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US Fed watch: APAC brief 19 Dec

US Fed watch: The US Fed meeting has been kickstarted and the markets are shuffling around in anticipation. US equities at time of writing are putting in a mixed performance, though al major Wall Street indices remain trading below key technical levels. It comes following a day in which Asian and European markets sold-off in sympathy with Monday night’s rout in North American shares. A desire for safety has supported a bid in US Treasuries: they are higher across the board. Interest rates traders are also grinding away, pricing out point-by-point interest rates hikes from the Fed in 2019. The US Dollar has dipped as traders take safety in other haven currencies: the US Dollar Index is below 97, mostly courtesy of a play into the EUR and the Japanese Yen. The weaker greenback has provided a lift in gold prices, with the yellow metal trading just below support at $US1250 per ounce. The Fed’s biggest critic: Everyone has an opinion on what the Fed ought to do, it seems. The most powerful voice of all, US President Donald Trump, has certainly weighed in on the subject, Tweeting: “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!” Never mind that President Trump’s policies, from major tax cuts and his trade war have contributed to the Fed’s invidious position. The President clearly is noting his concern about one of his hitherto favourite measures of personal success: the health of the US stock market. Whether rightly or wrongly, market participants, as contained within the price action in global markets, appear to agree with President Trump. Market sentiment: Cool it with the hikes, guys! Is the message. Traders obviously can’t take much of it any more. Risk is off the table and bets are being placed that we are in for a “dovish hike”. That is: a hike tomorrow, but a very careful downgrade in the projections for future hikes. It’s an incredibly tight rope the Fed must walk. On one hand, they’ll need to assure markets that they remain accommodative of US (and the globe’s) financial and economic health; while on the other, they can’t seem so accommodative as to reveal a level of genuine fear about what could be in store for markets and the economy in the future. The problem is, markets are going deep on the notion that a dovish Fed is upon us. The possibility is that the markets have set the bar too low. The big risk: Thus, even a sprinkling of hawkishness about rates could prompt a big repositioning in markets. The first reaction would be in rates markets, but that would transfer quickly into the prices of US Treasuries. Overnight, the yield on the US 2 Year note and the US 10 Year note dropped by 4 and 3 points, respectively. The spread between those two assets has gradually widened since narrowing to about 9 point a fortnight or-so ago, to sit around 17 points now. The back end of the curve will remain mostly responsive to growth and inflation expectations, but if the Fed adopt a more hawkish line, yields on the 2 Years could rally-hard, re-narrowing spread considerably. Out would come the recessionistas in such an event and the global share market, led by Wall Street indices, could possibly convulse. Danger signs still flashing: Highly sensitive market-participants wouldn’t appreciate the shock. Again, in last night’s session, amber lights were flashing in certain segments of the market. Junk bonds suffered the most, with the spread on high yield credit widening to multi-year highs. The dynamic was fuelled by another tumble in oil prices on fears of a slow-down in economic activity will cause a supply glut. Thinner liquidity brought about by tighter financial conditions isn’t making the situation any more manageable. The price of WTI is now at $US46 per barrel at time of writing, having fallen over 7 per cent in the last 24 hours. Energy stocks the world over, not mentioned the Loonie, have dropped, and assets pricing in implied inflation have modestly dipped – portending further difficulty for the likes of the Fed to maintain price growth at targeted levels. ASX resilience: SPI futures have been whipping around a bit in late American trade. There’s an hour to go on Wall Street as this is being written, and the major share indices are gravitating back to their opening price. It could be risk is (justifiably) being taken off the table here in anticipation for the Fed. So: futures are suggesting a give-up of 8 points for the ASX200 at the outset, adding to yesterday’s pain. To the credit to the Aussie index, the 5600-level isn’t being let go without a fight. The buyers entered the market yesterday on numerous occasions to push the market above that point, only to be overwhelmed by sellers, who rammed home the overwhelming negative sentiment. Technical indicators aren’t necessarily pointing entirely to sustained downside in the ASX200, but a succession of lower-highs in the past few sessions indicate the bulls could be getting exhausted. What’ll save us? Australian equities never became quite as elevated as their US counterparts did over the last decade, perhaps implying if we are entering a bear market, ours won’t be as severe. However, given the share market self-off has been inspired by fears of slower global growth, Australia’s exposure to any wreckage is all but unavoidable. The miners haven’t demonstrated the sort of stress one might expect, but the banks are being belted (they gave up 27 points yesterday), while the health care sector is unwinding the market leading gains of the year and the energy space is falling with the oil price. Arguably the best thing that could happen is a truce in the trade war to ease burden on the Australian economy; however, after Xi Jinping’s defiant speech yesterday, plus the issues of tighter financial conditions, perhaps the benefit of any improvement in global trade relations trade will be marginal.

MaxIG

MaxIG

Concerns over Rate Hikes and Economic Slowdown - EMEA Brief 18 Dec

The FOMC will begin its 2 day meeting today, with the markets expecting a 25 basis points interest rate increase upon its announcement on Wednesday, which would make this its fourth hike this year.  Homebuilder sentiment in the US declined in December to its lowest point in over 3 years, and could be an early indication of an economic softening. Theresa May has announced that the "meaningful vote" for her Brexit Withdrawal Agreement is due to be held in the third week of January, after it was postponed last week amid fears of a defeat.  US stocks closed at the lowest level in over 14 months yesterday, with the S&P dropping 2% to 2545.94 and the Dow diving 500 points to 23592.98. This comes as investors fear for the health of the global economy ahead of the Federal Reserve’s final policy meeting of the year. Asia-Pacific stocks also went into retreat on Tuesday as the Hang Seng was down 0.9% in afternoon trading, whilst the CSI 300 and the Topix shed 1.2% and 1.7%, respectively. The Dollar lost 0.2% against the Japanese Yen, falling to 112.53 yen. The Euro was mostly steady at $1.1342, maintaining the 0.4% gain it made on Monday.  Oil prices extended losses on the back of signs of oversupply in the United States: US Crude drops 2.6% to a 14-month low, settling at $49.88. Bitcoin has recovered from its sharp fall at the beginning of the month, rising more than 10% yesterday as the digital currency benefited from a strong support near the $3,000 level.  Asian overnight: A sea of red has been evident in overnight markets, as sentiment continues to sour ahead of tomorrow's FOMC meeting. Particularly notable losses in Japan came amid a strengthening yen in play through the beginning of the week. In China, a speech from President Xi Jinping offered up little in the way of new policies, instead spending much of the speech extolling the virtues of the communist party. Meanwhile, the RBA minutes signalled that the next rate move is likely to be up rather than down, although this was largely priced in given the subsequent fall in AUDUSD. UK, US and Europe: Looking ahead, the bearish sentiment evident in Europe could easily continue today given the overnight losses, while the major release of the session comes from the German Ifo business climate figure. In the afternoon keep an eye out for the latest building permits and housing starts figures. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9am – German IFO (December): business climate index to rise to 102.7 from 102. Markets to watch: EUR crosses
1.30pm – US housing starts & building permits (November): watch for a rebound from last month’s decline in activity, as the US housing market continues to worry investors. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades ASOS shares plummeted over 40% yesterday on the back of a profit warning, adding to fears of a struggling retail sector and triggering a sell-off in fashion retail stocks across Europe.  Huawei says it has secured over 25 commercial contracts for its 5G technology. Petrofac said it was trading in line with forecasts, with $5 billion of orders won in the year so far.   Wood Group has won a $66 million contract to supply control technologies to Sellafield nuclear plant.  Malaysia have filed criminal charges against Goldman Sachs and 2 bankers over they're alleged role in the 1MDB scandal.  Cineworld upgraded to top pick at RBC
JCDecaux raised to equal-weight at Morgan Stanley
Zalando upgraded to buy at DZ Bank
Remy Cointreau raised to market perform at Bernstein Asos downgraded to hold at Santander
Coface downgraded to hold at Kepler Cheuvreux
Nemetschek downgraded to reduce at Kepler Cheuvreux
Pfeiffer Vacuum downgraded to hold at HSBC 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. 

JoeIG

JoeIG

Local market brief - APAC 18 Dec

Written by Kyle Rodda - IG Australia ASX yesterday: The ASX200 put in a very respectable day's trade yesterday. It was looking gloomy at the outset. Market participants were preoccupied with the economic struggles in China and the Friday sell-off on Wall Street. However, the 32-point drop forecast for the Australian market didn't materialise, providing scope for the index to cling-on to the 5600-mark, and forge gains throughout the day. The Australian session ended with the ASX200 1.00 per cent higher. It must be remarked that though positive, it was a day of light news and thin trade. The MYEFO release, coupled with BHP's share buyback and special dividend boosted sentiment, but volumes were quite some way below average, signalling a lack of conviction behind the day's rally. ASX today: The gains look quite certain to be unwound this morning, however. SPI futures markets are indicating a 90-point drop for the ASX200, taking us almost squarely to where we were ought to have opened yesterday morning. The Wall Street chaos appears an inescapable lead today. It'll be touched on in a moment, but US shares a copping a battering (again) to start the new week. Financials and growth-stocks might be the barometer today. The banks are receiving a belting, falling yesterday even within the market's overall rally. US tech is heading the losses on Wall Street, as are health care stocks, following a ruling by a Texas judge that Obamacare is illegal. Using recent history as a guide: this is a generally solid indicator that Australia's technology and health care space will be shorted today. Australian rates and bonds: Australian traders welcome the RBA Minutes this morning. Though probably ineffectual in the context of the day's trade, it will garner some attention from rates and currency markets, who are pricing in the prospect of a weaker Australian economy in the year ahead. Australian bonds are rallying once again on the prospect of a more accommodative RBA in 2019. The yield on 10 Year Australian Government Bond has fallen to 2.44 per cent, as break-evens in the bond market point to inflation languishing around 1.70 per cent moving forward. ASX 30 Day Interbank Cash Futures contracts have an implied probability of an RBA cut by mid next year at around 10 per cent, with any chance of a hike effectively non-existent now according to rates traders. The RBA Minutes: Markets will keep taking their cues from overseas developments to judge the macroeconomic outlook for Australia, given the concerns about a synchronised downturn in the global economy in the coming years. However, today's RBA's minutes will be perused for commentary on the strength (read: deteriorating state) of the Australian consumer. The MYEFO release yesterday forecast wages to grow at 2.5 per cent next year and 3.00 per cent the year after. Given the burden of high private debt levels, a narrowing savings rate and falling property prices, wages growth at the projected rates is unlikely to overcome such drags, meaning future slackness in domestic consumption is likely. It’s this is what is driving the bearishness towards the Australian economy, which risks being hit from both sides if weakness in domestic demand conspires with a marked slow-down in the Chinese economy. Australian macro: The problem of the Australian consumer is a medium-to-long-term matter for traders, and the RBA's Minutes will probably take a glass half full approach to the economy, as they are wont to do. The harsh realities of a weaker domestic demand will manifest over time in our markets, especially our embattled banks, which find themselves caught in the global bear market in financials stocks. The Australian Dollar ought also to remain in focus, primarily as concerns about Chinese growth raise issues about our terms of trade. The strength or weakness in the AUD rests on a combination of Fed policy and Chinese fiscal policy. If global-growth jitters persist, the A-Dollar as a risk-off growth- proxy currency should presumably suffer: the next key level of support is at 0.7150, before steep downside opens-up from there. Global indices: Coming into the last hour of Wall Street's session, things are looking bleak. If you're an investor or any other kind of equity market bull, you'd be nervous. If you're a bear, then you've experienced another day of vindication. The major European indices were down overnight: the DAX was off by 0.86 per cent and the FTSE100 by 1.05 per cent. US stocks have followed suit: after numerous failures to break-through, support on the S&P 500 and Dow Jones has been breached. The psychological barriers of 2600 and 24,000 have been cleared. Barring another miraculous final hour rally in US shares, the 2 major US indices are poised to register fresh lows at levels not clocked since early-April this year. Risk-off today: As can be assumed, it's risk-off wherever you look in global markets. US Treasuries have rallied - the US 2 Year Note is yielding 2.70 per cent and the US 10 Year note is yielding 2.85 per cent. The greenback has been sold consequently, giving the EUR a boost to 1.1350, and the Pound a lift to 1.2630. The Yen is back in the 112-handle as the carry trade unwinds, boding poorly for the Nikkei today. The Australian Dollar is steady against the greenback but weak mostly everywhere else. Gold has rallied to $1245 courtesy of the weaker USD, but oil has been smashed with WTI plunging below $50 on renewed fears of a glut. Spreads on junk bonds have blown-out subsequently, trading as wide as they have been for two-years. Ultimately, The action is culminating in an Asian session that shapes as another one for the Bears, as Santa's rally looks increasingly likely to be skipped this year.  

MaxIG

MaxIG

Is a second referendum on the table? - EMEA Brief 17 Dec

Theresa May is coming under increasing pressure from MPs to stop the gridlock on Brexit negotiations. The pound is expected to see further volatility until at least mid-January as the unknown future of Brexit continues. The Dollar continued to trade at a 19-month high on Monday as concerns over slowing economic growth have reduced the appetite for riskier stocks and currencies and have backed the greenback as a safe-haven. The price of bitcoin has fallen below the cost to mine hitting a new low for the year of $3,126, loosing more than 80% since its ”tulip mania” phase at the end of last year. Without mining, bitcoin would cease to exist as it has no financial institution of Federal Reserve backing it up. The climate change talks held in Poland over the weekend have been said to end in success as the Paris accord of 2015 seems to have been reinforced. After China released lower than expected economic data on Friday, the Asian markets seem to be recovering as they enter the afternoon trading session, despite the Shanghai trading largely flat and the Shenzhen declining by 0.5%. The Nikkei 225 was up 0.8%, the Topix was up 0.3% and the ASX 200 was up almost 1%. Dow Jones futures indicate a slight recovery on the opening on Monday after all three major US indexes closed in correction territory on Friday. Asian overnight: A somewhat muted session overnight saw mixed fortunes within Asian, where the biggest outperformer came from the Australian ASX 200 index. The improved outlook for US-China relations helped drive mining firms higher yet in Australia, yet for the most part traders are somewhat cautious ahead of a critical week of central bank meetings. A quiet day ahead from an economic front sees a focus on elements such as the final eurozone CPI reading, alongside the US Empire state manufacturing survey. UK, US and Europe: As the British PM Theresa May seems to stand with her denial to allow for a second referendum on Brexit, MPs are now calling for a free vote in Parliament to allow them to decide on how they believe the Brexit gridlock should end. International trade secretary Liam Fox was the first Brexiter to publicly call for MPs to be allowed to vote on the future of Brexit after talks with the EU at the end of last week did not go as planned for Theresa May when EU leaders refused to amend the withdrawal agreement. The PM is expected to update MPs today regarding the outcome of her EU meetings last week. A cabinet meeting is expected to be held on Tuesday and ministers are likely to step up contingency plans for a no-deal Brexit. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 1.30pm – US NY Empire state mfg index (December): expected to fall to 21.5 from 23.3. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades ASOS has issued a profit warning, saying that it had seen ‘significant deterioration’ in its trading in November, despite 14% sales growth in the September to November period. The firm has reduced its expectations as a result.  SSE has abandoned the proposed merger of its retail energy business with Innogy’s npower unit. Other options including demerger or outright sale are being considered.  Croda International has agreed to acquire Brenntag Biosector for €72 million. The firm serves the human and veterinary vaccine market.  Moncler upgraded to overweight at Morgan Stanley
Senvion upgraded to overweight at JPMorgan Dometic downgraded to hold at Kepler Cheuvreux
Zealand Pharma downgraded to neutral at Goldman
Salvatore Ferragamo downgraded to underweight at Morgan Stanley
Worldline cut to underweight at Morgan Stanley 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.

DanielaIG

DanielaIG

Another Brexit reversal; a critical Fed decision; reverting to 'December' - DFX Key Themes

Another Week, Another Set of Brexit Scenarios It seems the weather patterns behind the Brexit seem to changing at a more rapid clip – always ending up back ‘in irons’ (pardon the nautical terminology) as the clock steadily winds down to the March 29 separation. This past week, was particularly momentous with the Prime Minister’s proposal supposedly going to vote in Parliament; but May decided to pull the vote before the allotted session as it was clear it would be voted down handily. And, considering the MPs had voted the week before to give themselves more power in the event the PM’s effort was rejected, she wanted to avoid losing any further control over the already stumbling process. The week wasn’t uneventful however as frustrated conservatives called a no confidence vote in May’s leadership. Ultimately, she survived the challenge and cannot be contested again for a year – though that doesn’t prevent further political pressure nor does it make navigating negotiations on the separation from the EU any easier.  It could have been the case that Juncker, Tusk and their European colleagues were waiting to see the outcome of the UK no-confidence vote to prepare further concessions that would warm May’s government; but that did not prove to be the case. After enduring the challenge, May attended to two-day European Community summit where Brexit and a no-deal outcome in particular were to be discussed. She received a clear rebuff on any further compromises from the EU and in fact had some features of the previous offer revoked. We have long ago passed the event horizon for a balanced deal to be struck such that the technical work would be ready by the actual separation date. It is unlikely that this is holdout from both or either side to earn further concession as the brinkmanship only adds to the economic and financial trouble down the line. That means this situation is more likely to continue unresolved until UK leadership makes the call.  If May can wrangle the conservatives to accept a temporary backstop, it may be the closest middle ground to be found. Alternatively, we will end up in either one of two extremes: a no-deal break or the call for a second referendum. If we end up with the former, it is more  likely to be pushed all the way to the predetermined end date. A second referendum however would likely be called weeks – perhaps even months – before the March 29 deadline. All the while as uncertainty prevails, external capital will continue to drain from the UK. Already with a default backdrop of uncertainty, global investors will want to avoid an overt threat like the Brexit. Further, domestic capital will increasingly be moved to safe guard rather than applied to more productive, growth-oriented means (such as business spending, property development, wage growth, etc). As has remained the case for some time now, trade Sterling cautiously and with a clear intent – if at all. A Critical Fed Decision to Set the Course of 2019  Top event risk over the coming week is the FOMC rate decision in my book. This final policy update of the year from the world’s largest central bank is one of the comprehensive events we expect on the quarters. Along with the routine update on rates and the monetary policy statement, this event will include the Summary of Economic Projections (SEP) and Chairman Jerome Powell’s press conference. First and foremost, the central bank is expected to hike rates 25 basis points for the fourth time this year to bring the range up to 2.25 to 2.50 percent. While Fed Fund futures project this outcome at a 77 percent probability – I would set the chances even higher. The Fed has established forward guidance as the primary tool for monetary policy even though it has raised rates at a steady pace and started to reduce its balance over the past year.  The utility of guidance is that it can acclimate the market to tangible policy changes before they are implemented to defuse the detrimental financial market volatility it could trigger otherwise. That is extremely important given the transitional phase global monetary policy is in following nearly a decade of emergency-level accommodation. Markets have grown more than accustomed to the support, the have grown somewhat dependent. Normalizing its essential to promote a healthy financial system, healthy risk taking and restore the buffer necessary to fight future downturns. Yet, if this fraught course is piloted poorly, a policy authority can inadvertently trigger the next crisis. Of course, if risk trends are already unsettled, a market that is seeking out threats could fixate on this disturbance readily enough. That said, the Fed may already be picking up on some strain in the economy and markets, looking to trim its pace so as not to run aground.  Preparing the market for that deceleration is just as important as setting expectations for its unrivaled hawkish drive over the past few years. Powell seemed to do start the adjustment a few weeks ago when the language in his speech on bonds seemed to denote greater caution and recognition of tension in the market. We have seen markets respond by  pulling rate forecasts via Fed Funds futures and overnight swaps down to only fully pricing in one 25 basis point hike – whereas previously the market had afforded three with debate of a fourth. We are due a definitive view for rate forecasts from the group in the SEP. The update for December showed a majority – by a single person – projecting three moves in 2019. Given how finally balanced that forecast was and the language from some key members, it is very likely to be downgraded. The question is whether a downgrade to just 2 hikes will then be construed as better-than-expected and if the tempo change will trigger concern amongst market participants about financial market health.  Was Italy Capitulation, Trade Concessions, A Brexit Vote Save Enough to Revert to ‘December Conditions’  Thus far, we have witnessed a remarkable December. Historically, this tends to be one of the most reserved months of the calendar year for volatility and volume which in turn translates to steady gains for traditionally risk-leaning assets. What we have seen instead is a continuation of the previous two months were high volatility has leveraged incredible swings in popular benchmarks like the S&P 500 and Dow while the VIX holds precariously high. It is inevitable that liquidity will hit holes over the coming weeks owing to market closures, but that doesn’t mean that the markets have to drift calmly into holiday conditions. Shallow market depth and high volatility can converge to produce extreme moves.  It is always wise to head into market closures or known liquidity contractions defensively, but that would be especially true of our current conditions. The question now is whether some relief on a number of ominous fundamental themes is enough to soothe the beast until markets fill back out in earnest when 2019 rolls in. Some points of progress optimistic bulls can point to include the agreement by China and the United States to a 90-day freeze fire on further escalation of tariffs, Italy softening its aggressive budget position and UK Prime Minister May surviving a no-confidence challenge. None of these developments are a long-term solution to the threats they represent, but it is breathing room at a time when the markets seem to need it most. Market biases can shift the response to events and themes – from exacerbating seemingly harmless issues into the foundation for true panic or quieting fear over a looming catastrophe. Ultimately, in conditions like these, hedges are worth it.

JohnDFX

JohnDFX

Dividend Adjustments 17 Dec Nov - 24 Dec

Expected index adjustments  Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 17 Dec 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 COR PL 17/12/2018 Special Div 8.5 RTY PRA US 20/12/2018 Special Div 50 RTY HTLF US 20/12/2018 Special Div 5 RTY SYX US 21/12/2018 Special Div 650 RTY EVI US 24/12/2018 Special Div 13   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.  

MaxIG

MaxIG

2018 reaches a climax - APAC brief 17 Dec

Written by Kyle Rodda - IG Australia 2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.    

MaxIG

MaxIG

More Misery for May - EMEA Brief 14 Dec

European Commission President Jean-Claude Juncker stumped Theresa May's effort to renegotiate on a key Brexit withdrawal point, namely the Irish Backstop. China's reported industrial output and retail sales growth missed expectations. Industrial output growing by only 5.4% in November the slowest rate of increase in almost three years.  Asian Stocks fell as China's economy shows weakening. Shares in Hong Kong and Japan led declines, Japan Topix index sliding 1.5% and Shanghai Composite falling 1.5% Apple to push software updates in attempt to resolve potential court ban of some iPhone models in China resulting from alleged Qualcomm patent infringements.  COP24 UN Climate talks in Poland come to an end today but Former Maldives President Mohamed Nasheed warns there may be "hell to pay" if counties fail in taking significant steps in key climate issue agreements.  Bitcoin continues to decline as it approaches September 2017 level of $3,000.  Europe Car sales fell by 8.1% last month the third monthly decline in a row.    Asian overnight: Asian markets have failed to sustain the recent uptrend, with sharp losses overnight coming amid slowing Chinese data and a return of fears over Theresa May’s Brexit programme. Data-wise, the Japanese and Chinese economies have been in focus. The Japanese Tankan non-manufacturing index was the big outperformer, rising back to 24 after last month’s fall to 21. Chinese industrial production and retail sales both underperformed, although the blow was softened by a fall in the unemployment rate. UK, US and Europe: Looking ahead, a host of eurozone PMI surveys will keep the European session interesting as they are released throughout the morning. Also keep an eye out for the US retail sales figures before we return to the PMI focus for the US manufacturing and services PMI readings to close out the day. After rebuffing Theresa May's attempts to renegotiate or outline the Irish Backstop EU Leaders step up No-Deal Brexit plans. It appears once again that the EU is taking a hard stance in these divorce talks. This week has seen May experience highs and lows as Prime Minister. On Monday May was forced to cancel the parliamentary vote on the draft Brexit deal amid fears the Irish Backstop controversy would result in a no vote. Wednesday saw May survive a vote of no confidence but is this a small victory in the face of today's news?  Economic calendar - key events and forecast (times in GMT)   8.15am – 9am – French, German, eurozone PMIs (December, flash): German mfg PMI to rise to 52.3 from 51.8. Markets to watch: eurozone indices, EUR crosses

1.30pm – US retail sales (November): forecast to rise 0.2% MoM from 0.8%. Markets to watch: US indices, USD crosses Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Balfour Beatty expects performance to be above expectations after the sale of its infrastructure investments unit. The year-end order book is expected to be £12 billion, above last year’s £11.4 billion.  Reach said that performance for 2018 would be marginally ahead of forecasts, after Q4 revenue rose 23% following the acquisition of Express & Star.  Costco reported disappointing quarterly earnings and revenue resulting in shares fall of 3%.   Starbucks saw a 3% fall after hours, following the announcement of delivery service partnership with Uber Eats. Lundbeck upgraded to overweight at Barclays
Meggitt upgraded to buy at Citi Equinor Downgraded to Sell at Goldman 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.

MichaelaIG

MichaelaIG

A (relatively) settled session - APAC brief 12 Dec

Written by Kyle Rodda - IG Australia A (relatively) settled session: It’s been a soft day for global equities. With almost exactly two-hours to go in the US session at time of writing, another modest rally has apparently been faded by traders. Indications are that Wall Street will close lower. If proven true, this will punctuate a mixed day for Europe, and quite a solid day for the Asian region. The former found little impetus to be bid higher, while the Asian session showed the ebullience of diminishing trade tensions. Scanning the major indices, volumes were up compared to their 100-day average, however were slightly down when compared to their 10-day and 20-day average. It reveals a market that is more settled than what it has otherwise been seen during the global share-market correction – but remains vigilant and prepared to turn at the sight of bad-news. Global growth: Given price action in last night’s trade was relatively more subdued, traders and analysts seemed able to take the clearer air to reflect on current market drivers. The theme that’s popped up consistently in the last 24 hours can be crudely articulated as “downside risks to growth”. It was a theme adopted by ECB President Mario Draghi during his press conference following last night’s ECB Meeting; and it was also referenced by PBOC last night in relation to China’s economic fortunes. It bears repeating: October, November and December in markets have been characterizes by bearishness, of course. However, the causes throughout this period have shifted. What was initially a sell-off catalysed by fears regarding higher US interest rates has transformed into one driven by fears about slower global economic growth. ECB meeting: Last night’s headline event captures this well. The ECB met and broadly met traders’ expectations: rates were of course kept on hold, and the central bank’s QE program will come to an end. As always, the commentary and press conference were where the interest lay, and ECB President Draghi delivered a cautious but stark message. The balance of risks to the EU economy have shifted to the downside. The ECB lowered its forecasts for growth and inflation, even further below what could be considered objectively strong figures. Overall, President Draghi was judged as quite dovish about the prospects for European monetary policy. Though it was not stated explicitly – central bankers rarely communicate in such a way – the subtext of the speech strongly implied that any true policy normalization from the ECB is some way off.   Whatever it takes: It’s a fascinating conundrum for the ECB. After a decade of experimental monetary policy, on balance the central bank’s greatest endeavours haven’t seemed to work. President Draghi’s “whatever it takes” attitude has supported markets, but evidence for his success is scant. The counter-argument to this pessimistic take on the Eurozone and ECB always seems to go something like “yes, things aren’t good, but imagine how bad things could have if the ECB hadn’t done what it did!”. It could be a valid point – one better for the historians to take care of somewhere down the line. However, the situation is poised to be this: the global economy will eventually experience a recession, and the ECB will more-likely-than-not be at effectively negative interest rates. The whole affair engenders very little hope or confidence in the future of the European economy. The news flow: That reality considered, traders tipped their hat and gave a sympathetic nod to the ECB after its meeting, and more-or-less moved on. There wasn’t much bullishness to be found in markets last night, however it wasn’t a risk-off night either. A lot of commentary overnight has pointed to the trade-war being behind the session’s softness. China has reportedly detained another Canadian citizen on national security grounds, presumably in retaliation to Canada’s arrest of Huawei CFO Meng Wanzhou. While on the other side of the world, members of the Trump administration declared that China ought to concede more to resolve the trade dispute. Overall, there was little substantial or game-changing revealed to markets – mostly just noise relating to the familiar and ongoing concerns that have been long-rattling markets. Today’s big Chinese data dump will be now be the one to watch. Not risk-off; but not risk-on: The price action communicated this reasonably well. US Treasury yields have stayed (fairly) still: the US 10 Year note held at 2.90 per cent, and the US 2 Year note dipped 1 point to 2.75 per cent, widening the spread there to 15 points. Wall Street is heading for a flat day, though with an hour to go in trade, the Dow Jones is a skerrick higher. The DAX and FTSE were both down 0.04 per cent. The greenback pushed-higher, mostly due to a weaker EUR, which fell to 1.1364. The Pound is up a skerrick, while the Yen, reflecting the day’s sentiment, fell slightly, just like gold, which is holding support above $US1240. The Australian Dollar is practically trading sideways at 0.7220. Credit spreads narrowed on the perception of diminished risk. And in commodities markets, copper is flat, and oil and iron ore rallied. ASX200 today: This is the context for Australian trading today, and with all of that digested, SPI futures are telling us we are set for a 14-point drop at the open for the ASX200. The ASX took the momentum generated by the improved sentiment about global growth yesterday, with the cyclical mining, consumer discretionary and industrial sectors some of the best performing. The rally lost legs throughout the day, as traders seemingly opted to fade the run once again. Volumes were high, but breadth was uninspiring. The foundations are set for another lower-high for the ASX200 index, reinforcing the notion the market is in some bearish down trend. Some contrary evidence suggests the worst is behind us: the RSI is still showing bullish divergence, and downside momentum is moderating. As it currently stands, a new low, as far above 5510 as possible, and/or a rally through resistance at 5705, is broadly the challenge the market needs to overcome to demonstrate evidence of a possible bullish turn in this market.

MaxIG

MaxIG

Theresa May survives, Second Canadian diplomat apprehended in China - EMEA Brief 13 Dec

Prime Minister Theresa May won a vote of no confidence in her leadership of the Conservative party last night. The results showed that Mrs May won the vote by 200 to 117, securing 63% of the total votes, she is now immune from any further vote's of no confidence for a year. GBP has fallen back from Wednesday's highs despite Theresa May successfully defending her leadership as investors believed she would win by a larger majority, the pound is currently trading at $1.2617 against the dollar. Several reports are suggesting that a second Canadian has been detained in China in what is believed to be a retaliation for the arrest of Huawei's CFO Meng Wanzhou, a spokesman said "we have been unable to make contact since he let us know he was being questioned by Chinese authorities". Asian equity markets ended positive on Thursday, the Hang Seng index was up slightly over 1%, Japan's Nikkei 225 rose 1.06% whist the Shanghai Composite increased by 1.3%. The US stock markets ended up following on from the positive performance in Asia. The Nasdaq rose 1% to 7,098.31, followed by a 0.64% increase in the Dow and the S&P 500 which climbed 0.54%. Gold remained steady, currently being priced at $1,244.46 per ounce. Asian overnight: Asian markets have enjoyed another positive session off the back of improving relations between the US and China. The pound enjoyed a bullish session after Theresa May managed to fend off the vote of no confidence with 200 votes. However, she still faces the same problem of passing a bill that has little support.  UK, US and Europe: Whats next for Mrs May after her victory in the vote of no confidence in her leadership last night? Pressure continues to mount as the Prime Minister now heads off to Brussels for an EU summit to seek concessions on the Irish backstop. EU leaders have already indicated that there will be no renegotiation on Brexit, however founder of G+ Economics, Lena Komileva, believes the chance of meaningful concessions "is actually quite strong". Having said this, Brexiteer Jacob Rees-Mogg has said it was a "terrible result for the prime minister" and has called for her resignation, indicating a third of Tory MPs voted against her leadership.  Looking ahead, the Swiss rate decision from the SNB is joined by the ECB monetary policy decision. The question is whether Mario Draghi will allow the asset purchase programme to end despite ongoing worries about eurozone fiscal and economic stability.  Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 12.45pm – ECB rate decision (1.30pm press conference): no change in policy expected, but with increased market volatility and a continuing stand-off with the Italian government dominating the news, the press conference may provide some insight about whether the bank is still confident about moving on rates later next year. Markets to watch: eurozone indices, EUR crosses 11.50pm – Japan Tankan large manufacturers index (Q4): index to rise to 22 from 19. Markets to watch: JPY crosses Corporate News, Upgrades and Downgrades Ocado said that revenue rose 12% to £390.7 million for the 13 weeks to 2 December, while average orders per week were up 13.1% to 320,000, but the average order size fell 1% to £104.91.  Serco expects earnings per share to be ahead of forecasts by 5-10%, thanks to a lower effective tax rate. Trading profit for 2018 and 2019 is expected to be in line with forecasts.   Bunzl said that it expects full-year revenue growth of between 8% and 9%, but a stronger pound was expected to hit performance.  Johnson Matthey upgraded to buy at HSBC
Pernod Ricard upgraded to hold at Liberum
WPP upgraded to buy at Shore Capital Elementis downgraded to hold at HSBC
Sabre Insurance cut to equal-weight at Barclays
Ultra Electronics cut to underweight at Barclay 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. 

GeorgeIG

GeorgeIG

What’s making headlines - APAC brief 13 Dec

Written by Kyle Rodda - IG Australia What’s making headlines: There’s an hour and a half to go in the US session and global equities are up. Let’s assume they finish that way – there is plenty of room for clarification (and rationalization) late-on, if need be. Traders have taken the new green shoots in the trade-war and spun them into a positive narrative. Sure, the old green shots lay trampled below the new ones, but perhaps this time around the positivity will be given a chance to thrive. The other story hogging headlines in the financial press is the vote motion UK Prime Minister May’s leadership of the Tories. Market confidence has been shaken by that development, but as we wake-up this morning, the balance of opinion seems to be suggesting that May will win the day. The data side-show: Politics is driving markets still, which is always dangerous – it’s often a distortionary influence on prices rather than a revealer of fundamental facts. However, the fundamental economic data that was handed to traders overnight supported their optimism. Arguably the most significant release for the week, US CPI figures delivered a bang-on forecast number. If you’re a bull, locked in an environment where there exists fear of a global economic slowdown on one side, and fears about higher global interest rates on the other, a moderate outcome to any data-release is welcomed. Fundamental data last night was light otherwise, with US crude oil inventories the next most important release. It overshot forecasts, but still showed shrinking supplies, which boosted oil prices and (at the very least) didn’t detract from the bullish sentiment. ECB on tap: The next release on the data docket is the ECB meeting tonight. It’s that central banks last meeting for the year and ought to be watched, considering all this talk about slower growth and hawkish central bankers. Given the noise in markets and the gradual stagnation in the European economy, it’d be a might surprise if ECB President Mario Draghi and his team deliver any surprises. The situation across Europe is fraught with political, social and economic danger. No central banker is going to want to light a flame under all of that. Going into 2019, France is burning, Italy is agitating for change, the UK is still trying to bail, and the custodian of it all, Germany, is about to lose its steady hand in leader Angela Merkel. The politico-economic landscape doesn’t inspire much confidence in the grand European project, and the ECB will probably reflect that. Another faded rally? Nevertheless, as mentioned, traders are taking in their stride the ever-present risks in this market. (Stream of consciousness status update: US equities are giving up their gains with about an hour-and-a-half in trade to go, however they remain ahead for the day. Again, let’s check in on that later.) The core question at hand on bullish days is to what extent are rallies a reflection of market-reality or mere perception. US stocks have ended as of today its latest downtrend – another in a line of aggressive sell-offs and rallies within what is overall a sideways pattern since the middle of October. There must be scope for a break-out from this pattern at some point soon. The S&P500 eyes the 2800 again now: maybe we assess the strength of the bulls by their ability to return US stocks to that level again. ASX200: SPI futures are tracking Wall Street’s performance this morning, as they are wont to do, suggesting an open 5 to 10 points higher for the ASX200, at time of writing. The performance of Australian equities yesterday was solid, in line with major regional counterparts, as fears of trade-wars abated once again. Volume was ample at 15 per cent above average and breadth came-in just below 80 per cent. Each a sign of strong bullish conviction. It seems a desire to get into cyclical, economic-growth stocks constituted the essence of yesterday’s sentiment. The greatest activity was to be found in the materials, industrials and consumer discretionary stocks. Irrefutably, this is a good sign for the many who hold optimistic-enough views on global growth; the test will be whether this view can be vindicated leading into the end of the year. The seasonal kick? The success and failure of the ASX200 will be strongly correlated to what happens to US stocks for the rest of 2018. It figures: the core issues in the market relates to the ongoing strength of the US economy, and how hawkish the Fed may-or-may not be. There is probably an inherent disconnect on some scale of looking at our market through that lens. The ASX200 never truly saw the parabolic rise in prices that the major Wall Street indices did during the easy money era (Australians engineered a residential property boom instead). All the same, if seasonality is a guide, a December run higher is on the cards come the last half-of December. The measure of any run’s sustainability should roughly be assessed by the index’s ability to challenge levels at 5705, 5790 and 5880. Price-check: The North American session is nearly at its close. Time for a review on the price action. Wall Street is off its intraday high but has still managed gains over 1 per cent. The benchmark S&P500 is 1.2 percent higher. This backs-up a day in which the DAX and FTSE rallied 1.4 per cent and 1.1 per cent respectively. US 10 Year Treasury Yields are up to 2.90 per cent, and the yield on US 2 Year Note is up 2.77 per cent, widening the spread there to 13 points. Credit spreads have also narrowed. Higher risk appetite has seen the greenback sell-off. The DXY is at 97-flat, thanks in part to a Euro that’s fetching 1.1375 and a pound that’s buying above 1.26. Gold is slightly higher $US1245. The growth-optimism has boosted our AUD to just above 0.7225, while oil is up, and copper and iron ore are down.

MaxIG

MaxIG

China to cut US car tariffs from 40% to 15%- EMEA Brief 12 Dec

Asia stocks were higher Wednesday morning; Nikkei 225 rising over 2%, ASX 200 up by 1.25% and Hang Seng Index around 1.36%. This was followed by the news of China to cut US car tariffs from the planned 40% to 15%, the same tax charge on car imports from other countries May traveled on Tuesday back to Europe to try and gain a few more concessions from the European side, in regards to the Brexit deal. It is rumoured that 48 letters of no longer supporting May have been sent. May to face a vote of no confidence on Wednesday between 18:00 GMT and 20:00 GMT. Canada grants bail by setting a $10million CAD bail for Huawei CFO, Meng Wanzhou, following charges of “improperly taking payments from Iran in violation of sanctions against the country” EU Ambassador states that technology transfers should be regulated as EU companies should not be obliged to transfer technology to gain access to the Chinese market US President, Trump, announced that he would intervene in the case against Huawei CFO if this could contribute to closing a trade deal with China New charges are filed against Malaysian former Prime Minister, Najib Razak, and former CEO of 1MDB, in relation to alleged tampering of the audit report and theft of billions of dollars from the fund Trump comments on the expected rise in interest rates from the Federal Reserve as a “mistake”, as Trump needs the flexibility of lower rates to support the trade war between the US and China Saudi Arabia convinced two dozen oil producers to cut production levels as part of a “Saudi first” policy France budget deficit to potentially increase as President Macron announces a plan to raise minimum wage by 100Euros ($114) a month and overtime will not be taxed, as well as a reverse on tax hike on pensions for those earning less than 2000Euros a month UK government to spend an extra £100million to support the renewable energy projects in Africa, as well as committing to invest £5.8billion in international climate finance by 2020 Asian overnight: Asian markets have enjoyed a bullish session overnight, as improved sentiment over US-China relations is helping drive a more positive outlook for risk assets. A Chinese reduction in tariffs on US car imports looks like the first in many steps, while the US seem to be softening their stance to the Huawei CFO who has been granted bail in Canada. UK, US and Europe: Looking ahead, the eurozone industrial production release represents the only European event of note, while US CPI brings inflation issues back into the picture. Given the recent deterioration in energy prices, it comes as no surprise to see that the headline CPI reading is expected to decline this month. Finally, watch out for the crude inventories figure, which is expected to follow up last week’s surprisingly sharp decline with another negative reading this time around. It's also worth looking ahead at tomorrow, when the European Central Bank's president, Mario Draghi, is expected to confirm an end to QE (quantitative easing) in the form of 2.6 trillion euros worth of bond buybacks. The process, echoed by many central banks such as the US Fed and the Bank of England, has been hotly debated within the eurozone where more stable northern states didn't want to take on the political risk of weaker southern areas.  When it comes to energies, a warmer winter is expected to send LNG prices to a 6 month low, whilst forwards buying earlier this year - notably over summer - haven't helped. Whilst heating demand normally pushes the price action of energies up (as seen last year) it looks like some unsold cargoes are still looking for a home. Economic calendar - key events and forecast (times in GMT)  Source: Daily FX Economic Calendar 1.30pm – US CPI (November): CPI to rise 2.4% YoY from 2.5%, and 0.1% from 0.3% MoM. Core CPI to rise 0.2% MoM and 2.2% YoY. Markets to watch: GBP crosses
3.30pm – US EIA crude inventories (w/e 7 December): stockpiles to rise by 1.9 million barrels. Markets to watch: Brent, WTI Corporate News, Upgrades and Downgrades Rolls-Royce expects earnings and cash flow for the year to be at the upper end of previous guidance. The firm’s restructuring remains on target, it added.  British American Tobacco said that it was on track to meet targets, as performance in combustibles and vaping offset weakness thanks to FX markets.  Superdry has issued a profit warning, saying that warm weather in November and December had hit performance, although first half pre-tax profit rose to £26.4 million from £9.1 million a year earlier.  Deliveroo to open its first customer-facing restaurant in Hong Kong Brandlogic, a clothing brand, launched a legal claim against Bentley Motors, for “badly damaging its business” Facebook evacuating buildings in Silicon Valley due to bomb threat, but later found no explosives in the building Alfa Financial upgraded to hold at Berenberg
Rational upgraded to buy at HSBC
Siegfried upgraded to buy at Baader Helvea

DWS downgraded to underweight at JPMorgan
Man Group downgraded to neutral at JPMorgan
Salvatore Ferragamo cut to reduce at Kepler Cheuvreux
Metro Bank downgraded to neutral at Citi 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. 

KatherineIG

KatherineIG

The pattern continues - APAC brief 12 Dec

Written by Kyle Rodda - IG Australia The pattern continues: Wall Street indices have been swinging about madly again. The pattern continues: an open, a rally or fall, then a retracement or recovery. Today we’ve had an open, a rally, then retracement, then a recovery again. There were stories behind this price-action. Everything that happened overnight appeared perfectly explicable. One wonders though if the swings in trading activity are being overly attributed to headlines. Or perhaps it’s the case that higher volatility and sensitive nerves are leading to accentuated moves. Whatever the cause, fundamentally, the bears still have control of the equity market. There is a softer intensity to the selling on Wall Street this week. However, with the extremeness of last week’s moves having not been unwound yet, what we are seeing is sellers piling in on top of sellers, bit by bit. ASX200: SPI futures have turned positive, after oscillating wildly during the overnight session. That contract is indicating a 17-point jump for the ASX200 at time of writing. Yesterday was a tepid but respectable day for Australian shares, managing to muster a 0.4 per cent gain for the day. Volume was slightly above the 100-day average and breadth was okay. Growth stocks led the charge, following US tech’s gains the night prior, with the health care sector up 1.7 per cent, courtesy of a strong bid for CSL and ResMed. The materials space was the biggest points score for the index, adding 8 to the overall index’s performance. The trend is still down for the ASX200, as it is with global equity indices presently. However, yesterday’s daily candle, combined with a bullish divergence on the RSI, suggests some buyers are re-entering the market in the short-term, potentially offering temporary upside to ~5700. Headlines: Asia: Let’s look at the headlines in markets, to place what could be a mixed day for global equities into context – starting in Asia and following the turn of the globe. The Asian session was data-dry and lacking in the way of algo-shaking headlines. The resignation of India’s head central banker was meaningful but failed to move the dial outside of India’s markets. Australian business confidence was released and revealed softening sentiment in the sector. China released money supply data and that revealed stimulus from policy makers is filtering through the economy. Japan had a long-term bond auction that demonstrated how lower global yields is affecting appetite for government bonds. The major stock indices were up, in sympathy with Wall Street, except for the Nikkei, which was lower largely due to a stronger Yen. Headlines: Europe: Europe handed more information to investors; and it was a very solid day for European equity markets. European Commission President Jean Claude Juncker poured water on any notion of refining the existing Brexit deal. He started that “There is no room for negotiation, but further clarifications are possible”. UK Prime Minister Theresa May met with German Chancellor Angela Merkel to discuss massaging the deal, only (in a comical display of cosmic irony) to become briefly locked inside in her German car at the doorstep of the meeting, before (figuratively speaking) being turned away by Chancellor Merkel. The fundamental data released in the UK was positive, though. The unemployment rate was shown to have held strong at 4.1% last month; and wage growth climbed by more than forecast to 3.3 per cent.  Headlines: North America: The US is where all the news and therefore volatility is being made, and last night’s session delivered on that front again. The day’s outset was defined by news the Chinese are willing to lower auto-tariffs on US cars from 40, to 15 per cent. Industrials (auto makers in particular) rallied. Sentiment turned after a combative meeting between Nancy Pelosi, Chuck Schumer and US President Donald Trump raised the prospects of a government shut-down if funding for the President’s border wall wasn’t passed through congress. US Vice-President Mike Pence was there too, but he was busy pulling his I’ll-sit-silently-and -look-like-the-next-President face. Behind the reality T.V. show that is US politics, US economic data was solid, albeit ineffectual: US PPI beat estimates, but all eyes are on tonight’s US CPI data. Snapshot of price (re)action: As of an hour to go in the US session, and with sentiment swinging back into the favour of the bulls again, the described news played out in prices like this. Risk appetite was generally higher. US Treasury yields ticked-up across the board: the US 10 Year note is yielding 2.86 per cent and the 2 Year note is yielding 2.77 per cent, narrowing the spread there to just below 10 points. As was implied earlier, the DAX and FTSE both rallied in European trade, by 1.5 and 1.3 per cent respectively. US credit spreads have narrowed. The US Dollar is flexing its muscles, rallying above 97.40 according to the DXY, as the EUR hangs onto the 1.13 handle and the Cable eyes a plunge below 1.25. Typical anti-risk assets, Gold and the Yen, are slightly lower, while the AUD holds onto 0.7200. And in commodities, copper, iron ore, and oil are higher on growth optimism. Finding some meaning: Let’s finally try to put a ribbon on things. Going out on a limb: stocks look likely to close higher on Wall Street. So now for a few cursory takeaways from what’s been gathered from the start of the week. CPI tonight will colour this view, but traders are concerning themselves less with Fed-hikes and more with long term growth prospects. Activity in the yield curve last night probably attests to this. Rightly or wrongly, the trade-war is being judged the major threat to economic growth. Breakthroughs in this story last night injected the bullish sentiment into markets. The Huawei story is being ignored for now, which perhaps reveals that US and Chinese policy makers will bite their tongues just to get a deal done. These are good signs for bulls, but as is well understood, these things can turn very quickly. The question worth considering is whether a de-escalating of the trade-war will do anything to arrest the global economic slow-down. The risk is, the damage is done; or perhaps even worse, there are even bigger forces at play stifling growth. The-trend-is-your-friend, as the cliché goes, and the trend is pointing to downward momentum in markets. Markets are a huge beast, and cycles move like turning ships. For now, the corrective and bearish price action across asset classes indicates the end of a cycle of some description. Until there are signs of definitive change – that is, a rebalancing from bearishness to bullishness – the matter for equity markets is this: is what we are seeing an uncomfortably but relatively benign retracement within the broad, post-GFC trend-channel; or are these signs that in 2019 and beyond, we are entering a true (perhaps recessionary) bear market?

MaxIG

MaxIG

Did Macron do enough to stop the "yellow vest" protest?- EMEA Brief 11 Dec

Trading in Asia was mixed as US shares stabilized overnight. In the meanwhile, the ongoing discussions between China and the US adds uncertainty. The bottom performer among major Asian indices was the Nikkei, which fell 0.45%. Oil climbed higher amidst resuming hopes following the 1.2 million barrels per day production cut agreed by OPEC+. However, concerns that the US could much further increase its shale production and the slowing global economy could make the output cut less effective. Gold ticked higher in Asian trading as its biggest nemesis – the US dollar – lost ground. Disappointing data about the US construction sector and concerns about a possible global economy slowdown could further have the USD slump, and hence increase bullish bids on the yellow metal. The Indian Rupee slumped 1.6% overnight following the resignation of its central bank governor. The Pound kept steady after the initial slump that followed May’s delay of the vote on Brexit. The yield on US 10-year Treasuries fell one basis point to 2.85% on concerns about trade talks with China and the lack of clarity concerning the faith of the jailed Huawei CFO. Asian overnight: An 18-month low for Japanese stocks set the seal on a difficult session in Asia, but another strong rebound for Wall Street provided some hope that the selling in equities has abated for now. While the agreed March 1 deadline for further agreement on trade differences with the US looms, China over the weekend had contributed to increasing alarm in financial markets by summoning US and Canada’s ambassadors to answer about the Chinese businesswoman arrest. Stocks in China climbed following news that a timetable for trade talks was discussed.  UK, US and Europe: News that the Chinese Vice Premier Liu He discussed the timetable for trade talks with US Treasury Secretary Steven Mnuchin had shares in China rise. Furthermore, the arrest of Huawei Technologies Co’s CEO makes the diplomatic wrestling even more critical. While possible progress on tariff talks had Chinese benchmarks ticked higher overnight, is a positive outcome for US concretely foreseeable? Macron announced yesterday evening a series of resolutions in an attempt to end to the “yellow vest” protest that is jeopardizing its presidency. While the raft of new spending could undo part of the French government’s gains from tax increases, it could also stabilize the Eurozone politics, after more uncertainty was produced by the power switch in Germany’s CDU. With the Brexit deadline on the pipeline and concerns about a possible meddling in the “yellow vest” protest from Russia, the Old Continent is finding it hard to benefit from the Holiday Season’s higher spending. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK employment data: September expected to have seen employment drop by 64,000, while the claimant count rises by 7400 in November. Unemployment rate for October expected to hold at 4.1%, while average hourly earnings to rise 3% for October. Markets to watch: GBP crosses 10am – German ZEW (December): economic sentiment to rise to -12 from -24. Markets to watch: EUR crosses 1.30pm – US PPI (November): factory-gate inflation to rise 0.1% MoM, from 0.6% last month. Markets to watch: USD crosses 11.30pm – Australia Westpac consumer confidence index (December): forecast to fall to 104 from 104.3. Markets to watch: AUD crosses
  Corporate News, Upgrades and Downgrades Ashtead retained its full-year outlook, saying that stronger rental revenue growth in North America boosted performance. Pre-tax profit for the first half was up 25% to £610 million, while revenue was 19% higher at £2.25 billion.  WPP said it would spend £300 million over the next three years as part of restructuring efforts. Organic growth in line with peers is expected to return by the end of 2021. Full-year results are expected to be in line with forecasts.  Serco has won two UK contract extensions worth a combined £135 million.  Aviva upgraded to top pick at RBC
Lancashire upgraded to outperform at RBC
Sanofi upgraded to buy at Jefferies
Unicaja Banco raised to buy at Ahorro Corporacion Derwent London cut to equal-weight at Barclays
Phoenix cut to outperform at RBC
Superdry downgraded to hold at Berenberg
Standard Life Aberdeen cut to sector perform at RB 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. 

IG-Andi

IG-Andi

Brexit pains - APAC brief 11 Dec

Written by Kyle Rodda - IG Australia Day 1 of 5: Monday looks like it may be one of those days where Wall Street hesitantly pulls itself up out of the dirt in the final hours of trade. There is just under two-hours to go in the US session, and at a high level, things appear not-too-bad. Let's return to America a little later. Whichever way we happen to end the first 24 hours of trade for the week, heightened risk, growth fears and bearishness is still driving sentiment. There has been no shift in market behaviour to indicate a market turnaround is upon us yet. If anything, the headlines regarding the macro-landscape added to the negativity. The data traders received was mixed; rather it was the numerous developments in the politico-economic sphere that inflamed trader's trepidation. The Brexit tragicomedy: The big story overnight must be Brexit. This week ought to be about the state of Europe, and at its outset, it has been. If the potential consequences weren't so dire, the situation would appear comical – akin to some absurd, but all-too real life Waiting for Godot re-boot. First-up, the European Court of Justice released a ruling that the UK could unilaterally cancel Brexit and revoke its action of Article 50. UK Prime Minister Theresa May has dutifully shut down that notion. But things did get sticky when Prime Minister May announced she would delay a vote in Parliament of her Brexit bill, on the understanding she lacked anywhere near the required votes to get it passed lawmakers. European price-action: It's relatively raw news at time of writing, but Prime Minister May's decision looks as though it will drag Brexit-uncertainty into 2019. The Cable has been pummelled consequently: it has pin-dropped 1-and-a-half per cent through a few resistance levels, to familiarise itself now with the 1.25 handle. The region's share indices were unaided by the news, though of course following the Asian lead, the session was always going to be a struggle. The FTSE registered a 0.8 per cent loss, despite the plunging Pound, the DAX shed 1.5 per cent, and the Eurostoxx 50 lost 1.3 per cent. The troubles seemed also to poison the shared currency, which has pulled back into the 1.13 handle. The European bear market: The year has been a write-off for European markets. Now that the macro-narrative is dominated by fears of slower global growth, it seems any hope things can turnaround for the continent is waning. Last night's data out of the region was mixed: UK GDP printed at the 0.1 per cent forecast, but manufacturing production was shown to contract by -0.9 per cent. Data out of continental Europe is still a couple of days away; there will be little in the way of fundamentals news and information that can shift the tide for Europe, however. We are so far in a bear-market in the region, any turnaround appears unlikely. If anything, with US growth and stock market performance converging with the rest of the world, the falls could easily accelerate. Asia and the ASX yesterday: The same goes for Asian markets - and more specifically, the hitherto resilient ASX200. Major Asian indices, from China, to Hong Kong, and Japan, all gave up considerable ground in the Asian session. But it was a filthy day for Australian equities yesterday, which was at the bottom of the table in terms Asian equity market performance. Previously solid support levels were brushed aside in early trade for the ASX, as traders collectively decided the share market isn't the place to be right now. Breadth was very narrow at 10 per cent, every sector was in the red, and volume was quite high, particularly for a Monday. The financials were the main culprits, hurt most by fears of domestic economic turmoil: it contributed 57 points to the markets losses. ASX price-watch: Everything points to a bearish impulse for the overall index. SPI Futures are indicating a bounce of 30 points today, but it pales in comparison to the 128 points given up yesterday. The bottom of a decade long trend channel is exposed in the bigger picture, now: about 5380 (or so) is the level to watch. If this is the unfolding of a true bear market – a 20 per cent correction from previous highs – the stop after breaking this trend would be around 5090. Getting carried away isn't helpful here, and it's too premature to make doomsday calls on the market. However, true bear markets do often correlate with major economic slowdowns: investors could be trying to tell us something here, so if a market bull, being alert (but not yet afraid) should remain the default setting at least for the time being. Wall Street: Returning to US markets, with less than an hour to go in trade, action could be (generously) described as mixed. It’s still risk-off, however the severity of risk aversion has diminished. US Treasury Yields have climbed modestly across the curve, benefitting the US Dollar, which flexed its might again overnight. The US Dollar Index is around 0.7 per cent higher and back above the 97-mark. Credit spreads have narrowed as the session has worn-on. The S&P500 looks like it could close flat, the Dow Jones has rallied late, and the NASDAQ has added around 1 per cent. Much of this comes courtesy of a bid higher in the major, mega cap FANG stocks. A word of warning (it almost goes without saying): breadth is 40% and uninspiring, with the rally attributable to gains in a select few big-tech names. Little of what occurred on Wall Street should be considered a firm sign of an imminent turnaround.  

MaxIG

MaxIG

Markets Fall on Renewed US-China Tensions - EMEA Brief 10 Dec

The Dow will open lower today than its open price for the year following weak jobs data and the resulting sell-off of FAANG companies. US Non-farm payrolls grew by 155,000 on Friday, missing estimates of 198,000 whilst unemployment is near record lows at 3.7% Chinese markets had a poor start to the week following missed trade estimates for November. The Hang Seng has fallen 1.41%, the Shanghai composite by 0.84% and the Shenzhen composite by 1.15% The European Court of Justice has ruled this morning that the UK can unilaterally revoke Article 50 and the withdrawal from the EU. The FTSE lost over 4% last week. This was likely due to reduced confidence that Theresa May's Brexit withdrawal agreement will be agreed on by MP's when they vote on it tomorrow following last week's 5 day debate.  A range of UK data on today's economic calendar including monthly GDP growth and the October trade balance could see the FTSE and GBP crosses have an eventful start to the week Oil is up almost 4% following an announcement from OPEC that they will cut production by 800,000 barrels per day.  Gold rose 2.16% last week as we continue to see risk aversion increase with investors. New York Cocoa saw its largest single day jump on Friday, growing 4.36% coming amidst supply worries from the Ivory Coast, the top producer of the commodity. London Cocoa saw a similar jump of 3.57% Asia overnight: Japan saw a 3Q contraction of GDP by 2.5%, 0.5% more than the expected 2% reduction. However this move did not move the Nikkei significantly compared to the losses it sustained last week which almost hit 6%. The ASX is now at 2 year lows following US-China tensions as the poor trade data for China. Weaker demand from China could see commodities exports fall for Australia.   UK, US and Europe:  Whilst tensions between the US and China have risen once again, the usual suspect of a trade war is not to blame this time. Following last week’s arrest on Huawei CFO Meng Wanzhou by Canadian Authorities with the speculated intention of extradition to the U.S, China has demanded her immediate release. They have also stated that the Canadians will face consequences for their “unreasonable” actions. Ms Meng is accused of circumventing US sanctions on Iran via a subsidiary company which had been misrepresented as a separate company to Huawei. The tech giant which recently surpassed Apple to be the second largest smartphone maker in the world (behind Samsung) has seen its fair share of limelight recently. They were banned by both Australia and New Zealand over cyber-security concerns and Japan is expected to follow suit. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Facebook has increased their stock buyback program to $9 Billion Nissan's Carlos Ghosn is set to be charged for under-reporting his salary Softbank has set the price of their telecom IPO at 1500 yen (£10.47). The shares will begin trading on the 19th of December Interserve shares are down 60% as they are in talks with lenders about converting debt to equity. Cronos shares were up over 20% on Friday as they announced they are in talks with Altria, the tobacco giant.  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. 

IGAaronC

IGAaronC

Friday's session: APAC brief 10 Dec

Written by Kyle Rodda - IG Australia Friday session: Friday capped off another horror week for Wall Street. It was US equities’ worst week since March. Traders are currently operating within a volatility trap – and there are few indications this will soon end. The VIX is elevated, above 23 at the last reading, but occupied time above the 25-mark at stages during the week. Volatility is an active trader’s friend, and for the most part the opportunities it has thrown have been relished. Liquidity is becoming thin though, and there is a sense that the risk-reward dynamics in certain asset classes have changed. For perennial bulls, or those who have long term investments in equities space, there is undoubtedly a lot of pain being experienced. If the activity across equity markets on Friday is any guide, this is something that is set to last. Shifting narratives: The narrative has definitively shifted. It might even be said for the bulls that it has gone from bad to worse. On the surface, since October, downside risks have manifested and grown in global equities. For many-a trader, whatever the root cause of this dynamic is secondary to being able to play the trend. But something interesting has happened recently, and it’s worth knowing to appreciate the way the market has changed. The initial stages of this market correction were precipitated by the fear an (over)active US Fed would hike rates to a point that would sink the global stocks. In some way, the effects of such a phenomenon played-out in markets just by way of virtue of the pricing in of those expectations. US Treasuries were rallying, the US Dollar trended higher, and growth-stocks plunged on the belief solid economic data would justify interest rate hikes. The “real” economy: But this isn’t the case anymore; this isn’t about shifts in intermarket behaviour, contained primarily to financial markets. The concerns now relate to the prospects for the real economy. To repeat: October and November were about adjusting to a Hawkish Fed. December has so far been about slower global economic growth. It’s a problem with Main Street, perhaps more than Wall Street, that traders are worried about. The bond market is king, no matter how much attention stock markets get. The best information comes from reading into what is occurring in bond markets – especially US Treasuries. As has been discussed a-plenty, the US Treasury Yield curve is exhibiting signs of inverting. Traders are telling us they think growth in the medium term will be soft. US Inflation expectations: There is another useful indicator to use in the fixed income market: the TIPS spread. More-or-less: the spread is a crude measure of future inflation. When traders were stressing-out about an over-zealous Fed, it was primarily due to fears that some (albeit modest) outbreak inflation was upon us. Interest rate hikes would be the necessary and mandated response. At this time, the TIPS spread (on equivalent 10-year securities) was about 2.20% -- that is, future inflation was tipped to be around 2.20%. Flash forward to its most recent reading, and that indicator has fallen to 1.95%. Inflation-risk is being priced out of the markets, along with the prospects of healthy economic growth. Ergo, interest rate traders have called-out the Fed and demanded the central bank “Say Uncle!”. US Non-Farm Payrolls: Whether this reaction proves justified will be fascinating. Markets are forward looking, so current economic data is only good as far as it can be used to extrapolate answers about the future. Nevertheless, the data coming out of the US is (generally) satisfactory. The latest Non-Farm Payrolls release came out on Friday, and the numbers were okay: the US unemployment rate is 3.7 per cent, and annualized wages growth held at 3.1 per cent. The jobs-added figure was a big miss, coming in at 155,000 – also, although respectable, the wages component did print below expectations. However, stripping-out the highly charged emotions in financial markets at-the-moment, the figures produced by Non-Farm Payrolls were objectively solid. The picture it painted of the US economy was good. Friday’s price action: But that doesn’t matter in this market. The bears are winning, and the bulls are looking for any excuse to sell. Wall Street experienced another poleaxing on Friday night, backing on from a mixed day in Europe: the NASDAQ was down over 3 per cent again, while the Dow Jones and S&P500 were down nearly 2-and-a-half per cent. Rates and bonds didn’t respond well to the Non-Farms data: the yield on the US 2 Year Treasury fell to 2.71 per cent, while the yield on the US 10 Year note fell to 2.85 percent, taking the spread there to 14 basis points. The US Dollar took a dive, breaking upward trend support, launching gold through resistance to $US1249 per ounce. The EUR and Yen naturally benefitted from the weaker greenback, but the AUD is still struggling, unaided by a fall in iron ore, which fell despite climbs in other commodities. ASX, and the week ahead: The last price on the SPI futures contract is indicating a 30-point drop for the ASX200 this Monday. This comes on the back of a relatively uneventful, but solid day for the index on Friday, which managed to eke out a 0.4 per cent gain. This week is filled with a litany of risk events. The first market to watch might be the oil market, after OPEC+ agreed over the weekend to cut production to stabilize falling prices. The trade war and the developments in it relating to the arrest of Huawei CFO Meng Wan Zhou will be curious. US CPI, PPI and Retail Sales data will be closely watched too, as traders gauge US economic health. The week may well prove to be more about Europe, though. There is a stack of event risk coming up. It may well not go ahead, but Brexit is scheduled to vote on UK Prime Minister Theresa May’s Brexit bill. The Cable is worth watching ahead of that event. ECB President Mario Draghi speaks, and the ECB meets, with his commentary to be perused for signals that the Europe’s central bank might be stepping away from its potential rate hikes. Whatever is said by Draghi will be assessed against a slew of PMI figures. And finally, the Italian fiscal crisis will probably continue to be a soap-opera, though hopes are rising that the Italians are going to play ball.

MaxIG

MaxIG

Dividend Adjustments 10 Dec Nov - 17 Dec

Expected index adjustments  Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 10 Dec 2018. 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 Index Bloomberg Code Effective Date Summary Dividend Amount PSI20 RAM PL 12/12/2018 Special Div 1.15 NDX PCAR US 13/12/2018 Special Div 2 RTY AMSF US 13/12/2018 Special Div 3.5 SPX PCAR US 13/12/2018 Special Div 2 RTY CWH US 14/12/2018 Special Div 0.0732 PSI20 RAM PL 17/12/2018 Special Div 0.085   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.

MaxIG

MaxIG

Brexit, December seasonality deviations, worst case Dollar and Euro - DFX Key Themes

Make or Break for Brexit?  There have already been so many twists and turns in the UK’s efforts to negotiate its separation from the European Union that that investors are getting dizzy. It is troublingly difficult to gain a reliable bead on a probable outcome for this stalemate, but the lack of time and dwindling hope of an outcome that will satisfy the majority of those involved raises the threat of a ‘bad’ outcome and even worse market response. This is not one of those events where ignoring the risks can prompt complacent gains. Once again, we are coming up to a key milestone in this saga where conditions can continue with a narrow course forward where the best case scenario still reflects considerable uncertainty and no small measure of market fallout. Or, it can be pitched into disarray. If you are monitoring the march forward of this fraught Brexit divorce – and you should whether you have direct Pound or UK investment exposure or not – highlight on your calendar Parliament’s vote on Prime Minister Theresa May’s proposal Tuesday.  The draft was made in concert with EU negotiators which produced a result that theoretically both sides could sign off on. That would seem a viable course forward if not for the level of discord in UK politics. Rhetoric surrounding the Prime Minister deal is distinctly harsh from both the conservatives who found vindication in the referendum outcome as a sign of a clean break as well as Labour and other groups who are attempting to keep economically supportive elements of EU access or do not support the withdrawal altogether. It is likely that Parliament votes the plan down which will open up a range of scenarios – very few of which are will avoid deeper trouble.  After a rejection, the government has three weeks to work another deal, but the EU will be far less interested in an agreement that asks for more and the rapidly diminishing time frame will leave little opportunity to warm counterparts to their side.  Parliament voted this past week – after finding the Prime Minister in contempt for refusing to release official legal advice on Brexit – to give itself greater say over the proceedings should her plan be rejected. This is likely to empower the MPs to demand more favorable – but perhaps ultimately unworkable – terms. It may also raise the pressure for a second referendum. Previously May has rejected the option outright, but recently she has floated the idea. It comes off more as a threat for conservatives to get in line, but she has said there is a choice of “my deal, no deal or no Brexit at all”. Two of those three options are considered assured crisis to all the relevant parties involved; and unfortunately, that third lesser evil is different for all of them. Beware Pound volatility and the risk of fast moving local capital markets which can be exacerbated by the waning liquidity in these final weeks of the year. This December is Already Bucking Seasonality Expectations As we have discussed more and more as of late, there are seasonal norms in capital markets. These unlikely cycles arise through a few different practical market occurrences. Mid-day direction changes in individual trading sessions, summer doldrums, quarterly earnings runs and more draw on reliable conditional developments that can shape conditions – though specifics like direction are still up to the unique circumstances that play out in the given period. In the final weeks of the calendar year, we have one of the most reliable norms in trading. For those that want the scene described in a short phrase, ‘Santa Claus Rally’ usually suffices as they can fill in the circumstances with their imagination. A reduction in liquidity for western holidays and/or a general sentiment is seen as the foundation for a market’s performance. The liquidity aspect is at least correct and conditions earned through collective habit can often fill in the rest. However, when we follow this theme to the assumed bullish-backed trend, there are certain environmental criteria that need to support the outcome.  Normally, the pending risks column needs to either be small or populated with issues that can readily be deferred until more convenient market conditions return. That is not the case now with growth forecasts slowing, warnings of financial risks growing more numerous (from the likes of central banks and IMF), trade war consequences kicking in and political risks splashing the headlines. These are not issues that can readily be shelved and they are receiving media attention on a regular basis. With this backdrop, there are frequent sparks that can provoke panic which makes the backdrop all the more threatening. If an otherwise contained crisis arises somewhere in the world, the thin market conditions can amplify the ill-effects of panic to spread well beyond its normal reach. And, while it may not be capable of a lengthy collapse of the financial system through such diluted conditions, it can lay the groundwork for a vicious cycle that begins the process only to catalyze fully when markets fill out – much like a nuclear reaction.  In portfolio and statistical theory, it is not advisable to position for collapse against these seasonal norms as the probabilities are still skewed in favor of the norms. However, it doesn’t mean that we need to be utterly complacent with the risks that we hold. Reducing size, diversifying away from ‘risk’ markets or buying hedges reduces your beta exposure, but it isn’t like we are missing out on opportunities through a period that will be ‘dead’ in the base case scenario. The volatility we have experienced this past week, the past two months and in two distinct periods over the year (Feb-March and Oct-Nov) are a reminder that we should be more proactive with our reducing our exposure to the capricious unknown. Who Faces the Greater (Probable) Systemic Threat: Dollar or Euro? Everything in investing is a probability – that is a mantra I repeat to myself to avoid the delusion of certainty in a view or position. To put belief into action, I try to always lay out the probable scenarios for a particular market, asset, event, etc. Even if I consider a certain outcome more likely, considering the alternatives can help to identify earlier when the theory isn’t panning out and to even help stage an actionable strategy for a lower probability path. Most of the time in trading, the focus is to identify best case (the most productive bullish) scenarios, but there is just as much value in projecting worst case outcomes and their probabilities. This can help us avoid markets with a severe probability/potential imbalance or even identify better trading opportunities – I would rather pursue a short in a productive bear trend than suffer a long exposure in a choppy bull market. In evaluating the majors for their practical ‘worst case scenarios’ (those outcomes that are severe but not wholly unlikely – or qualifiers for a true ‘black swan’ designation) I think the Dollar and Euro deserve closer observation.  For the Pound, the market is well aware of the possibility of a bad fallout from the Brexit which puts investors on guard and making moves that help to hedge risk. The Japanese Yen is so inextricably tied to risk trends and the Bank of Japan’s policy so open-ended that other issues struggle to compete for anxiety. For the Euro, a return to existential rumination on the currency union with the Italy-EU budget standoff is a still-underappreciated issue. The bulls in the market likely look back to the situation with Greece and assume a routine path for any future confrontations to be resolved in the same way. That is presumptuous to be negligent. The fact that this is occurring after Greece and during the UK’s bid for a withdrawal (admittedly from the EU and not Eurozone) should raise the level of concern significantly. It hasn’t. Perhaps the lingering premium afforded the currency for the eventual turn from extreme accommodation by the ECB will be the first dashed enthusiasm to awaken market participants of more unfavorable outcomes. If a country were to leave the currency union (EMU or Eurozone), it would fundamentally change the appeal of the currency as a global unit by significantly reducing the size of its collateral (GDP and capital) which would in turn significantly increase its perceived volatility. And, those are critical properties of a currency.  The situation is unusually similar for the US Dollar. The pursuit of trade wars inherently encourages the world to redirect funds away from the US Dollar to avoid the policy conflicts that it brings (in trading terms, the volatility). Meanwhile, the rising deficit becomes increasingly problematic as the cost to service the massive debt rises and outside demand dries up. This can lead to a general shift away from the Greenback’s use permanently which the market won’t fully appreciate until much deeper into the situation. Similarly here, the market may more readily recognize something is wrong via monetary policy as the Fed adjusts to some form of the systemic risks by slowing its pace of policy normalization. So, which currency faces the longer-term – but still reasonable – risk? The Dollar. The ubiquity of the currency globally (nearly two-thirds of all FX transactions) means that it has far far more to lose should its use diminish. And that is very likely as the threat of further credit quality downgrades occur owing to its appetite for debt and its withdrawal from the global markets. 

JohnDFX

JohnDFX

Bitcoin hits year low - EMEA Brief 07 Dec

Bitcoin hit year low falling below $3,500 after a 11% dive. Chip stocks in Europe and Asia tumbled after the arrest of Huawei CFO . AMS dived 7%, STMicroelectronics fell 4% and Dialog Semiconductor slid 3%.  Dow rebounds after falling 780 points ending the day only slightly lower yesterday.  10-year Treasury yield fell to 2.83% amid stock sell-off compared to the beginning of the week where it was above 3%. Non-Farm payrolls today expected to have expanded by 198,00 in November. Oil prices fell, Brent Crude falling below $60 a barrel, trading at $59.50, down 0.9%. This follows delayed OPEC oil cut decision, further talks to be held today with oil producing nations.  Singapore authorities cast shadow over the Noble Group's $3.5 billion debt rescue plan, stating that they would block the relisting of shares. Asian overnight: Equities have recovered from their lows, with a better session in Asia overnight following on from a steep rebound for US indices that saw the Dow recover from an initial 400-point sell-off to end the day only 80 points down. Investors continue to watch for further signs of fallout between China and the US, but so far the situation is quiet. Markets are also waiting for a decision on oil supply levels from OPEC, the cartel having failed to reach agreement yesterday. Asian stocks see some improvement after Wall Street Journal report suggests that the US interest rates may not increase as quickly as feared. Consequently, the Nikkei up 0.8%, the Hang Seng rose 0.2% and Shaghai stocks clawed back 0.4%.  UK, US and Europe: The US jobs report is the focus of attention today, with the recent strength in wages likely to recur. Also on the calendar is the Canadian jobs report, plus the Michigan confidence survey. Last night saw an amendment to the Brexit draft laid down in the House of Commons which offered MPs more say over when and if the contentious Northern Ireland backstop will be triggered. However, DUP leader Arlene Foster dismissed the amendment.  Economic calendar - key events and forecast (times in GMT) 1.30pm – US non-farm payrolls (November): payrolls to be 205K from 250K, while average hourly earnings rise 0.2% MoM, and the unemployment rate holds at 3.7%. Markets to watch: US indices, USD crosses

1.30pm – Canada employment data (November): 10,000 jobs expected to have been created, from 11,200 a month earlier, and unemployment rate to rise to 5.9% from 5.8%. Markets to watch: CAD crosses

3pm – US Univ. of Michigan consumer confidence (December, preliminary): forecast to be 93 from 97.5. Markets to watch: US indices, USD crosses Source: Daily FX Economic Calendar   Corporate News, Upgrades and Downgrades Associated British Foods said that trading for the first eight weeks of the year was in line with expectations, although November trading at Primark was described as ‘challenging’. The outlook for the current year was unchanged.  Berkeley Group reported a pre-tax profit of £401.2 million for the first half, down from £539.9 million a year earlier. Despite this drop, the firm has increased its pre-tax profit guidance for the current year by at least 5%. It sold 2027 homes in the period, down from 2190 a year earlier, but the average selling price rose to £740,000, from £721,000 a year earlier.  Premier Oil has reaffirmed annual output guidance, thanks to a stronger performance in November and December. Full-year output is forecast to be around 80k barrels/day. It has also begun drilling at the Zama-2 well offshore Mexico, and has completed the sale of its interests in the Babbage area for £30.3 million.  Walmart announce plans to buy Art.com a e-commerce home décor site. Fiat Chrysler announces plan to open new factory in Detroit. Yesterday saw 02 customers without data or facing cellular disruption for 24 hours. Akzo Nobel upgraded to buy at Jefferies
Amer Sports upgraded to accumulate at Inderes
Rotork upgraded to neutral at Credit Suisse
Schindler upgraded to overweight at Barclay BMW downgraded to reduce at Commerzbank
Scatec Solar downgraded to neutral at SpareBank
Centamin downgraded to hold at Berenberg
IP Group downgraded to under perform at Jefferies 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. 

MichaelaIG

MichaelaIG

Panic stations - APAC brief 7 Dec

Written by Kyle Rodda - IG Australia Panic stations, still: The behaviour in financial markets is resembling cats trapped in a burning room: the air is unclear, it’s unbearably hot, and people are scrambling to find an exit – or at least, somewhere appropriate to hide. The chaos is one thing, but the true issue – as is always the case, when these situations become particularly fraught – is no one can really describe why this is going on exactly. Now, we all know the stories: the Fed has equivocated and that’s confused the heck out of markets; US-China relations are hot-and-cold; future global growth expectations are being unwound; Brexit is on-again-off-again; and a breakthrough in oil markets out of the OPEC meeting hasn’t emerged. These issues are ongoing, so it’s not any sort of surprise that they’d all be weighing on markets in some form. The confusion is why they are all conspiring to create such fireworks now. Risk-off: Maybe traders have just taken too many hits in the last 3-months, and the bulls are effectively tapping out. A premature call, here, to be sure, however there seems so little motivation to hold onto riskier assets. It seems that collectively, a clear strategy to handle the volatility isn’t yet to emerge. The classic plays into safe-havens can be seen: US Treasuries are going on a tear presently, for a variety of reasons to be discussed shortly. An unwinding of the Yen carry trade has pushed the USD/JPY to 112.50. And gold is looking at a break-out above resistance at $1240. Inversely, risk proxies have also been thumped: global equities (needless to say) are getting hammered, the AUD/USD is taking a rinsing, and commodities, led by a 3 per cent tumble in oil, and a 1.1 per cent fall in copper, are plummeting. US interest rates: Interest rates traders have taken it upon themselves to signal to the market that the Fed ought not to be going anywhere in 2019 with interest rates. A December hike is still considered locked-in for all intents and purposes, but even a single hike in 2019 is progressively being priced out by markets. It’s an incredibly aggressive play ahead of key Non-Farm Payrolls, where wage growth figures will be assessed for inflation prospects. But whether rightly or wrongly, interest rate markets are calling it: hikes-off, cycle over – the share market and the economy have peaked. The dynamic is showing up right across the US yield curve: the yield on the interest rate sensitive 2 Year Treasury note is at 2.75%, above the 5 Year note, which is at 2.74%; and the benchmark 10 Year Treasury bond is yielding 2.87 per cent. Update on the yield curve: Doing the maths: the yield curve is still inverted, and the key spread between the 2 Year and 10 Year Treasuries is about 12 basis-points. For those who believe in the indicator’s efficacy: this still is flashing signs that markets are moving to price in a recession. To be sure, it’s way too early to call such a thing; but what can be inferred with more certainty is that markets believe an economic slow-down is approaching, and the global economy can’t withstand a non-stimulatory US Fed. It’s an indictment on the economic system that it can’t hold itself to together without extraordinary support. Stepping away from the disorder, though: perhaps this big-long cycle of central banks seeking to control the business cycle is seeing such diminished returns, and that the overall structure is no longer viable or sustainable. Trade War tensions: First comes the Fed, and then everything else. It has to be when assessing these markets. There are other drivers of the current climate of fear, however, that threaten market fundamentals. The US-China trade war took a nasty turn yesterday when it was reported the Huawei’s CFO has been arrested in Canada, and faced extradition to the United States, on allegations of trade violations. Though a long way from certain, some attributed the mini-flash crash on the CME Futures exchange yesterday to the shock of this news. Nevertheless, US-Sino trade relations have become highly-charged again, with the expectation now the goodwill between the US and China as each nation works towards a trade deal is disappearing. Trade sensitive areas of financial markets got smacked-down consequently: Chinese stocks were walloped, the Yuan plunged to 6.88, and industrial stocks bled. US Session: There is about an hour-and-a-half left in trade on Wall Street, and while the isn’t as bad Tuesday’s session, it’s still far from pretty. The Dow Jones is leading losses, down 1.8 per cent, followed closely by the S&P500 which is down 1.42%. The NASDAQ is holding up a trifle better, down only 0.8 per cent. This backed up a day in Europe that saw stock indices across that region shed over 3 per cent. Brexit concerns certainly aren’t helping there. The uncertainty around the day’s OPEC meeting is enervating financial markets. The price of oil is down in the realms of 3 per cent itself, sparking jitters in credit markets and therefore global equities, as traders wait-and-hope for a deal to cut oil production by OPEC. The price of Brent Crude has dived below the $US60.00 handle in the interim, while WTI is buying just above $US51.00 per barrel. ASX200: SPI futures are pointing to another down day for the ASX200. That contract is indicating a 23-point drop at the open. It must be remarked that despite the turmoil in overseas markets, Australian shares are holding up rather well. The session closed with a relatively modest 0.2% loss yesterday, clawing back the losses sustained during the US Futures mini-flash crash. Proven again was the thick support for the index in the low 5600s, which provided a solid floor for the market to bounce off yesterday. Repeated challenges of that mark can’t last forever, but it is heartening to know the buyers are there. Also positive was a clear rotation within Australian equities yesterday: unlike other parts of the world, traders were discerning enough to rotate into defensives away from cyclical stocks, rather than dumping equities whole-sale. It shows a desire to be exposed to equities at all, at a time where, in some parts of the world, going near the asset class is toxic. A grind lower may well transpire today, with the banks surely to be hurt by falling global yields, the miners to feel the pinch of falling commodity prices, and the energy sector to suffer from oil’s spill. Once again, maybe today can be assessed today on the breadth experienced by markets, and whether defensive sectors can hold it together.

MaxIG

MaxIG

China-US cease-fire in jeoprady as Huawei CFO is arrested in Canada - EMEA Brief 06 Oct

Huawei CFO Meng Wanzhou was arrested in Canada where she faces extradition to the US for violating US sanctions, leading to growing tensions between the China and US that create further doubt about the cease-fire on the tariff war declared over the weekend. Shares in Asian suppliers to Huawei sank on Thursday after the arrest was made pubic. Asian markets fell on Thursday ahead of the highly awaited OPEC meeting to be held in Austria today. The Hang Seng was down 2.62%, the Nikkei fell 1.91% and the Shanghai composite slipped 1.26% during the morning trading session. The UK could face “protracted and reported rounds of negotiations” if it tries to exit a backstop customs union with the EU. The FTSE 100 closed 1.44% lower at 6.921,84 on Wednesday, with a general decline in its constituents led by Ashtead Group PLC, Melrose Industries PLC and NMC Health PLC who lost 5.83%, 5.05% and 5.05% respectively. European stocks were trading lower on Wednesday as continuing worries about global trade leave investors with concerns regarding the future of economic growth. The Dax was down 1.19% whilst the CAC and the IBEX  were down 1,36% and 0.55% respectively. US markets are expected to continue the sell-off on Thursday as DOW futures drop almost 400 points. As stock markets remained closed on Wednesday for the official mourning day of former US president George H.W. Bush, the growing tensions between China and the US continue to place uncertainty on the viability of the two countries honouring the cease-fire declared over the weekend, leaving investors feeling weary, which is putting downward pressure on the stock market. Palladium has become one of the best performing precious metals in the year, dethroning gold as the most valuable precious metal. The metal hit $1,257 per ounce, surpassing the price of gold for the first time since 2002. The demand for palladium is expected to rise as tougher emission laws come in to place. Copper has drifted to a one-week low as US-China tensions resurface. Join us today at 1pm to discuss the future of Base Metals where you can ask your questions to our guest experts Daniel Lacalle and John Meyer, either via youtube, twitter, facebook or by posting them on the comments section on the following link: https://community.ig.com/blogs/entry/271-igcommoditychat-base-metals/ Asian overnight: The arrest of a senior Huawei executive provided the spark for a fresh round of selling in Chinese equities, adding to a broadly grim session for Asian markets. Tech stocks in Hong Kong suffered heavily, with the overall index down 2.9%. Oil prices have begun to get the jitters ahead of the OPEC meeting today, with the decision expected at 5pm London time. UK, US and Europe: A full text of advice written by the attorney-general Geoffrey Cox was published on Wednesday, a day after MPs found the government to be in contempt of parliament by not publishing the document, in which Mr Cox states that the backstop which would keep the UK in a customs union with the EU, would “endure indefinitely” until  and alternative solution was applied to avoid a hard boarder. The general negative correlation between the sterling and the UK equity market is starting to diminish. In the past, we have seen that as the pounds weakens, the FTSE100 gains strength. This inverse relationship has faded and we are now coming to see a positive correlation between the sterling and the equities market. This is most likely due to the growing concerns that Britain will leave the EU with a “no deal”, which is seen to be catastrophic for the UK economy. The OPEC meeting is the main event, with a cut of 1.4 million barrels in daily output the baseline expectation. Anything less than this may result in fresh downward momentum in crude. Aside from this, the calendar is rather quiet although we do have the US trade balance later today. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 1.30pm – US trade balance (October): deficit to hold at $54 billion. Market to watch: USD crosses
3pm – Canada Ivey PMI (November): expected to fall to 60.8 from 61.8. Market to watch: CAD crosses Corporate News, Upgrades and Downgrades DS Smith said that first half revenue rose 16% to £3.07 billion, while adjusted operating profit was 32% higher at £304 million (both in constant currency terms).   Ted Baker has appointed law firm Herbert Smith to look into allegations of inappropriate behaviour. The firm added that group sales were down 0.2% for the 16 weeks to 1 December.  Hiscox and Spirax-Sarco will be joining the FTSE100 replacing Just Eat and Royal Mail. Changes will be effective from start of trading on Dec. 24. Faroe Petroleum raised to equal-weight at Barclays
Genus upgraded to buy at Kepler Cheuvreux
Takeaway raised to sector perform at RBC Capgemini downgraded to equal-weight at Barclays
Klovern downgraded to reduce at Handelsbanken
Petra Diamonds downgraded to hold at Panmure Gordon
Sage downgraded to add 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.

DanielaIG

DanielaIG

Government Found in Contempt as Theresa May Suffers Further Defeats in the House - EMEA Brief 05 Dec

UK government found in contempt of parliament for the first time due to not releasing the full legal advice regarding Brexit. The government has now agreed that it will be published which may cause more instability in the markets Markets have retreated following their rally attributed to agreements made between the US and China at the G20. The fall comes amidst increasing sentiment of an economic slowdown as well as reduced faith in trade war negotiations following officials of the Trump administration admitting it was too early to say if a longer-term deal could be reached. The Dow was down over 2.5% whereas the Hang Seng was down over 1.5%. Meanwhile, the EU volatility index was up over 7% over the course of yesterday. Australian GDP missed growth QoQ by 0.3% and YoY by 0.5%. The growth targets were 0.6% and 3.3% respectively. Oil prices have fallen again as the Chinese government has warned of a falling demand due to a slowing down of the economy whilst the US oil inventories have continued to grow according to a report by the American petroleum institute. Official US oil inventories will be released today at 15:30 GMT. Gold has fallen from its recent 5 week high and the dollar has strengthened. The dollar basket gained 0.4% yesterday. This market sell off comes as bond yields have dropped, showing a flight from equities into the less risky assets. The current US yield curve and what it means for investors is discussed here. Asian overnight: Asian markets fell sharply after a dismal day for US equities, with 3%+ losses for the Dow, S&P 500 and Nasdaq. Recession fears are rising as investors watch the yield curve warily, while growth fears hit oil prices too, reversing some of the gains from earlier in the week. UK, US and Europe: US markets are closed today for the funeral of President George H W Bush, which should result in lower volumes across the board. The pound remains in focus, after the prime minister suffered a series of reverses in Parliament, which may however mean that a no-deal Brexit is much less likely, and a possible ‘Norway option’ becomes a possibility if the current deal fails to pass Parliament. The contempt vote was another blow to British Prime Minister Theresa May as she battles to gain support for her withdrawal agreement. The vote was won by 311 votes to 293 and saw a substantial drop it the pound which briefly hit its lowest level since April 2017. The vote also saw 26 conservative MP’s vote for their leader to release the full details of the legal advice. The vote was also notably backed by the DUP who have a parliamentary pact with the conservatives, however they have been outspoken with their displeasure with how the withdrawal agreement approaches the Irish boarder issue. Jeremy Corbyn has demanded that the advice is published before the parliamentary vote on the withdrawal agreement next week, so MP’s can make an informed decision. Andrea Leadsom has only indicated that she plans to “respond” today as MP’s meet again as part of the 5-day debate. Speaker of the House John Bercow has stated it would be unimaginable that the advice is not provided before the vote. Continued division between and within the parties suggests the PM may need to increase her efforts if she wishes to get this agreement passed when the MP’s make their decision on it on Tuesday the 11th. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK services PMI (November): activity expected to increase, with the index rising to 54.1 from 52.2. Markets to watch: FTSE 100/250, GBP crosses
1.15pm – US ADP employment report (November): 189K jobs expected to have been created, from 227K jobs a month ago. Markets to watch: US indices, USD crosses
3pm – Bank of Canada rate decision: no change in policy expected. Market to watch: CAD crosses
3pm – US ISM non-mfg PMI (November): expected to drop to 59.5 from 59.7. Markets to watch: US indices, USD crosses
3.30pm – US EIA crude inventories (w/e 30 November):stockpiles to rise by 2 million barrels, from a 3 million increase a week earlier. Markets to watch: Brent, WTI Corporate News, Upgrades and Downgrades Stagecoach suffered a pre-tax loss of £22.6 million, compared to a profit of £96.7 million a year earlier, with a writedown in the value of the US business the main culprit. Adjusted pre-tax profit was down 10% to £87 million.   Wood Group has won a $43 million contract to construct 80 miles of steel pipeline in west Texas.  Patisserie Valerie have appointed an interim finance chief following issues with their accounting reported in October The Civil Aviation Authority has announced it is taking legal action against RyanAir. The airline are claiming that they do not have to compensate customers for delays during strikes from their staff as they believe this constitutes "extraordinary circumstances". The EU mandate that passengers must be compensated for delays does not apply if the situation is deemed to be extraordinary.  Takeda have gained shareholder approval for their £46 billion takeover of Shire, the largest corporate takeover Japan has ever had Alpine shareholders have approved their merger with Alps Electric Aker Solutions upgraded to buy at Kepler Cheuvreux
Bayer upgraded to buy at DZ Bank
HeidelbergCement upgraded to overweight at JPMorgan
Salzgitter upgraded to neutral at Macquarie Electrolux cut to underweight at Morgan Stanley
Ted Baker downgraded to hold at HSBC
Glaxo downgraded to equal-weight at Barclays
Hargreaves Lansdown cut to underweight at Morgan Stanley 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. 

IGAaronC

IGAaronC

OPEC preview

Please see the following analysis from Chris Beauchamp, Chief Market Analyst at IG, a global leader in online trading. OPEC preview OPEC faces a difficult task this week, as it aims to prop up the oil price without antagonising the US or putting too much strain on state finances by cutting production too much. The current state of demand and supply After being in deficit for 2018 and 2019, the oil market is expected to shift back to surplus next year: Crude output continues to rise despite the decline in Iranian output: Crude oil seasonality Usually oil weakens in the first two months of Q4, but it then tends to pick up from the first half of December, beginning a steady rally into the summer.   Expectations Current forecasts suggest a cut of 1.4 million barrels per day will result from the meeting. Anything less than this would likely cause another drop in prices. The meeting may not go with an explicit number, merely creating an agreement to restrict supply. Again, this is unlikely to be well-received by the oil market.   Saudi Arabia – walking a tightrope Saudi Arabia faces a difficult balancing act. On the one hand, it must avoid letting the oil price fall too far and hurt its finances (and those of the others in OPEC, though that is less of a concern). On the other, it will seek to avoid cutting too far, too fast, since this might lead to a sharp bounce in the oil price, which would annoy the White House. Saudi Arabia knows that it has outraged world opinion with its actions regarding Jamal Khashoggi, and that only the lack of outright condemnation from the US has saved them from serious consequences. Trump’s decision to equivocate on the subject, while not conditional on keeping oil prices down, may waver if they cut output by a significant amount. But then again, with a defence budget running at 10% of GDP (almost five times the global average and three times the US budget in GDP terms), plus large state spending commitments, Saudi Arabia has to look at some cuts in order to restore balance to its finances. The FT reports that the Saudi energy minister has argued that cuts of at least a million barrels per day are needed.   Russia Although not an OPEC member, Russia is Saudi’s other major partner in the oil market. Russia too is caught between wanting to boost prices and keeping its oil wells going at full production. Putin is aware that falling oil revenues put pressure on the Russian state, at a time of austerity for the Russian economy. Recent attempts to raise the pension age have not gone down well, and the president faces falling opinion poll ratings. Russia is arguably happy with the current state of affairs, but may be persuaded of the benefits of cutting production in return for higher prices. A smaller than expected cut, however, might have the opposite effect, sending prices lower and resulting in lower output for Russian wells. This would not go down well in Moscow.   The rest of OPEC Saudi Arabia could look to persuade other members to cut production. Nigeria and Libya were left out of the last round of cuts, due to the fact that their output was still recovering after shocks arising from political troubles.  But both are keen to keep producing to boost state revenues, while others like Iraq and Iran are also rather cool on the idea of reducing output. Saudi Arabia faces a tough task convincing the rest of the cartel to cut output, particularly if it does not set out its own production cuts. All trading involves risk.   Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading Spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Professional clients can lose more than they deposit.

The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.   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. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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.   Prepared by IG Markets Ltd.    

MaxIG

MaxIG

Inverted Yield Curves -APAC brief 5 Dec

Written by Kyle Rodda - IG Australia Inverted Yield Curves: There’ll probably be a lot of talk about “inverted yield curves” and “recessions” today. For some, reading such headlines will come as a shock. Perhaps even a cause of anxiety. It’s wise to understand why such commentary has emerged – and what that may imply. The price action in US Treasuries has been quite dramatic in the past 24-hours: the (what ought to be) familiar themes regarding a looming global economic slow-down, and the prospect of softer future US inflation has seen traders cut their predictions of future rates hikes from the US Fed. The short-end of the yield curve – the end which is more exposed to the near-term actions of the Fed – has held up well; but it’s the middle-to-end of the curve – the part controlled very much by traders’ expectations about future growth and inflation – that is experiencing the greatest duress. What it all means: In short: traders are anticipating an imminent end to the Fed’s hiking cycle, and they are now trying to approximate when the Fed may cut rates again.  This is where the talk of recession starts to pop-up. As is easy enough to grasp, the Fed would need to cut rates in the event that the economy requires stimulatory support from monetary policy. Such circumstances would emerge if the economy began to slip into something resembling a recession. Hence, when yields at some point in the curve invert, it’s a reflection of traders collectively estimating that in the near-enough future, interest rates will be lower than what they are (around about) now, because the economy will enter into a period of significant weakness to require a rate cut from the Fed. No reason to panic (yet): It sounds quite ominous when the mechanics are explained. It’s doubly as bad when one considers the last time the US went into recession, it was the GFC. We all have memories of how dire that stage of history was. However, any fears elicited by talks of recession and everything that comes with it must be moderated by some counterbalancing arguments. Indeed, an inverted yield curve has portended the last 9 out 11 US recessions, but the time-lag between yield-curve-inversion and a recession should be noted. After an inversion of the US 2 Year Treasury note and the 10 Year Treasury note (the spread on these two assets being the most popular barometer for the phenomenon) it’s not for another 12-18 months that a recession is realized. US growth is solid (for now): So: while financial markets will be whipped into a frenzy about what is going on – especially as safe-haven assets like US bonds are gobbled-up as risk appetite wanes – the effects on the “real” economy are unlikely to manifest in the all-too immediate future. And justifiably so: global growth is waning, and it is not as synchronized as it was in 2017, but at least in the US, economic indicators remain relatively strong. The labour market, which is in focus this week with Non-Farm Payrolls figures released on Friday, is still very tight, leading to gradual wages growth; quarter-on-quarter GDP is still around 3-and-a-half per cent; and although business conditions are cooling, Monday’s release of US Manufacturing PMI still posted a much better than forecast result. What triggered the panic: It begs the question what precipitated this bearishness overnight. In financial markets, an underlying dynamic – such as that which has been experienced in the last 24 hours – may well be present, but it requires a catalyst to ignite it into full motion. Last night’s jitters, in a macro-sense, were brought- about by a slew of disappointing news. The post-G20 rally has been faded, as traders question the longevity and substance behind the so-called deal between the US-China, after several top White House advisers failed to substantiate what outcomes have been agreed upon between the two trade-waring nations. The trade related pessimism was exacerbated by renewed concerns regarding Brexit, and the apparent inevitability of an economically disruptive “hard-Brexit” outcome. Risk-off, havens-on: A rush to safety, and a subsequent liquidating of positions in riskier assets, has occurred. Touching again on US Treasuries: the yield on the benchmark 10 Year note has plunged to 2.91 per cent, and on the 2 Year note it has dipped to 2.80 per cent, taking the spread there to a narrow 11 points. Equities have been slaughtered, unwinding a considerable amount of last week’s gains: the Dow Jones is off 2.73 per cent, the S&P500 is off 2.3 per cent, and the NASDAQ is off 3.3 per cent (with an hour remaining in trade). The USD has climbed on its haven appeal, as has the Japanese Yen, which is back into the 112-handle, though gold has also rallied, despite the stronger greenback, to $US1238 per ounce. While in other commodities, copper is down 1.8 per cent, and oil is flat (this, leading into Thursday’s OPEC meeting). Australia today: SPI futures are predicting another punishing day for the ASX200, with that contract at time of writing indicating a 52-point fall for the local index. The heavy hitting financials and materials sectors will probably struggle today: the former due to this tumble in bond yields, the latter as traders unwind the growth optimism piqued by the weekend’s G20 meeting. In line with overseas markets, defensive sectors could be the play today, though a day similar to yesterday which saw 10 out of 11 sectors in the red on 17.5 per cent breadth shouldn’t be discounted. It’s GDP day today, and that should be watched closely, especially after the RBA at its meeting yesterday talked up the growth prospects of the Australian economy. Whatever the result the numbers produce – forecasts are for annualized growth at 3.3 per cent – it will unlikely shift Australian equities. The interest will be on the Australian Dollar and interest rate markets – the A-Dollar fell below 0.7350 again last night as risk-proxies were dumped – however the likelihood rates traders will bring forward their RBA-hike expectations in from 2020 is rather slim.

MaxIG

MaxIG

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