that are selected, without having to delete each indicator individually.
Open positions: By enabling open positions on your chart, you will see a line displaying your open position(s) and the level at which it was open.
Working orders: Enabling working orders will allow you to see any working orders you may have set up for that market as a line along its trigger price.
Position preview: Enabling position preview will allow you to see a visual representation of your trade on the graph as you fill in the deal ticket. You can visit this link to find out more about deal position preview.
Timeline: Enabling the timeline will allow you to see, at the bottom of the graph, the range of dates selected to appear on the graph.
Price changes: Enabling price changes will show the absolute change, the percentage change, the high, the low and the time frame to which it applies; all shown at the bottom of the graph.
Price line: Enabling price line will show a line across the graph where the current price is.
Ford announced plan to close a factory in Brazil, resulting in 2,800 job cuts. This follows as Ford pulls sale of heavy commercial trucks in South America.
May will return to Brussels again in further attempt to reach conclusive agreement on the controversial Irish-backstop.
Asian stocks saw a mixed session following similarly mixed U.S. trade talk reports. Whilst Trump commented positively on trade talks and it was reported that the U.S. is requesting China keep the yuan stable as part of the deal, Trump also hinted that March deadline was not a "magical date" and could be pushed back. Nikki share average rose 0.7% hitting 2 month high.
Devon Energy shares gained 6% after announcing fourth-quarter earnings and plans to separate Canadian and Barnett Shale assets. The Oil producer also announced $5 billion addition to stock buyback plan.
Gold surged to near 10 month high. Spot gold rising 0.9% to $1,388.62 per ounce and U.S. gold futures hit $1,342.40, a 1.54% increase. Palladium continues to set record highs as shortages cause further surge to sit above $1,500 an ounce.
Asian overnight: A mixed session saw losses in China and Australia counteracted by Japanese and Hong Kong upside. Once again, markets look towards US-China trade talks (due to resume on Thursday) as a key driver of market sentiment. We also saw the Japanese trade data post a disappointing exports figure (-8.4%) which hurt the overall trade balance, and ultimately the Yen.
UK, US and Europe: Looking ahead, the economic calendar remains light, with the eurozone consumer confidence figure providing the one notable release in the morning. We also see Theresa May meet up with European President Jean-Claude Juncker in Brussels today, ensuring the pound remains in the spotlight after yesterday’s jobs numbers. Finally, watch out for the minutes from the last FOMC meeting, with markets hoping to get a better idea of exactly how long they will hold off until the next rate hike.
Democratic-led House panel has launched an inquiry into White House plan to transfer US nuclear technology to Saudi Arabia. Concerns focus on the volatile nature of the Saudi region, whilst Saudi Arabia has stated that the nuclear power is desired in order to diversify its energy sources. Could this once again controversial move by Trump help US Senator Bernie Sander in his second bid for president in 2020?
South Africa: We are expecting a postive start to trade today as US markets closed firmer overnight and Asian markets trade firmer this morning. Further suggestions that Trump may extend the trade truce with China amidst ongoing negotiations is providing some of the positive sentiment in markets. Metal prices have risen, particularly that of precious metals. Oil is flat on the day. South Africans will look to today's budget speech for further guidance on a rescue plan for Eskom and its possible impact on the country's credit rating. The anticipation of the upcoming budget has seen the rand amongst the worst performing emerging market currencies as of late. Tencent holdings is up 1.25% in Asia suggestive of a similar start for major holding company Naspers. BHP Group is up 2.5% in Australia suggestive of a positive start for local resource counters.
Economic calendar - key events and forecast (times in GMT)
3pm – eurozone consumer confidence (February, flash): expected to fall to -8.2 from -7.9. Markets to watch: EUR crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Sainsbury said that it was disappointed with the Competition & Markets Authority, after the regulator found ‘extensive competition concerns’ relating to the proposed merger with Asda. The firm said it fundamentally disagreed with the findings that might require either blocking the deal or selling off a large number of stores and other assets.
Lloyds reported a 24% rise in statutory profit, to £4.4 billion, for 2018, while underlying profit was £8.1 billion, up 6%. The improvement was due to a reduction in operating costs and the PPI insurance charge. The dividedn was raised 5% to 3.21p, but the firm also proposed a share buyback o £1.75 billion.
Glencore has announced a share buyback of $2 billion, along with a $2.8 billion dividend, while saying that adjusted EBITDA rose 8% in 2018 to $15.8 billion. Glencore will also cap its coal production at 150 million tonnes per year.
Bakkafrost upgraded to buy at SEB Equities
Ipsen upgraded to neutral at Goldman
Credit Suisse upgraded to hold at Berenberg
ACS downgraded to underweight at Morgan Stanley
Axel Springer downgraded to hold at HSBC
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
HSBC fails to beat expectations for 2018 earnings, reporting 15.9 percent higher in pre-tax profit and 4.5 percent in revenue, in comparison to 2017, against the expected 23.8 percent increase in pre-tax profit and 6.28 percent for revenue
Trade talks between the US and China begin today in Washington, which according to a top official from the US Chamber of Commerce, can only progress if Trump’s administration also creates ways to enforce a trade agreement
Asian stocks mixed after the US were claiming that Chinese mobile network gear may cause a cybersecurity threat to countries who use their equipment. The Hang Seng index fell 0.36 percent, in comparison to Nikkei 225 which rose 0.23 percent along with the ASX 200 at 0.3 percent
More Labour MPs may resign, following the seven who resigned on Monday due to the ‘frustration over the leadership’s reluctance to back another EU referendum’, unless their concerns have been heard
16 US states are filing a lawsuit against Trump’s administration in relation to the decision to declare an emergency to raise funds for a Mexican border wall
Confidential US commerce department report suggests a potential tariff increase in imported autos, after Trump previously promised European Commission President that no additional tariffs will be applied on European cars for the time being
Spot gold increased to $1,322.41 per ounce on Monday, its strongest level in over two weeks, whilst Palladium reached a record high of $1,449 an ounce
Asian overnight: Asian markets failed to really gain traction overnight, with marginal losses in China and Hong Kong counteracted by similarly small gains in Japan and Australia. This comes despite the confirmation that the US and China will once more meet to resume trade talks in Washington on Thursday. Meanwhile, the RBA released their latest monetary policy minutes, with the bank seeing little reason to adjust policy in the near-term
UK, US and Europe: Looking ahead, the UK jobs report should provide us with some form of event-based volatility, bringing the pound into focus. On the mainland, all eyes will be on the ZEW economic sentiment survey following a host of weak economic data centred around the German economy. Meanwhile, the return of the US markets should bring greater volumes and a wider driving force amid recent US market gains
South Africa: Our local bourse is offsetting some of its short term gains this morning in what is expected to be a news light day. Rand is again underperforming its emerging market currency peers after news that South African Airlines will be receiving further bailout funds from government. The dollar is marginally weaker against its developed market currency counterparts, while metal prices trade mixed and oil prices trade flat on the day
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9.30am – UK employment data: December unemployment rate to hold at 4%, while average earnings (including bonus) expected to rise 3% from 3.4%. Markets to watch: GBP crosses 10am – German ZEW (February): economic sentiment to fall to -18.4 from -15. Markets to watch: EUR crosses
Corporate News, Upgrades and Downgrades
BHP posted a somewhat disappointing set of half-year results, as a raft of supply disruptions hit underlying earnings (-3%). The group saw a $600 million dent in earnings over the period, with outages across several their iron ore and copper operations. CEO Andrew Mackenzie expects to see these fortunes turn around in the second-half, with 2019 expected to bring a stronger period for the miner.
HSBC failed to meet market expectations, as the US-China trade war hit the China-focused bank’s profitability. However, with a 16% rise of pre-tax profits over their 2017 number, this is a case of missing lofty market expectations rather than posting poor figures. A similar story emerges for revenues, which grew 5% over the course of the year, marginally below market expectations.
Honda set to officially announce the closure of its Swindon car plant by 2022, causing a loss of around 3,500 jobs
TBC Bank upgraded to buy at VTB Capital
Ashtead reinstated overweight at Morgan Stanley
Asiamet Resources rated new buy at Berenberg
Ryanair upgraded to buy at SocGen
IAG downgraded to reduce at Oddo BHF
Wizz Air downgraded to hold at SocGen
Nestle downgraded to sector perform at RBC
Worldline downgraded to neutral at Citi
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
News flow light thanks to US holiday: SPI Futures are indicating a flat start for the ASX200 this morning, in a 24-hours starved of meaningful news and data. US markets were closed for the Presidents’ Day holiday, meaning a crucial source of information was absent from the news flow. It was perhaps a positive thing for market-bulls: the vacuum left by US markets allowed for Asian and Europe equity indices to seize the improved sentiment flowing from Wall Street on Friday, following further progress in US-Sino trade negotiations. Commodities continued to climb, to multi-month highs according to the Bloomberg Commodity Index, led by a push higher in oil prices, as well as a renewed rally in gold, which edged to around $US1326 courtesy of a weaker US Dollar.
Australian markets in focus: The Asian session will similarly quiet today, before markets return to normal transmission this evening. Arguably, it’ll be a day with attention directed to developments in Australian markets: the key data releases pertain to the RBA and its Monetary Policy Minutes, and ASX heavy-weight BHP, which reports its earnings today. Both the Australian Dollar and ASX200 will enjoy special focus this morning. The Aussie Dollar has pulled back below the 0.7150 handle after rallying beyond that mark on the back of trade-war optimism. The ASX200 will be more interesting for observers: having leapt from the gates yesterday morning to break above 6100 resistance, the index once again failed to prove its bullish mettle, closing trade yesterday at 6089.
RBA Minutes headlines Asian trade: As alluded to, the highlight on the domestic calendar today, if not for the whole week, will be today’s release of the RBA’s Monetary Policy Minutes for their February meeting. In line with central bankers across the globe, the RBA has entered 2019 with a newly dovish approach to interest rates. Markets have thus far stood to attention: although leading the RBA (in some sense) in factoring the need for looser monetary policy conditions, the change in rhetoric from the RBA this year has further manifested in market pricing. Since the beginning of February, and certainly in the past week, interest rate markets have definitively shifted to pricing a rate cut as the most likely course for the RBA in 2019, over and above that of a “hike” or hold”.
Slower growth: here and abroad: The variables conspiring to bring-about this dynamic are naturally complex, but can be distilled into a single, broad explanation: both the domestic and global economies are entering a period of slower economic growth. Australia’s symbiosis with China and its economy is never lost on market participants; and with the trade-war exacerbating what seems to be a deep, existing cyclical slow-down in China, Australia’s economy is one of the first to exhibit signs of pain. However, issues unique to the domestic economy remain: though showing tentative evidence of settling now, Australia’s falling property market is an issue of ongoing concern, as are issues of uncomfortably high private debt levels, low wages growth and its impact on inflation, and the generally sluggish state of the Australian consumer.
The doomsayers argument: There will always be doomsayers in the world, so gloomy forecasts ought to be met with critical objectivity. It’s the way the RBA, however right or wrong they happen to be at any point in time, attempt to approach the world. Their “base-case” is very unlikely to be that the Australian economy is heading for some sort of catastrophic, recessionary set of circumstances. There are many in the punditry however, with cogent arguments as to why recession is a reasonable risk to consider. The position that the onerous burden of high household debt, in the face of tighter financial conditions, low wage growth and a “reverse wealth effect”, will accelerate the housing market’s collapse, and spark some housing-led recession is probably the most headline grabbing and generally evocative of these.
All this talk of Australia’s ’08 moment: Such a set of circumstances, it’s envisaged, would be Australia’s dose of the GFC it never received in ’08, when a booming China protected the Australian economy from the many ills of that disaster. There is unconscious obsession – probably brought about by the trauma of the event – to contrast any market event with those of ’08. In 2019 Australia, the parallels intuitively exist: just like the US in ‘08, household debt is high, house prices are falling courtesy of the stifling of a hitherto speculative euphoria in the market, and consumers have fewer means to keep consuming or protect themselves from a period of economic malaise. The prospect of less favourable financial and economic conditions could be what it takes to turn a garden-variety economic slow-down into something more serious.
Worst-case not the likely case; but still good to know: Once more: this crudely described series of events is what can be called, in financial market parlance, a “tail risk” – a low probability but very high impact event. It’s not what the RBA would be considering as their “base-case” for what lays ahead for the Australian economy in 2019; especially so, the doomsayers opinion won’t slip its way into today’s RBA minutes. Arguably, even it came close to becoming that way, at any stage, the PR-machine that is the RBA are unlikely to ever reveal, completely, a true pessimism about Australia’s economic health. Knowing the worst-case scenario market-participants is handy, though, if it can be done so objectively: it provides an intellectual tool to examine how close we are to coming to falling off the precipice we fear.
Written by Kyle Rodda - IG Australia
Asia share markets began the week with strong gains as investors hope for both further progress at US-China trade talks in Washington this week and more stimulus from major central banks. Trump stated in a White House news conference that he would be "honored" to remove current tariffs if an agreement can be reached, and to possibly extend the March 1st deadline for a deal.
The Shanghai Composite was up around 1.8% by the end of the morning trading session, whilst the Hang Seng and the Nikkei gained 1.51% and 1.8%, respectively. Australia's ASX 200 traded 0.35% higher.
US stock markets surged on Friday, posting another solid weekly gain. The Dow Jones jumped over 400 points, the S&P gained 1.1% to close at 2,775.60 and the Nasdaq gained 0.6% to end of the day. US markets are closed today for Presidents Day.
In Forex, the Pound was up 0.2% against the USD at $1.291 after reports that Australia's trade minister was ready to sign a fast-tracked trade agreement with the UK in the event of a no-deal Brexit.
Oil prices reached their highest levels for the year so far on the back of OPEC supply cuts and US sanctions on Iran and Veneuela. US crude was up 1% at $56.143 and Brent was up 0.8% at $66.78 a barrel.
Gold gained 0.2% to $1,323.56 per ounce, helped by a slight fall in the dollar.
Asian overnight: An overwhelmingly bullish session overnight has seen Asian stocks surge higher, following on from a Friday’s session which saw the Dow post its biggest weekly gain in a month. Sentiment around US-China trade talks appear to be improving, and while we saw no concrete breakthrough from last week’s talks, they will continue to negotiate this week. For today, the US markets are closed for Presidents' Day. We also saw sharp gains for oil amid expectations of further cuts from key suppliers. Finally, the pound enjoyed a boost after the Australian trade minister said that they would fast-track a trade deal with the UK in the event of a no-deal Brexit.
UK, US and Europe: Looking ahead, there are precious few events of note to watch out for. Meanwhile, with the US markets closed for the day, volumes will be low.
South Africa: Markets look set for a positive start following gains in Asia, catalysed by the progression in trade talks between China and the US. The US dollar has weakened on the back of improved risk appetite and in turn we are seeing commodity prices trading firmly in to positive territory. Emerging market currencies (such as the rand) are renewing some short term strength. Tencent Holdings is up 2.2% in Asia, suggestive of a similar start for major holding company Naspers. The BHP Group is up 1.45% in Australia, suggestive of a positive start for local resource counters.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
Presidents’ Day in the US – US stock markets closed
Corporate News, Upgrades and Downgrades
UK cyber-security chiefs have concluded that any risk posed by Huawei in UK 5G telecoms projects can be managed, denting the US drive for a global ban.
Barclays has been dumped by one of its biggest investors, as US hedge fund Tiger Global has been reported to having sold off its stake in the bank.
Reckitt Benckiser reported a 10% drop in revenue to £12.6 billion for the year, but adjusted operating profit rose 8% to £3.36 billion. The firm expects 3-4% like-for-like growth in 2019.
Anglo American boosted its dividend payout ratio by 40% for the year, while earnings rose 21% to R14.5 billion for the year.
Petra Diamonds suffered a loss of $57.9 million for 2018, from $117.7 million a year earlier, while revenue rose to $207.1 million, from $191.8 million.
Atrium Ljungberg raised to buy at Kepler Cheuvreux
Continental upgraded to hold at Berenberg
Swedish Match upgraded to buy at SocGen
ThyssenKrupp upgraded to buy at Bankhaus
Centrica downgraded to hold at Berenberg
Nordex cut to neutral at MainFirst
Petrofac downgraded to hold at HSBC
Renault downgraded to reduce at AlphaValue
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
President’s Day: It’s Trump’s market – and we are all just trading in it. It’s perhaps for some – especially market-purists – the uncomfortable reality that, as far as short-term movements and sentiment goes, US President Trump and his policy making is the greatest determinant of the current macro-economic outlook. It cuts in both directions, and certainly the US President is just as prone to deflating the market as he is to inflate it. But almost by his own admission, Trump’s modus operandi is to implement policy and spout rhetoric that feeds the US equity market. For market bulls, there is the argument that this is a welcomed dynamic: we’ve seen the exercise of the Powell-put, and perhaps now traders are witnessing the execution of something resembling a Trump-put.
Where does Trump want the market? The risk is that President Trump’s temperament and agenda can be difficult to gauge. He giveth to the market, and he taketh, depending on his personal, political priorities. For stages of his Presidency, Trump needn’t pay close attention to the US share market: he inherited improving economic conditions, then fuelled it with massive tax cuts, and stood back to observe the records falling in US stock indices. His hawkishness on international trade and bellicosity towards domestic political wrangling brought much of it undone, as the US President turned a cyclical slowdown in China into a possible trigger for recession in Asia and Europe. The global growth outlook is as downbeat as it has been in several years, and this has manifested in market-pricing.
Global growth and the trade war: Now of course, President Trump’s policy making isn’t the major – let alone only – dictating market activity and financial market strength. In terms of macroeconomics, the actions of the Fed have proven to be market participant’s primary concern. What makes the US President’s actions relevant to the here-and-now – at the critical juncture that markets are situated within presently – is with the US Federal Reserve succumbing to market pressure and flagging steady interest rates for the foreseeable future, trader attention is fixed on the global growth story. And it would seem that considering this, the primary driver of the global growth outlook is the US-China trade war: the outcome of which will be mostly determined by the stance US President Trump chooses to adopt towards the conflict.
Markets still jumping at headlines: The gap between the “knowns” regarding current economic conditions and the trade-war, and the “unknowns” regarding how the US President intends to approach these matters, is creating the vacuum of uncertainty that market participants are yearning to fill. As such, headlines are being jumped-at whenever news suggests there’s been a major development in negotiations between the US and China. Traders are less sensitive than they were to stories of trade-war progress, with every headline apparently yielding a diminished return. Nevertheless, if a significant enough story flashes across trader terminals, it apparently still warrants the release of risk-on sentiment. This phenomenon proved true again on Friday, as news that the US and China has agreed in principle on the main topics of trade negotiations moving forward.
Risk appetite piqued as fear falls: The prevailing view is that, at the very least, an extension of the March 1 trade-negotiation deadline will be implemented. Although arguably amounting to little more than a prolonging of tension and uncertainty, market activity is suggesting market participants are welcoming the modest change in circumstances. Despite looking long in the tooth, the US equity market rally continues, dragging stocks in Europe and Asia largely with it. Bond markets have been steady, however “growth” currencies like the AUD, NZD and CAD have received a boost, at the expense of the US Dollar and Yen. Commodities have generally rallied, while the VIX and High-Yield credit spreads have fallen to levels not seen since shortly after US Federal Reserve Chairperson Jerome Powell’s infamous “a long way from neutral” statement in early-October.
Where else but America: The general curiosity from here will be how long this broad-based confidence in the market can last. Even in the event that the best outcome can be achieved from US-China trade talks, it is contentious whether it will be enough to turn the tide for the global economy. China is slowing rapidly, and Europe is tiptoeing toward recession, with fewer policy levers to pull in the event economic activity deteriorates. The US economy for now is the beacon of the global economy, and ultimately one must assume that whether it be US stocks, US Treasuries, or the US Dollar, investors will remain attracted to “Made in America”. No economy in a globalized world can resist an international economic slowdown; until then though, market participants may well preference America first.
Australian markets to follow US today: Australian stocks are on balance benefitting from the American-led recovery in financial markets. The ASX200, unlike its US counterparts, was unable to register a weekly gain last week. But according to the last traded price on SPI Futures, the AS200 ought to add 53 points this morning. The week for Australian markets should be interesting if nothing else: reporting season is underway, and the likes of BHP, Woolworths and Wesfarmers are reporting. The RBA release their policy minutes on Tuesday from their last meeting – an event that ought to be closely watched as rates traders gradually price in that the likeliest course of action for the RBA this year will be to cut interest rates, rather than to hike them or even keep them on hold.
Written by Kyle Rodda - IG Australia
Expected index adjustments
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 18 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange.
Special dividends this week
NKY
9602 JP
26/02/2019
Special Div
1000
AEX
AKZA NA
20/02/2019
Special Div
450
MEXBOL
WALMEX*MM
25/02/2019
Special Div
14
RTY
PJC US
22/02/2019
Special Div
101
How do dividend adjustments work?
As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Weak retail figures in the US have spilled over to most major stock markets, with European stocks set to open lower this morning. The 1.2% decline in retail sales for the month of December, the biggest drop in almost ten years, have brought new fears that we are facing a global economic slowdown. The DJIA closed 104 points lower at 25,439.39, the S&P 500 closed 7 points lower at 2,745.73, whilst the Nasdaq managed to close in the positive with a gain of 6.6 points at 7,426.96.
China's lower than expected inflation figures for the month of January have only added to ongoing concerns of a global slowdown in growth. China's consumer price index came in at a rise of 1.7%, lower than the expected figure of 1.9% polled by Reuters. These lingering concerns about the future of growth had most of China's stocks trading slightly lower on Friday, with he Shanghai composite down 0.62%, the Hang Seng index down 1.64% and the Shenzhen composite largely flat. Following the Chinese stocks, the Nikkei 225 was down 1.23% and the Topix was 0.88% lower.
Donald Trump has reportedly agreed to sign a spending bill to avoid a second US government shutdown but it comes hand in hand with declaring a national emergency to receive funding for his Mexican wall in order to stop the "national security and humanitarian crisis at the border".
Oil is continuing its three month rally as Brent crude oil prices have hit a high for 2019, above $65 per barrel. The West Texas Intermediate (WTI) crude futures were trading at around $55 a barrel, 0.6% higher than its previous settlement. This price rally is mostly due to OPEC cutting production in a bid to tighten market conditions and increase oil prices.
Asian overnight: An overwhelmingly negative end to the week in Asia has seen sharp losses across Japan, China, and Hong Kong. Australia provided the one flash of green on an otherwise red session. Part of this pessimism comes as the US-China trade talks draw to an end once more, with a major breakthrough seemingly likely today. On the data front, Chinese inflation fell sharply to 1.7%, from 1.9%. Meanwhile, Japanese industrial production remained in negative growth for December.
UK, US and Europe: Looking ahead, the UK focus remains in play, with the latest retail sales figures hoping to escape the downturn seen in yesterday’s US figures. In the US session, markets will be closely watching out for any announcements as the US-China trade talks draw to a close. Also make sure to keep an eye out for the latest Empire state manufacturing survey, Baker Hughes rig count, and Michigan consumer confidence data. We are also expecting to see Donald Trump call a national state of emergency in a bid to build his wall. On the UK side, we saw Theresa May lose yet another vote in parliament, making it even more difficult to gain any concessions from the EU.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9.30am – UK retail sales (January): expected to rise 0.6% MoM. Market to watch: GBP crosses 1.30pm – US Empire State mfg index (February): index to rise to 6 from 3.9. Markets to watch: US indices, USD crosses 3pm – US Michigan consumer confidence (February, preliminary): confidence to rise, with the index rising to 94.5 from 91.2. Market to watch: USD crosses
Corporate News, Upgrades and Downgrades
Royal Bank of Scotland reported pre-tax profit of £1.62 billion for 2018, up from £752 million last year. A special dividend of 7.5p per share and a final dividend of 3.5p per share will b paid. However, the bank expects 2019 to be full of challenges.
Segro will launch a £450 million share issue to fund its development pipeline. New shares will be issued at 10p each.
Mondi expects to report stronger earnings thanks to stronger demand. Underlying ebitda for 2018 is expected to be above 2017’s €1.48 bilion.
Patisserie Holdings has sold its Baker & Spice chain to the Department of Coffee & Social Affairs for £2.5 million.
Capita upgraded to overweight at Barclays
Restaurant Group upgraded to buy at Berenberg
DFS Furniture upgraded to buy at Berenberg
Domino’s Pizza Group downgraded to sell at Berenberg
Drax downgraded to sell at Citi
Oriflame downgraded to hold at SEB Equities
Proximus downgraded to underweight at Barclays
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
A little bit of everything: It certainly wasn’t the highest-impact day market participants have experienced so far this year, but there was a spoonful of everything, thematically speaking that is, driving the macro-economic outlook for markets in 2019. To keep it high level, there was a series of significant growth-related data released out of all three of the world’s major economic geographies – China, Europe and China – plus a healthy smattering of geopolitics and corporate news to keep traders interested. Only, if you look at the price action, one might say that it didn’t amount to terribly much. Global equities are taking the middle road, posting a mixed day, as Wall Street creeps towards its close at time of writing; though some shifting in currency, rates, bonds and commodities markets has occurred.
Markets immune to trade-war headlines: Fresh trade war headlines are at the top of the list of headline risks, however in contrast to what’s been seen in the past, the reactions have been muted. Arguably, and barring any news that hints at a true resolution in the trade war, stories that the US and China are getting along just fine are becoming (relatively) ineffectual. Yesterday saw the news that the Trump administration is considering pushing the White House imposed March 1 deadline for trade negotiations back another 60 days. The developments saw the standard risk assets shift – Australian Dollar-up, Asian stocks-up, US futures-up, commodities-up – but compared to the massive relief rallies seen in the past, the price action indicated a market that’s wanting more than just piecemeal developments in trade-negotiations.
US Retail Sales a shocker: Hence markets moved past that news, as the tradeable appeal of trade-war headlines fades. The meaningful event market participants had marked into their calendar for last night proved of greater import in the end: US Retail Sales numbers for December were released and showed an abysmal set of numbers. In fact, they were so bad that the experts and the punditry have effectively written them off as a passing anomaly – one that can’t quite be explained properly. The figures themselves revealed US Retail Sales contract by a huge -1.8% in December, well below the “flat” figure estimated by economists. Though consensus is saying the data was too-bad-to-be-true, traders have adjusted their positions: bets of a Fed rate hike have been unwound back to effectively a 0% chance in 2019.
US Dollar falls; Treasuries suggest slowdown: Naturally, the US Dollar has dipped, registering daily falls against most major currencies. US Treasuries have rallied too, which has probably very marginally benefitted stocks, with the yield on the 10 Year Treasury note falling 4 basis points to 2.65 per cent. As the Chinese and European economies slow, the US economy is acting as the fulcrum of global growth at present. Data points like US Retail Sales begs the question of how long this dynamic may last. A little while yet seems to be the popular answer. A look at what the US yield curve is doing is illustrative in this regard: the yield on 3- and 5-year Treasuries are below that of the 2-year, portending recession-risk in the medium term.
No recession, but outlook still dim for Europe: The Euro was bolstered by its own set of economic data overnight. GDP figures were released for the Euro-bloc and the German economy, and while bad, they weren't as bad as forecast. The Eurozone's GDP came-in on forecast at 0.2 per cent, and while the German figures missed estimates and showed a stagnant economy last quarter, traders took comfort from the notion that at least the data hadn’t set Germany up for a possibly technical recession. Despite this, and the fact the Euro is edging back towards 1.13 again, there is a growing sense of inevitability about a European recession at some point this year or next. These things can’t be predicted of course, and perhaps a turnaround will occur, however the balance of probabilities looks to support the notion a recession is looming.
Pound falls as Brexit reality hits: Continued Brexit uncertainty won't help Europe's economy, and markets were delivered a fresh dose of that too overnight. UK Prime Minister Theresa May lost another key vote in the House of Commons, placing in peril any chance of a Brexit deal, or at least a bill delaying Brexit, being passed. The Pound has returned to its (disputably) proper place, plunging back again into the 1.27 handle last night, and Gilts have climbed on the basis that a hard-Brexit will do no favours for the Bank of England and its bid to "normalise" it's interest rate settings. As always, the Brexit developments are being considered a problem unique to the European region, with little ramifications for broader markets. If Brexit accelerates Europe's into recession though, then this view ought to change.
ASX showing signs of a pullback: SPI Futures are indicating a 2-point dip for the ASX200 at time of writing. The ASX200 is exhibiting signs of exhaustion now, as the market fails to push the index near enough or beyond the 6100 level. The conditions remain in place for future upside beyond that mark, but for now, market participants seem happy to either take profits, fade rallies, or just sit things out. The banks have unwound their gains following the post-Banking Royal Commission rally, and though it is showing signs of fundamental strength, a steadying in the iron ore price has mining stocks climbing, but at a careful tick. Hypothetically: if a pull-back does occur, 6000 will be a level of psychological significance, before true support around 5940 is exposed.
Written by Kyle Rodda - IG Australia
Figures released for China's exports in the month of January show a 9.1% growth year on year on its dollar-denominated exports. This has beat expectations of a 3% drop in exports predicted for the month of January on the back of December's 4.4% drop. This increase brings the total Chinese trade surplus to $39.16 billion for the month of January, notably lower than the $57.06 billion surplus in December. Despite the better than expected figures, some investors are still weary about this signalling real growth in Chinese exports, as they believe this increase can be on the back of companies relocating it products in anticipation of the possible outcomes on the ongoing US-China trade wars.
As news came out that US President Donal Trump is considering extending the China tariffs deadline by 60 days, Chinese stocks were slightly higher on Thursday as they pay close attention to the outcome of the US-China talks taking placed in Beijing. Despite the better than expected trade figures mentioned above, the Shanghai composite was down by 0.3% while the Shenzhen composite was slightly higher, up by 0.3%. Hing Kong's Hang Seng index fell by 0.37%.
The DJIA closed on the positive on Wednesday, up 117.51 points at 25,543.27, on the back of positive outcomes from trade talks and better than expected stock performances. The S&P 500 closed 0.3% higher at 2,753.03 and the Nasdaq was up by 0.08% closing at 7,420.38.
Oil continued its rise on Thursday's Asian session as progress on tariff talks is expected to improve the outlook on global trade and economic growth, and Chinese export figures show that imports of oil remained above the 10 million barrels per day threshold for a third month in a row. The WTI crude futures were up 0.5% at $54.16 and Brent crude oil futures were up 0.6% at $63.98 at midday.
Theresa May stood her ground yesterday as she announced that she is willing to go through with a no deal Brexit if MPs do not vote her amended deal, after rumours that she was considering extending article 50 to avoid a hard Brexit on March 29.
Credit Suisse has bounced back to profits for the first time since 2014. The swiss bank reported a profit of 2.1 billion swiss francs for the full year of 2018, after posting a loss of 983 million swiss francs in 2017. The bank completed a 3 year restructuring program at the end of last year.
Asian overnight: Asian markets failed to follow up on yesterday’s gains, with indecision rife despite seemingly positive developments in US-China trade talks. The session saw minimal moves, with a 0.3% rise in the Shenzhen composite marking the biggest mover which has seen most early moves eradicated as they move towards the close. This came on a session where data dominated, with a rise in Japanese Q4 GDP (0.3%) being overshadowed by a huge revision to the Q3 figure (-0.6% from -0.3%). That marks the biggest slowdown in Japanese GDP since 2014. Elsewhere, the Chinese trade balance data provided a much more optimistic outlook, with a sharp jump in both imports and exports helping improve sentiment around the Asian powerhouse.
UK, US and Europe: Germany has just narrowly missed a technical recession as Q4 GDP came in flat at a 0% growth, below the 0.1% growth forecasts. This poses big concerns for the future growth of the European Union as Germany is usually seen as the big growth driver. The troubling data comes after Italy announced it had entered a technical recession at the end of January as it had two consecutive quarters with GDP contraction. Looking ahead, growth concerns remain the key focus for the European session, with eurozone GDP figures for Q4 expected to bring continued volatility for the euro and eurozone stock markets. In the US, retail sales, PPI, and business inventories are worth keeping an eye out for, while Coca-Cola provides the main US company to report.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
10am – eurozone GDP (Q4, preliminary): QoQ rate expected to be 0.2% and YoY 1.2%, from 0.2% and 1.6% respectively. Market to watch: EUR crosses 1.30pm – US retail sales (December): expected to rise 0.2% MoM. Markets to watch: US indices, USD crosses Evening – UK Parliament to vote on Brexit deal
Corporate News, Upgrades and Downgrades
EasyJet said that it was in discussions with Ferrovie and Delta about forming a consortium to look at Alitalia, but that there was no certainty any transaction would proceed.
AstraZeneca reported a 2 fall in overall revenue for 2018, to $22.09 billion, while reported operating profit fell 7% to $3.38 billion. The firm said that the final quarter was strong, with a good performance in its emerging markets business.
Micro Focus suffered a 5.3% drop in revenue for the year to the end of October, but adjusted earnings rose 9.2% to $1.53 billion.
Chemring Group raised to overweight at Barclays
Grieg Seafood upgraded to buy at Fearnley
Royal Mail raised to equal-weight at Morgan Stanley
Air France-KLM cut to sector perform at RBC
Dunelm downgraded to reduce at HSBC
RSA downgraded to neutral at JPMorgan
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
ASX missed the party yesterday: The ASX bucked the trend yesterday, at least across the Asian region, closing 0.26 per cent lower at 6063. Ostensibly, Australian shares missed-out on the party: global equities were noticeably higher across the board, with the other major regional indices in China, Japan and Hong Kong adding well in excess of 1 per cent for the day. Though a step-back for the Bulls, it's no cause for alarm: the price action speaks of a few idiosyncratic quirks on the ASX200 yesterday. The index was weighed down by a few heavy-hitters: CBA went ex-dividend and its share price fell 2.89 per cent; and despite reporting some solid results, over-zealous investors dumped CSL following the release of that company's earnings, to push its share price down 3.92 per cent.
CBA and CSL weighed on the ASX200: In an index like the ASX200, which is quite top heavy, when 2 of your top 5 weightiest stocks underperform markedly, registering a day in the green is always going to be a challenge. Other measures of how the market performed for the day present more favourably for the Australian share market. Breadth was respectable at about 60 per cent, for one. There was another failure by the ASX200 to break resistance at 6100, which might add to the view the market has gassed-out in the short term and is due for a pullback. Conditions for medium term upside remain in place nevertheless, especially if the prevailing macro-themes in the market, ranging from central bank policy to the trade-war, continue to fall the way of the Bulls.
Risk appetite elevated on positive news: SPI futures are indicating a modest lift in the ASX200 this morning, of around about 6 points. Wall Street, at least as this is being written, is registering another day of gains, albeit on some pretty low octane trade. The week in global equities has been defined by more positive trade-war headlines, which has raised the prospect of a continued freeze in trade tensions. It's difficult to imagine that the trade-war will go away any time soon, but markets probably have accounted for that in prices. Global growth will stay the underlying bugbear, so long as central bankers don't rattle the cage with rate-hike talk again. However, a weaker global economy is something traders seem willing to stomach for as long as recession risk remains low in the short term.
Upside exists as long as recession risk is low: That's likely where the current equity market-run would stop in its tracks: if a recession finally hits one of the major economic regions. In the absence of this though, history suggests that, although the returns would be meagre compared to what was experienced during the "synchronised global growth" upswing in 2017/18, gains in stocks in an environment of slackened global growth are still possible (if not the recent norm) if loose monetary policy is maintained. It’s looking as though a familiar dynamic is taking hold: a fundamental search for yield, in an environment that supports risk taking, is seeing capital move out of safer assets in fixed income and cash markets, and into higher yield equity markets – boding well for global equity indices in the short-to-medium term.
Its Fed before fundamentals but that could change: Market participants have proven their concern is first with the Fed and financial conditions, followed by fundamental concerns like earnings, global growth and concomitant factors like the trade-war and geopolitical ructions. Again, that balance would shift in the event recession risk becomes too heightened. While not an immediate problem now, such a risk ought not to be waived away. Economic data is treading a fine line, especially in Europe, and would indicate the world economy is on some sort of slippery slope. China is in the same boat, but unfortunately the opacity of their financial system and economy make it difficult to garner a credible view on the Middle Kingdom. The US stands out as a beacon in the global economy presently and is willed by the Bulls to maintain its currently solid growth outlook.
Inflation risk looking low: One risk that doesn't appear too bothersome for traders -- in fact, it may be a welcomed dynamic -- is that inflation in developed markets is apparently flatlining once again. It was a theme of last night's trade: market’s received inflation data out of the U.K. and US economies, prefacing the release of Chinese CPI data today. On balance, CPI missed expectations in both the US and UK overnight, presumably to the relief of central bankers, who in the face of market volatility and growth concerns, would loathe being pushed into hiking rates because of an inflation-outbreak. In response to the news, traders maintained their position that global rates will stay low this year, as the global economy wrangles with its current funk.
European bond curves flattening; greenback stands to benefit: Bond curves have flattened in the European region, consequently. Bizarrely, and this does not bode well for the Euro and Pound potentially, markets are still pricing in some-chance of a rate hike still from the Bank of England or European Central Bank this year. Far be it to argue with the will and wisdom of the market but given Brexit tensions and clear signs of cracks in the continent’s economy, the notion rates can move higher in this dynamic is fanciful. The US Dollar will be a barometer for European (and probably global) growth risks, as well as the rate outlook for the BOE and ECB. Although the greenback is still range-bound here-and-now, a desire for safety and higher yield should attract investors to Treasuries, and subsequently bolster the USD going forward.
Written by Kyle Rodda - IG Australia
Banco Santander SA skipped an option to call 1.5 billion euros of convertible notes next month, after leaving investors in the dark for weeks. The news had the bonds trade at 97 cents on the euro, after being almost at par last week. A portfolio manager at Financiere de La Cite SAS commented that credit buyers “will need some serious new issue premium to touch that name again”.
Trading in Asia was optimistic on hopes of a trade war resolution as Trump commented during a cabinet meeting on Tuesday that he is open to extend the March 1st deadline to raise tariffs on China. The top performer among major indices was the Nikkei, which advanced 1%, followed by the Shanghai Composite Index which as up 0.9%. None of the concerns that recently stalled riskier assets have disappeared, however markets seem more positive that economic growth can be sustained.
Oil climbed 1% amidst resuming hopes following the 800,000 barrels per day production cut in January by Saudi Arabia, confirmed on Tuesday. More upward pressure is due to supply concerns in Venezuela, following US sanctions. However, the crude market could be well balanced as US crude production rose by 2 million bpd last year and trade concerns could further weaken demand.
Kiwi dollar was up at least 1.5% against all major currencies on the IG Web Trading Platform following news that New Zealand’s central bank would push out forecasts for an interest-rate increase to early 2021. The revision disappointed market participants that were expecting looser monetary policy later this year. Reserve Bank Governor Adrian Orr commented that chances of a rate reduction have not increased, underplaying systemic risks that had markets concerned recently.
The offshore yuan strengthened overnight on trade war optimism. USD/CNH was down 0.15% at 5:40am on the IG Web Trading Platform. Markets were positive on Monday after the Lunar New Year holiday, however Chinese spending grew only 8.5% to CNY 1.01 trillion, making it the smallest celebration since 2011.
Asian overnight: Asian markets traded overwhelmingly in the green after Donald Trump floated the idea of extending the 1 March deadline with China. With both sides seemingly working hard towards a deal, it feels as if there is an end in sight. Officials in Washington and Beijing had expressed hopes that a new round of talks which began this week would bring them nearer to easing their seven-month trade war. "We are currently seeing negative sentiment which had built up over trade concerns and U.S. fiscal issues being unwound," said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo. "For risk assets to move purely on optimism, the U.S.-China trade row will need to see some kind of a closure in March. A more permanent solution to avoid a U.S. government shutdown is also necessary. It has to be remembered that we are not there yet".
UK, US and Europe: U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China slide a little if the two sides were close to a complete deal. U.S. congressional negotiators cobbled together a tentative bipartisan border security deal late on Monday to avert another partial government shutdown. However, Trump on Tuesday expressed displeasure with the agreement and said he had yet to decide whether to support it. The CBOE Volatility Index , Wall Street's so-called "fear gauge," dropped to as low as 14.95, its lowest level in more than four months, overnight.
Looking ahead, inflation is going to be in focus. The UK headline inflation rate is expected to fall back to 1.9% from 2.1%, easing pressure on the BoE once more. We also see CPI data from the US in the afternoon, where the monthly CPI reading is expected to rise from -0.1% to 0.1%. Also keep an eye out for the eurozone industrial production, and US crude inventories data.
South Africa: Markets have continued to gain following comments from US President, Donald Trump that the 1 March deadline, where US will resume increasing tariffs on Chinese imports, could be extended (a bit) if necessary. The news adds to the suggestion that the US government shutdown will be averted this week. The dollar has weakened marginally to aid modest gains in commodity prices and a slight recovery in emerging market currencies (including the rand). This mornings gains are expected to be broadbased in the South African market although led by resource counters.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
9.30am – UK CPI (January): CPI to rise 2% YoY from 2.1%, and core CPI to rise 2.1% YoY and fall 0.7% MoM. Markets to watch: GBP crosses
1.30pm – US CPI (January): CPI to rise 1.6% YoY and fall 0.1% MoM, and core CPI to rise 2.1% YoY from 2.2%. Market to watch: USD crosses
3.30pm – EIA crude inventories (w/e 8 February): stockpiles rose by 1.26 million a week earlier. Markets to watch: Brent, WTI
11.50pm – Japan GDP (Q4, preliminary): growth forecast to be 0.4% QoQ and 1.4% YoY. Market to watch: JPY crosses
Corporate News, Upgrades and Downgrades
Smurfit Kappa said that it suffered a pre-tax loss for 2018 of €404 million, compared to €576 million a year earlier. Underlying earnings were up 25% to €1.55 billion however, while revenue was 4% higher at €8.95 billion.
Dunelm reported a 16.7% rise in pre-tax profits to £56.3 million, while revenue was up 1.2% at £545.4 million. The dividend was raised by 7.1% to 7.5p per share. It remains on track to hit full-year expectations.
Tullow Oil reported a pre-tax profit of $85 million for the year, compared to a loss of $175 million a year earlier, while revenue rose 7.9% to $1.86 billion, while the firm will also pay a final dividend of 4.8 cents per share.
Banco BPM upgraded to buy at Citi
Investec have a rating of buy on Anglo American Platinum with a target price of 62500c
SBG Securities have a speculative buy rating on ArcelorMittal South Africa with a target price of 520c
ABB downgraded to hold at SEB Equities
Metro AG downgraded to underweight at JPMorgan
Nyfosa downgraded to hold at SEB Equities
Orion downgraded to underperform at Credit Suiss
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New headlines to chase: The discourse in markets shifted early this week to where the next upside catalyst would come from. It needn't be substantial; just enough to fuel sentiment and attract buyers back into the market. In the last 24 hours, market participants received what they'd be yearning for: the combination of an in-principle deal in US Congress for border-security funding, along with the announcement that the US-China trade-truce deadline could be extended, has stoked bullish sentiment. These stories are more headlines than substance, however one thing traders ought to have heard ad nauseum recently is that, indeed, this is a headline driven market. So: for the last 12-18 hours in the financial world, markets have shown all the trappings of a renewed risk-on impulse.
Short-term bullishness depends on Trump: It can be for some an uncomfortable thought: the key variable for both the US government funding and trade-was issues is the mercurial US President Donald Trump.
The US President, it must be said, has outwardly advocated for a resolution to each concern. The worry for markets may be though whether Trump maintains his balanced temperament on the matters, and that there isn't an ulterior motive held by the President on either issue that could subvert the market's positivity. There isn't a clear timeline, other than those which have been imposed upon the President, to arrive at a decision regarding border funding or the trade-truce extension. Traders are taking bullish positions, but while doing so must surely be in a heightened state of vigilance, at least until firm validation for the rally arrives.
Global growth concerns deferred: The activity at the margins driving price activity in financial markets overnight speaks of slightly diminished fears relating to the global growth slow down. It has to be said that the weakening growth outlook for the world economy is still hurtling like a freight train towards markets; the news last night simply increased hopes that perhaps there may be some tapping of the brakes when it comes to this phenomenon. Growth sensitive currencies were the major beneficiaries of last night's trade-headlines: the Australian Dollar, for one, is edging back to the 0.7100 handle. The US Dollar took a breather from its recent rally, as global bond yields climbed, and credit spreads narrowed – for the first time in several sessions. The confluence factors naturally gave a boost to stocks.
Fear is falling, thanks to a friendlier Fed: Considering the balance of evidence, and the irrational, momentum chasing that pushed Wall Street to all-time highs in September 2018 may not be present right now. Fear is diminishing too: the VIX has fallen into the low 15s as of last night – a level also not seen since September 2018. If one were to infer a crude message from current market behaviour, it might be that maybe the Fed-engineered panic in Q4 2018 has been full remedied now. Of course, it was ultimately the Fed which fed to markets the medicine they were craving – the prospect of higher global rates and tighter financial conditions has evaporated. The strength in fundamentals is indeed waning, but appropriate conditions are in place for traders to take greater risks.
US stocks recovery possesses substance: Wall Street is registering its best performance in several days on the back of the risk-on dynamic, though it's worth remarking volume has been below average and doesn't do much to validate the market's strength, just on an intraday basis. Market breadth conversely is portraying a broad willingness to jump into equities, with over 80 per cent of stocks higher for the S&P500 on the session -- at time of writing -- led by cyclical sectors and the high multiple tech stocks. What has been encouraging recently about US equities' recovery in 2019 is the substance behind it: the Russell 2000 (a deeper index made up of relatively smaller-cap stocks) is outperforming, and the SMART Money index suggests a market supported by buying from large institutional investors.
ASX to be guided by global growth: As a trickle-down effect, the circumstances are favourable for Australian equities too, especially as our central bank joins the chorus of policymakers backing away from rate-hikes. Given the power of the RBA pales in comparison to that of the Fed, supportive monetary policy is eclipsed by the global growth outlook as the major determinant of the ASX’s direction. It does help in a meaningful way that market participants are receiving soothing words from central bankers, especially as our economy shows signs of slowing, as evidenced by yesterday’ weak home loan figures. The proof of what market participants see as the main risk to the Australian economy is in the price action, however: since the “Trump-trade-war-truce” news overnight, implied probability of an RBA rate cut in 2019 is once again back below 50%.
ASX200 demonstrates will to power-on: The overnight lead has SPI futures pricing in a 27-point jump at the open for the ASX200. If realized, the index ought to challenge and likely break in early trade the resistance level at around 6100/05. From here, on a technical basis, the market meets a cluster of resistance, established during the period in September 2018 when the ASX traded range bound for the better part of a month. It’s been repeated frequently by the punditry that the market is overbought at these levels. Technically that appears true. But momentum is still in favour of the bulls, so for those with further upside in their sights, perhaps a break and close above 6100 this week could be the signal for some short-term consolidation, before the ASX200 builds strength for its next move higher.
Written by Kyle Rodda - IG Australia
Another shutdown of the US government has reportedly been avoided in the latest round of negotiations. Following the longest shutdown in the history of the US at the start of this year, the government was opened temporarily whilst budget negotiations continue.
US markets had a mixed session yesterday with the Dow down 0.21% but the S&P and Nasdaq marginally higher at 0.13% and 0.07% gains respectively. Could the end of shutdown fears spur a rally in today’s session?
With a subdued session in most of yesterdays major markets, the Nikkei was the stand out from the crowd with a gain of 2.61%. The gain saw the index rebound from its monthly low on the back of strong demand for automakers and machinery makers as well as a weaker yen.
UK economic growth over the last 3 months was the weakest since 2012 which is thought to be attributed to global and Brexit worries. Meanwhile, a study has claimed British companies have diverted £8 billion to the EU amid the uncertainty.
Brent and WTI were up 0.37% and 0.29% respectively. El Molla, the Egyptian petroleum minister has said that he believes $60-70 is a fair price for a barrel of oil.
Gold has firmed slightly following a pull back of the US dollar amid ongoing US-China trade talks
London Cocoa was up over 2% yesterday but there are concerns that this may be short lived as it tests its resistance level seen over the past 6 months.
Iron Ore has retreated from its 2 year high following a 20% in the past week.
Ocado has begun to claw back some of their lost market cap following last weeks warehouse fire. The food delivery company is now trading at the price it was 2 weeks ago.
Plus 500 shares have fallen over 30% following the announcement that they expect to miss earnings expectations which they attribute mainly to tightening regulations by the EU.
Asian overnight: Japanese markets were playing catch up overnight following Monday’s bank holiday, with both the Nikkei and Topix rising 2% over the course of the session. Sentiment is likely to be guided by any developments in trade talks between the US and China, yet at least we are seeing tentative signs of a possible breakthrough in negotiations to avoid another government shutdown. This has helped the dollar to rise to the highest level since December yesterday. However, while a deal appears to have been reached, it is still down to President Trump to approve that deal.
UK, US and Europe: In the latest of Brexit woes, a ferry contract has been cancelled with the company Seaborne Freight. The deal received criticism as the company owned no ships and had never ran a ferry service before. A fund of £102 million was used to reduce congestion on the Dover port in the case of a no-deal Brexit. The government asserted that the procurement process which involved companies submitting bids for the funds was done competitively and that the Department of Transport acted transparently.
Looking ahead, central bankers are in focus, with appearances from Jens Weidmann, Mark Carney, and Jerome Powell will dominate sentiment. Coming at a time where global growth is slowing and inflation is also on the slide, markets will be watching intently for any more dovish signals from these prominent central bankers.
South Africa: Markets have found some solace in news that the US policymakers had reached a tentative deal which looks to avert the commencement of another government shutdown later this week. Markets will now look to the next bout of trade talks this week ahead of the March 1 deadline (before US raises import tariffs again) for resolve on the matter. Our local bourse is trading firmer on the improved global market sentiment although the rand remains weakened as the dollar remains firm. Industrial rand hedge counters have been the play (in the short term) leading our local bourse higher while, financial and retail counters have proven to be more vulnerable to rand weakening. Metal prices trade mixed this morning with precious metals slightly higher and most base metals slightly lower.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
11.30pm – Westpac Australia consumer confidence (February): index to fall to 99.2 from 99.6. Markets to watch: AUD crosses
Corporate News, Upgrades and Downgrades
Nissan's net income for the last quarter fell 76%
TUI suffered a fiscal Q1 loss of €83.6 million for underlying earnings, compared to a €36.7 million loss a year earlier. Weather conditions and a weaker pound hit margins.
AA said that its motor insurance business saw strong growth for the full year, with policies up 16% to 731,000, but roadside breakdown members fell 2% to 3.21 million. Capital expenditure and full-year earnings are expected to be in line with guidance.
Stagecoach has agreed a new short-term rail franchise with the UK Department for Transport, running from 3 March until 18 August.
Debenhams has secured financing of £40 million as it looks to renegotiate debts with lenders and accelerate plans for store closures in the latest of British high street stores to face difficulties.
Softbank have invested $940 million in Nuro a self-driving delivery service.
Galp upgraded to neutral at Goldman
Leoni upgraded to buy at Quirin Privatbank AG
Polymetal upgraded to neutral at JPMorgan
Rio Tinto upgraded to buy at Goldman
BHP Group downgraded to neutral at Goldman
Britvic cut to equal-weight at Morgan Stanley
Spire Healthcare downgraded to underperform at Credit Suisse
Fiat Chrysler downgraded to add at AlphaValue
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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
A thus far settled start to the week: It was a day of low activity and mixed results, generally across global markets in the last 24-hours. Equities were patchy in their performance, on much lower than average volumes, while a retracing in bonds revealed stable risk-sentiment. It hasn't been so for some time, but yesterday market participants behaved in a classic "Monday" way. There was a lack of a unifying theme to drive market activity in a macro-sense, leaving traders to trade-off the idiosyncratic stories moving prices region-by-region. Granted, the trade-war negotiations currently going-on in Beijing were of top priority, however the interest in that event extended only as far as speculation by the commentariat. For traders, fresh leads are being awaited, to add some semblance of volatility to the market.
Traders awaiting tradeable leads: The data docket is stacked to the end of the week, so perhaps it'll be another couple of days of listless trade before global markets really start to reshuffle the deck. Of course, a surprise could ignite some excitement; but naturally that's inherently unpredictable and difficult to position for. Chinese markets returned to the fray yesterday, adding that lost liquidity from markets. Japan was offline instead, creating some choppy trade in the CHF in very early trade. The reintroduction of Chinese markets may well have soothed the bull's concerns temporarily. After a week away, during which plenty of market moving events occurred, Chinese traders felt it fitting to ignore the noise, and jumped back into stocks, to deliver a 1.82 per cent gain for the CSI300 yesterday.
Iron ore prices rocketing higher: Iron ore prices demonstrated best the impact of the return of Chinese demand to markets. Having continued to climb despite the absence of Chinese traders, and in light of further concerns about future production and supply into commodity markets after the tragic Vale dam collapse, iron ore burst out of the gates upon the reopening of the Dalian Commodity exchange. So much so, that on the first tick, the active iron ore contract reached its limit-up level, and effectively froze trade in the market. The price in iron ore is looking aggressively overbought in the short-and-medium term and is likely to attract short-sellers; however, there’s no knowing how long worries about iron supply into markets will linger, meaning countering this trend is not for the faint hearted.
ASX200 held together by strength in materials sector: Australian markets are, as one can easily imagine, benefiting from iron ore’s parabolic rise. Despite an overall lacklustre day in domestic equities, during which breadth was quite balanced and volume was below average, a 16-point gain from the materials sector proved enough to staunch much of the ASX200’s losses. On the back of this, today SPI Futures are indicating a 14-point jump at the open for the index, probably once more courtesy of, in a big way, further falls in Australian Commonwealth Bond yields, and the depreciating Australian Dollar. Price action in the short-to-medium term is showing an ASX200 somewhat in no man’s land: at 6060, and with slowing momentum, the market eyes support at 5950, as it pulls gradually away from 6100/05 resistance.
Markets keep pricing in weaker Australian growth: The Australian economic growth outlook is still looking clouded. Markets have been leading policy makers on this fact, and after the RBA’s admission last week their growth forecasts aren’t as strong as they once were, traders have taken another leap ahead to price-in weaker growth and inflation, and lower rates for the Australian economy in 2019. The pivotal event to watch will be GDP figures when they are released to gauge the merit of this view; but unfortunately, market participants will need to wait for the start of March to receive that information. The day ahead does contain NAB Business Confidence figures however, which may prove illustrative in a small way how the supply side of the economy views the domestic economy now and into the near future.
Greenback rallies on weaker European growth outlook: In reference to currency markets, the US Dollar sustained its rally overnight, as the combination of a desire for safe-haven assets and higher yields push-up the greenback. The conspicuous loser out of this dynamic has been the EUR/USD, which has broken below the 1.13 handle once again overnight. Although they climbed yesterday, the trend lower in European bonds yields looks to be manifesting in the shared currency, as traders price in the prospect of a major European slowdown. The flight to the greenback weighed heavily on commodity currencies, too. The Australian Dollar registered an overnight low of 0.7057, pressured by widening yield differentials, with the spread between the very interest rate sensitive 2 Year ACGBs and USTs widening to 82 basis points.
The UK experiences its own growth concerns: Still in currency land, and the Pound was one of the worst performing G10 currencies overnight, following the release of a slew of weak economic data during European trade. Most conspicuous was the fall in headline month-on-month GDP, which printed at -0.4 per, driving a miss in the more-impactful quarterly figure of 0.2 per cent – a skerrick below the 0.3 per cent that economists had estimated. Remarkably, even in light of the data-dump, which clearly illustrated the sluggishness of the UK economy, interest rate markets scarcely moved. A likely reflection of (an arguably Panglossian outlook for) Brexit expectations, interest rate traders are still maintaining an implied probability of 33 per cent that the Bank of England will hike interest rates before year end.
Written by Kyle Rodda - IG Australia
Don’t Forget Trade Wars Aren’t Isolated to US-China
Trade wars remain my greatest concern for the health of the global markets and economy. There have been threats in the past where a localized fundamental virus has turned contagious to the rest of the world by unforeseen circumstances – such as the Great Financial Crisis whereby a US subprime housing derivative implosion infected the wider financial markets by destabilized a foundation built on excess leverage throughout the system. When it comes to trade wars though, there is no need to connect the dots. The systemic implications are apparent. The world’s two largest economies (and markets) are engaged in an escalating ****-for-tat economic conflict. There is little chance that the fallout from such a profound distress would be contained to these two contestants. The United States is the world’s largest consumer of finished goods and China is the principal buyer of the commodities. Whether appetite is trimmed owing to trade policy or stunted economic growth, its smaller trade partners would feel the pain.
Yet another organization that is warning over the risks these two are charging was the United Nations whose trade group said further planned escalations could severely impact GDP (it estimated ease Asian economies could drop by $160 billion), trigger currency wars and generally promote contagion. That said, the headlines this past week should raise serious concern among traders. Reports (and remarks) signal the White House does not expect a deal to be struck between the two countries by the end of the 90-day pause on the planned tariff hike. What’s more, sources say President Trump is not going to extend that date and intends to increase the tariff rate on the $200 billion in Chinese imports from 10 percent to 25 percent on March 2nd. That is a severe escalation and one that Chinese officials will not likely take in stride. As tensions rise, there is movement in Congress to curb the White House’s powers to pursue this economic war through its utilization of Section 232 of the Trade Expansion Act of 1962 – this at the same time Trump is attempting to leverage more control.
As this effort progresses, it is important to remember that this is not playing out on a single front. Where it seemed that the United States’ pressure on Mexico and Canada via the NAFTA agreement was resolved by the creation of the USMCA, Congress is now signaling that it may reject the effort if material changes are not made. What’s more, we may see the pressure expand yet further. The loose threats by Trump to place tariffs on auto imports have been made multiple times over the past year. A deadline is finally in sight of this threat to potentially gain serious traction. Next Sunday, the Commerce Department is due to give its recommendations following its evaluation of auto imports. Given Secretary Ross’s disposition, it is likely to be a charged report. If the US were to implement tariffs on imported automobiles, the economic and diplomatic impact would be far more significant than what we have seen between the United States and China thus far. Global economic stagnation would follow soon in such a development’s wake.
Paying More Attention to Rates as Outlook Weakens
Monetary policy as a financial theme never truly lost any of its influence over the global markets these past years. However, investors’ attention has waned on this critical pillar of speculative reach as appetite for yield has solidified complacency. Yet, conditions are beginning to change with economic activity slowing and volatility in the capital markets picking up. That in turn draws attention back to the backstop that so many have based their convictions – whether they realized it or not. To some, fear that markets are at risk of retrenchment bolsters expectations that the largest central banks are going to step in to temper volatility and lift risk assets by flooding the system with cheap funding once again. For those whose confidence remains, they still consider the likes of the Federal Reserve (Fed), European Central Bank (ECB) and Bank of Japan (BOJ) forces of nature. Closer examination of these groups’ current policies and the available tools still at their disposal, however, should raise serious concern.
While the Great Financial Crisis is a decade behind us with growth having stabilized and markets surged in the period since, collective monetary policy has changed little. While the Fed may have raised its benchmark rate range over 200 basis points, none of its largest counterparts have moved significantly off of their own zero bound. Furthermore, there remains an enormous amount of stimulus awash in the system with central banks’ balance sheets bloated with government bonds, asset backed securities and even more traditional investor assets. If push comes to shove and markets started to avalanche lower despite the present mix of support still in place, what would these authorities be able to do muster in order to counterbalance? There is no meaningful capacity to lower global rates and QE has gotten to the point where its effectiveness draws as much cynicism as assurance.
Adding more support against a persistently incredulous market would only solidify the realization that central banks are no longer the effective backstop for speculators they once were. And then where do we expect to turn for help? A coordinated effort from global governments when they cannot even maintain existing trade deals? As our markets remain volatile and economic forecasts soften, expect scrutiny over monetary policy and its effectiveness to increase. We have seen that already take place with the market’s response to the Fed’s dovish shift and even the RBA’s and BOE’s growing concerns this past week. Rate decisions, speeches and even data close to policy mandates will leverage greater focus – and likely market reaction – moving forward.
Dollar Can Compensate for Issues By Advancing on Euro, Pound Pain
The Dollar is in a complicated fundamental position. There are numerous domestic issues that represent a serious fundamental weight on the benchmark currency but global troubles will consistently work to counteract the loss of altitude. Of course, the likelihood of a perfect equalization is highly improbable. One development or the other will prove more severe than was expected or the market will decide a particular issue is of far greater consequence to the financial system. It is not clear which node will trigger a tidal wave of capital market flows, so we need to keep tabs on those themes that will exert greater influence on the benchmark as the dominant force will likely arise from these known quantities. On the economic front, the US economy has shown signs of economic slowdown and a sharp drop in sentiment readings from consumers to businesses to investors. This was only accelerated by the US partial government shutdown and the risk that it closes once again is worryingly too high. The stopgap funding runs out on Friday.
The delayed economic readings with the status check before the shutdown impact was full felt are starting to trickle out and the GDP reading seems to be due next week. An ineffectual government looks to like it will increasingly be a core issue for the world’s largest economy moving forward with promising programs like infrastructure spending increasingly relegated to the dustbin of unrealized campaign promises. And of course, with the promise of economic wealth fading and sentiment withering, the Federal Reserve’s intention to further raise rates to establish a higher rate of return on US investments will naturally recede. Yet, all of these shortcomings will have powerful relative corrections. While the Fed may very well halt its monetary policy ambitious of the past three years, to stabilize at a 2.25-2.50 percent benchmark range while major peers like the ECB, BOJ and BOE shift to a dovish course from zero rates and expansive stimulus will maintain relative advantage to the Greenback.
Should risk aversion build globally, the Dollar has more investment interest premium built up over the past years that could leach away, but a tip into severe risk aversion (which would be difficult to avoid in a committed downturn) would leverage the currency’s absolute haven appeal. What’s more, where the political infighting in the US is more localized, it is not a unique trouble to the United States. Further, it is persistently applying greater pressure on trade counterpart around the world through the trade war. Perhaps one of the truly untested and underpriced risks to the Greenback however is the intentions of the US President. Over the past year, Trump has voiced his consternation over the level of the currency as an impediment to his strategy for course correct trade and perceived inequities to trade partners. In the event of universal risk aversion which puts serious pressure on the global economy, we are unlikely to see an effective collaboration across the world’s largest countries as the game theory in their competitive efforts will more likely intensity under the weight. With demand or Treasuries resulting in a rise for the Dollar, it would not be out of the question to imagine the White House responds with unorthodox policy aimed at driving the currency lower. The real trouble would only begin if the world’s largest player touched off a currency war.
Chinese markets were mixed during the Monday session after being offline for much of last week due to the Lunar New Year holiday. The Shanghai composite gained 0.8% whilst the Hang Send index rose 0.23%. However following Samsung electronic decline of 0.67% the Kospi remained slightly lower after promising recovery from earlier losses.
Oil prices fell over 1% despite refinery fire in Illinois which resulted in shutdown of large crude distillation unit. International Brent Crude futures down 71 cents settling at $61.39 a barrel.
US government shutdown could potentially reoccur as talks between congressional Republicans and Democrats have again broken down with agreement as Trump continues to dig in heals over US-Mexico border wall budget.
Theresa May responded to Corbyn's letter which set out five demands for a Brexit deal, her reply concluded with hope that the two parties could have further talks on the matter. Nevertheless will Valentines Vote see further love lost between opposing parties?
The Swiss Franc (CHF) saw mini "flash crash" of almost 1% due to Japanese holiday causing thin liquidity. The CHF slid from 1.0004 per dollar to 1.0096 the lowest since November.
Apple verse Huawei war sees the iphone brand's shipment plummet by estimated 20% in last year's final quarter.
Aurora Cannabis Inc is scheduled to announce second quarterly earnings today, However with EFTMG Alternative Harvest ETF and Horizons Marijuana Life Sciences Index ETF showing larger than 10% drops since October could the cannabis industry be coming down from that original legal high?
Asian overnight: Chinese stocks were the big outperformer overnight as they played catch up following a week-long break. This time it is the Japanese who are away, with National Foundation day seeing markets closed. Elsewhere, marginal gains in the Hang Seng were counteracted by downside in the Australian ASX 200. This is despite the commencement of yet another round of trade talks between the US and China, as both sides seek to find some form of resolution to the current trade standoff ahead of the 1 March deadline. However, with Trump stating that he has no plans to meet Xi Jinping before that deadline, many believe it diminishes the chance of a comprehensive deal to stave off higher tariffs.
UK, US and Europe: Looking ahead, a whole raft of economic data from the UK means that the pound will be in focus for traders in the European session. Monthly GDP (December), Q4 GDP, manufacturing production, industrial production, trade balance, and the NIESR GDP forecast for January all tally up to a likely volatile session for UK stocks and the pound. Elsewhere, apart from the Canadian trade balance, this looks like a day largely devoid of any major releases outside of the UK.
South Africa: While China and Hong Kong equity markets are firmer this morning playing catch up after being closed for the Lunar New Year's festivities last week, US equity indices are trading marginally lower this morning. This is expectant of a flat to weaker start to our local bourse today. The rand has weakened sharply following news that major power utility would be embarking on nationwide blackouts in lieu of capacity constraints within the country. The dollar has also resumed some short term strength and is weighing on precious metal prices. BHP is up 2% in Australia, suggestive of a similar start for the locally listed entity. Tencent Holdings is up 1.8% in Asia, although this may already be priced into major holding company Naspers.
Economic calendar - key events and forecast (times in GMT)
9.30am – UK trade balance (December), industrial & manufacturing production (December), GDP (December): trade deficit to narrow to £1.9 billion, while GDP to growth 0.3% MoM, and at a three month average of 0.3%. Q4 preliminary GDP reading to grow 0.3% QoQ and 1.3% YoY. Market to watch: GBP crosses
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
Acacia Mining said that gold production for the year would be flat despite output beating guidance for 2018 thanks to higher production at its North Mara field. Gold production was 521,980 ounces, above the 435-375 thousand ounce guidance, but down 32% on last year.
Telford Homes has acquired a site in Stratford for £20 million. It is expected to provide space for 380 new homes.
AAK upgraded to accumulate at Handelsbanken
Bank of Ireland raised to overweight at Barclays
Metro Bank upgraded to hold at Berenberg
Lloyds upgraded to overweight at Morgan Stanley
Barratt downgraded to hold at Liberum
Bovis Homes downgraded to hold at Liberum
Petrofac downgraded to neutral at JPMorgan
RBS downgraded to equal-weight at Morgan Stanley
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Not with a bang, but with a whimper? Without all the fire and fury that we saw in December, markets are pricing in once again a slow down in global economic growth. It could be strongly argued this is evidence of how important US Fed support is to equity market strength – but that’s a drum to beaten (over-and-over-again) for another day. Fundamentally, traders are quietly re-pricing for a world where economic growth will be weaker than once thought. Such behaviour has been long evident in Chinese markets, so there’s nothing new about pessimism in the Asian region. The point of focus now is in Europe, and to a lesser extent North America, which is increasingly demonstrating signs that market participants believe those economies are briskly approaching a period of (even) lower rates, growth and inflation.
The many facets of the global growth story: There’s no shortage of causes for this looming slowdown – and in the financial media, each one is getting a good exercising. The trade-war remains the popular one, which is providing a convenient explanation for the confluence of confusing and complex causes for China’s recent economic malaise. This thread gets pulled-on to describe why Europe is feeling the pinch too, being the geography wedged in the middle of the trade-war’s heavyweight combatants. Throw in a sprinkling of Brexit anxiety and internal political unrest in the continent and that’s the story driving Europe’s economic outlook. The US economy is still humming, and the data coming out of the states is still showing a robust economy. Nevertheless, price action says that’s being somewhat ignored, with yields betraying an underling anxiety about economic health.
What the bond market is saying: Essentially, it’s all written in yields at present. A few unwanted milestones were achieved in bond markets on the weekend. The most significant was in German Bunds, which saw the yield on its 10-year fall to 0.08 per cent – its lowest point since 2016 – even though rates markets leaving unchanged the implied probabilities for ECB decision making in 2019. 10 Year Japanese Government Bonds are back below 0 per cent, as markets stay resigned to the fact that the Japanese economy will see no signs of inflation for the foreseeable future. And despite there being an absence of data impetus to cause this – other than a general “risk-off” tone for Friday’s trade – US Treasuries climbed as traders priced in the increased chance the Fed will cut rates this year.
The RBA adds its 2 cents worth: The market’s central premise that interest rates will need to fall the world-over manifested just as clearly in domestic trade on Friday. The RBA’s Statement of Monetary Policy, released on Friday morning, delivered to markets the material to price in further downside risks for local rates. Following the central bank’s meeting on Tuesday last week, and RBA Governor Philip Lowe’s influential speech on the Wednesday, it’s perhaps a surprise that anymore dovishness from the RBA could be priced into the forward curve. Lo-and-behold, there was, with the immediate reaction from markets towards the RBA’s SOMP to increase rate-cut bets in 2019 to over 60 per cent, bid higher Australian Commonwealth Government Bonds, and to sell-out of the Australian Dollar – pushing the local unit below the 0.7100 handle, subsequently.
The RBA’s take on economic growth: It was another softening of the RBA’s economic growth outlook that spurred the flurry of activity. The SOMP was far from a manifesto of doom-and-gloom. However, what markets have for a while been predicting came clearly in the RBA’s opening lines of the document: “GDP growth slowed unexpectedly in the September quarter… The Bank’s growth forecasts have been revised down in light of recent data, particularly for consumption. GDP growth is expected to be around 3 per cent over this year and 2¾ per cent over 2020.” There was plenty of good news contained within the SOMP, it must be stated, especially as it relates to the outlook for the labour market. Sentiment clung to the growth outlook nevertheless, as traders assessed how a global economic slowdown will manifest down-under.
The ASX followed global equities lower: The fall in yields on ACGBs and the Australian Dollar proved once again supportive of the ASX200, but the effect was fleeting. It was a bearish day for the ASX on Friday, no matter which way you spin-it. It was simply one of those days for risk assets, as the bulls took themselves to the sidelines for a breather, at the end of a week which was -balance very good for stocks in Australia. Equity market strength throughout last week was perhaps lacking in other parts of the world: Wall Street finished its week higher by a very slim margin, equity markets in continental Europe shed over 1 per cent across the board, the Nikkei dropped over -2.00 per cent, while a weaker Pound kept the FTSE in the green.
Price action for the ASX200: The last traded price in SPI Futures is pointing to a 4-point drop at the open for the ASX200 this morning. The market demonstrated some signs of short-term exhaustion on Friday, after its face-ripping rally earlier in the week, as higher than average volumes propelled the index higher. Resistance at ASX200’s September low at around 6100/05 was dutifully respected as the week’s high. The daily-RSI is still in overbought territory, though not flashing a sell-signal nor a major change in momentum yet. The week’s break of the 200-day EMA is seeing that moving average slowly turn higher, which bodes well for the bulls. In the immediate future: the long-awaited pullback could be upon us here, with the November high at 5950 the next logical support level to watch.
Written by Kyle Rodda - IG Australia
Expected index adjustments
Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 11 Feb 2019. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video.
NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Divs are highlighted in orange.
Special dividends this week
RTY
APAM US
13/02/2019
Special Div
103
RTY
PRK US
14/02/2019
Special Div
20
RTY
PFS US
14/02/2019
Special Div
20
RTY
PZN US
14/02/2019
Special Div
46
RTY
TLYS US
14/02/2019
Special Div
100
RTY
MC US
15/02/2019
Special Div
125
How do dividend adjustments work?
As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Bank of England believes the UK economy is set for the worst year since the financial crisis, as its growth forecasts for 2019 decline from 1.7 percent to 1.2 percent due to a slow economy and Brexit doubt
Trump to sign order to ban Chinese telecommunication equipment from US wireless networks
May travels to Dublin to discuss Brexit negotiations as she believes a deal could be agreed with Parliament if binding changes can be made to the backstop
Asian stocks decline after concerns between the US and China trade war, as Trump refuses to meet Xi before the trade deadline. Hang Seng index fell 0.18 percent, Nikkei 225 by over 2 percent, and ASX 200 decreases by 0.34 percent
Oil prices fell this morning; Brent crude futures declined 0.8 percent to $61.14 per barrel along with US Crude futures which slipped 0.85 percent to $52.19 per barrel
Amazon founder Jeff Bezos accuses the National Enquirer’s parent company, American Media Inc, of blackmail, as they wanted Bezos to stop investigating how they gathered his private messages of an affair
Thai King’s sister enters election as prime minister, breaking the tradition of Thai royalty staying out of politics
Tata Motors shares plummet over 29 percent, lowering its current fiscal years profit margin guidance for JLR, following their biggest quarterly loss
Sears saved as chairman Eddie Lampert buys the company for $5.2billion through an affiliate of his hedge fund ESL investments, saving around 45,000 jobs
Senator Richard Shelby believes congressional negotiators will agree to a deal by Monday, avoiding another government shutdown
Asian overnight: Hopes over a positive conclusion to US-China trade talks were dashed when Donald Trump stated that he will not be meeting his Chinese counterpart before the 1 March deadline is reached. Unsurprisingly, the prospect of another ramp up in tariffs between the worlds two biggest countries significantly dented global market confidence, with Asian markets all trading in the red (China remains on a bank holiday). The Australian dollar suffered heavy losses overnight, as the country suffered the same fate as the UK and eurozone after the RBA wrote down growth forecasts thanks to poor prospects for a US-China breakthrough.
UK, US and Europe: Looking ahead, a quiet economic calendar sees German trade balance and Canadian employment numbers take centre stage. Also keep an eye out for the latest Baker Hughes rig count.
Economic calendar - key events and forecast (times in GMT)
Source: Daily FX Economic Calendar
1.30pm – Canada employment data (January): 9300 jobs created last month. Unemployment rate expected to rise to 5.8% from 5.6%. Market to watch: CAD crosses
Corporate News, Upgrades and Downgrades
SSE has cut its earnings forecast due to a delay in receiving government support. Adjusted EPS for the year is now expected to fall 6% to 64-69p, from a previous 70-75p forecast
Shaftesbury said that footfall had been ‘robust’ in the run up to Christmas and over the festive period
Bankia upgraded to neutral at Credit Suisse
Orange Belgium upgraded to buy at ING
Travis Perkins upgraded to outperform at R
Thales upgraded to buy at Citi
Centrica downgraded to neutral at Citi
Gem Diamonds downgraded to underperform at BMO
Proximus downgraded to sell at ING
Unite Group downgraded to hold at Liberum
IGTV featured video
Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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