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Will the US midterm elections result in a political Gridlock? - EMEA Brief 6 Nov

The US Dollar is holding within tight margins as investors are showing discretion ahead of the US Midterm elections that take place today. The Dow closed up 190.87 points at 25,461.7 and the S&P rose 15.2 points closing at 2738.31 led by the financial and energy sectors. The Nasdaq fell 0.38% lower at 7328.85 as Apple and Amazon both fell more than 2% Apple has had its second downgrade since its earning report last week, as Rosenblatt Securities followed Bank of America Meryll Lynch in downgrading Apple from buy to neutral. After this second downgrade, the stock fell 2.8% to $201.59, accumulating a loss of 9.2% since the earnings report.  Berkshire Hathaway earnings beat expectations after announcing a $1billion buy-back, sending a strong signal to the market, and closing on Monday at $216.24, up 4.68% Italian Bank shares have suffered a hit as Banco BPM fell 3.4%, UniCredit fell 1.6%, Ubi Banca fell 1.8% and Intesa Sanpaolo fell 2.2% on the back of Goldman Sachs downgrade on Friday. The drop in Italy’s main banks shows a continued uncertainty of the country´s short-term future as the government continues to challenge the European fiscal rules. Inflation has risen 15% yoy in Turkey after pressure to lower interest rates in order to induce spending and economic growth to overcome the country´s “currency crisis”. Uranium prices have hit a 2.5 year high as producers have started to invest in new plants as the demand for nuclear power increases. The price of Uranium has risen by 40% from its lows in April.  Crude oil prices continue to fall as continued sanctions and concerns over economic slowdown take their toll on carb fuel demand. Asian overnight: A mixed Asian session has seen the Chinese markets providing the sour note on an otherwise bullish period. Japanese household spending tumbled to -1.6% against expectations, while the RBA kept rates unchanged as widely predicted. However, with recent volatility to consider, the session has been a largely positive and stable one for Japanese and Australian stocks in particular. UK, US and Europe:  The midterms are the general elections that are held near the mid-point of a president's four year term of office, it is a combination of elections for the US Congress, governorship and local races. The results will be seen as a sentiment towards Trump's presidency and his accomplishments, and historical results show that disgruntled voters use the midterms to punish the party in power. Whilst the Us economy is booming with low unemployment rates, Trump's tax cuts for corporations have increased the country's deficit by 33% in the last year. Immigration will be a decisive issue in the voting taking place today, as the Democrats have tried to pull in minority votes by criticizing Trump's "zero-tolerance" policy towards immigration. It is expected that the markets have already factored in an increase in “blue representatives” as it is expected that Democrats will regain control of the House of Representatives and the Republicans will maintain the Senate, resulting in a government gridlock, which has historically seen positive reactions from the US equities markets.  The extent of the gains will depend on the potential change in the House as it has decision over social and economic structures. A result that gives the Republicans full control could be seen as positive for the equity market as there could be further fiscal stimulus and tax cuts. On the other hand, if the democrats gain control of both the House and Senate, which is seen as less likely, would likely lead to a negative sentiment in US equities as they could reverse some of the policies in place to boost the short-term economy. An equally impactful situation on the markets would unfold if the future representatives is left unclear after the elections as uncertainty would affect the market sentiment. It is likely that the US Dollar could rally if the result of the elections give full control to the Republicans as Trump's economy boosting policies will continue. On the other hand, the US dollar is expected to fall in the short-term if the elections result in a political gridlock, with the dollar taking further hits if the Democrats regain full control. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 21.45pm - NZD Unemployment rate for the 3rd quarter: expected to fall from 4.5% to 4.4%. Corporate News, Upgrades and Downgrades Wm Morrison saw Q3 sales rise 5.6%, with positive like-for-like for three-years. Interestingly, the wholesale business is also a big performer, growing 4.3%. Same store growth came in at 1.3%. Randgold Resources saw Q3 profitability rise after a round of cost cutting (down 10%), with profits for the three months to September rising 21% on-year to $73.2m. Much of that period saw the company’s Tongon mine in Ivory Coast on strike. Randgold shareholders will vote on Wednesday after a takeover bid from Barrick Gold. DS Smith expects to see a first-half operating profit well ahead of the previous year's result, as the company continues to raise prices to account for increased input costs. KPN upgraded to Buy from Neutral at BofAML 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

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

What will happen to the price of bitcoin if the SEC approve an ETF?

Cryptocurrencies have been going through a period of relative stability, which is almost unheard of for the asset class that gained notoriety for its volatile price movements. The stock market selloff that punished the tech sector in the first half of October coincided with Bitcoin losing 7.5% of its value in a single day. Does this correlation in market movements suggest that as Bitcoin and other cryptos have become more mainstream, and adoption by centralised financial institutions has risen, the price is now at the mercy of the same institutions and financial markets it was seeking to circumvent? Or could the selloff be more indicative of general investor sentiment at that time when confidence in the markets was low? One interpretation of the current market movement suggests that the correlation between the crypto class to the major indices are largely unrelated. This interpretation may be supported by the fact that as the more traditional markets have continued to fall through October (with tech having its worst month in a decade) bitcoin’s price action has remained stable, whilst simultaneously seeing a 17-month low volatility rate, even with yesterday’s 2% fall. Technical analysis of the price of Bitcoin shows that the coin was hitting its resistance line and the markets were already likely to turn bearish. The below chart illustrates a falling wedge formation with an almost horizontal support of $6000 that has developed since the February market sell off which shows bitcoins price consolidate and volatility reduce. The wedge shows that the support and resistance lines are expected to congregate by early November but it’s important to remember that a breakout can occur at any time as the price boundaries tighten as investors may take any breach of these lines as an indication of the future price of Bitcoin over the medium to long term. The fake-out of Monday the 10th suggests that investors are poised for any news that can drive price action.      Coinciding with this November timeline is a deadline set by the SEC to allow the public to submit opinions on whether to allow Bitcoin ETF’s in the United States. The deadline, which has been moved from October 26th to November 5th follows the SEC’s original decision to reject the ETF’s citing a lack of compliance to prevent market manipulation. This decision by the securities authority could fundamentally define how investors perceive the currency as a further integration into financial markets is either halted again or finally given the green light. The ability for this type of announcement to move prices should not be underestimated as bitcoin hit its all-time high just six days after the first Bitcoin futures contract was announced by the CBOE. Granted this happened during an upwards trending bull market, but it undeniably added to that movement. The announcement to review the initial decision just one day after rejecting the first application, as well as a published statement of official dissent by commissioner Pierce of the SEC, could indicate a potential swing in judgement from the SEC. However, this may not represent a full shift of opinion by the commission as it only takes one commissioner to open a review. Following the deadline, an official decision will not come from the SEC until they have had a chance to review the public submissions, but investors will be listening intently for any early indication of how the decision might go. More recently, reports that some of the concerns that the SEC have over introducing the ETF have been mitigated by the organisations producing the ETF’s have saw speculators expectations heighten for a prospect that at one point seemed rather unlikely. The concerns of the SEC include market liquidity, volatility, pricing and market manipulation. However, proponents have argued that the SEC’s demand for a ‘significant’ futures market allowed them to be non-committal as they have not defined what they classify as significant. The imminence of impending large technical and fundamental focal points implies we may be on the brink of a spike in volatility but what price can investors reasonably expect the currency to move to if the market were to shift? The previous decision by the SEC preceded a $400 dip in the price of the coin in one day and fell back down almost $2000 in the following two weeks to the previously mentioned support level of $6000. Speculators may be hoping a reversal in the decision could see Bitcoin return to $8000 or higher. It’s hard to predict how low the price could go as these prices haven’t been seen since before the all-time high but proponents of the technology wishing for continued stability will be hoping that the lack of a bitcoin ETF is already priced into the market.  

IGAaronC

IGAaronC

Week starts soft: APAC brief 13 Nov

Written by Kyle Rodda - IG Australia Week starts soft: Global equities are down to start the new week. The stories driving the overnight moves are slightly different, but the themes remain the same: the dual risks of higher global interest rates and the prospect of slower global growth has put the bears (at least momentarily) back in control. It can feel repetitive to keep having to reel-off this story. Slower growth, higher rates, slower growth, higher rates – the message keeps echoing throughout markets, giving market participants a sensation of vertigo. Although it must feel trite, the inescapability of the slower growth and higher rates mantra speaks of the gravity of each concern. The fact is, markets are a smidgeon away from being half-way through November, and for most major-global stock indices, the recent ructions in equity marks means that the year has delivered nothing in return. Fears of peak growth: Now of course, to reduce the return on equities to the gains and losses delivered from January 1 to now is far too simplistic. For the many who have been in the market longer than that, or for those who have timed their run well, the year has provided ample opportunities to attain a fruitful profit. The point is however that whatever the market has been able to bequeath to the individual trader or investor, overall, equities are looking increasingly like they have hit their peak for this cycle. This is far from assured naturally and speaks only of a developing consensus – mere perception, quite possibly -- amongst market participants. However, considering how long investors had to wait for these condition, the many distractions that have enervated market activity in the second half of this year has led many to the belief that an opportunity has been squandered. Wall Street: It’s this frustration that underpinned market sentiment overnight. Big tech was once again the biggest loser on global stock markets, with the NASDAQ down by over 2 per cent, and the broader S&P500 down 1.13 per cent, at time of writing. The sell-off in the tech giants has pushed the P/E ratio across the NASDAQ, below 40/1 once again. Volumes have picked up throughout the day in US trade, but they have been hindered by the absence of bond-traders in the market due to the US Veteran’s Day holiday. That has deprived traders of the ability to assess the information contained within US Treasury yields – likely adding to the negative tone of US trade. Despite activity in rates and bond markets being subdued (if not totally missing), the US Dollar has flexed its muscles, touching a near-18 month high and looking primed to burst higher from here. Currencies: Much of the strength of the US Dollar, it must be said, is emanating from a much weaker Euro and Pound. Geopolitics and its economic ramifications (typically) dictated trade in European markets yesterday, pushing the DAX down 1.77 per cent, and dragging the FTSE (which did find some very limited support from a weaker currency and a bounce in oil prices) 0.74 per cent lower. The state -of -affairs of the European economy still appears ugly: there was a flaring of anxieties regarding the Italian fiscal crisis yesterday, which lead to a widening of bond spreads across the region; while the hope that a Brexit deal will be delivered by the end of the month is waning. It was these two narratives that drove EUR/USD below support at 1.1310, to presently trade just below 1.1250; and dragged the GBP/USD deep into the 1.28 handle, once more. Asia: The stronger US Dollar coupled with the “weaker global growth” narrative has seen the Aussie Dollar shed about half-a-per-cent, likely in sympathy with the offshore-yuan, which has plunged back into the 6.96-handle. This comes despite a solid day’s trade throughout the Asian region: although far from the strongest day we’ve seen from Asia’s equity indices lately, the CSI300 managed to add 1.19 per cent for the day, the ASX200 managed to close 0.33 per cent higher and above key-resistance at 5930, and the Nikkei and Hang Seng finished the day up 0.1 per cent on very thin volumes. Sentiment was probably given a boost by the massive “Single’s Day” in China – that generated approximately $US31b worth of sales in the space of 24 hours yesterday – however, the benefit was short-lived, with European and US traders from the far greater fundamental challenges facing the Asian region. ASX200: SPI futures are indicating a 57-point plunge for the ASX200 this morning, weighed-down by the weak lead from Wall Street, combined with the jump in implied volatility courtesy of the concerns surrounding global growth. The materials and health care sectors led the market higher yesterday, offsetting the fall in the financial sector caused by ANZ trading ex-dividend, in a day that saw breadth at a solid 60 per cent. Softer commodity prices and potential bearishness in Chinese equities present as the challenges for Australian shares in the day ahead. Copper prices have been dumped 1.6 per cent overnight, gold has fallen victim to the stronger greenback to challenge support at $US1200 per ounce, and oil has dipped by 1.4 per cent in Brent Crude terms – boding all in all poorly for the materials and energy sector in the day ahead. Oil update: Another oil update is certainly required this morning, after the sensitive politics of the black-stuff became inflamed overnight. It didn’t take long for it to happen: with all this talk coming out of OPEC of supply and production cuts in 2019 over the weekend – the result of which was enough to break oil’s 10 day losing streak yesterday – US President Trump waded into the issue via Twitter last night, tweeting “ Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” The comments from the US President – made only a matter of hours ago – has dumped the price of Brent Crude to a new 7-month low, and the price of WTI to a 10-month low, as traders seemingly increase bets that the US may boost oil production to offset reduced supply from OPEC+ if they were to occur.

MaxIG

MaxIG

Weaker sentiment - APAC brief 19 Nov

Weaker sentiment: Risk aversion continues to plague global markets. Despite some positive developments on Friday regarding the US-China Trade War and US Federal Reserve policy, confidence appears to be lowly, resulting in a general flight to safety. It was telling that the NASDAQ couldn't close higher along with the Dow Jones and S&P500 on Friday: the desire to jump into growth stocks keeps diminishing in this market. It raises the risk that market participants have internalised the idea that now is not the time to be chasing capital gains in high-multiple shares. The momentum chasers are being unquestionably washed out of the market, with punters changing strategy from one of "buy the dips" to "sell the rally". Missing conviction: It can be at these points in which moves to the downside are exaggerated because of an overall bearish bias. Assessing volumes are a terrific indicator of this, and currently and on balance, the days when Wall Street closes higher has generally coincided with days when volumes are relatively thin. The dynamic implies a lack of conviction from the buyers and sets up opportunities for aggressive sellers to profit from rallies in the market. The ASX200 demonstrated this well on Friday, where after a rather volatile week that ended with the index closing 0.10 per cent lower, intraday rallies in Aussie shares were flimsy and quite fleeting, revealing a tangible unwillingness by traders to take long positions in this market. Less information, more volatility? It will be curious to see how this theme holds in the week ahead. There is such a dearth of fundamental data: the economic calendar is light and US earnings season is effectively done-and-dusted. Traders will have no choice but to focus on the handful of significant geopolitical stories playing out, all in the backdrop of continued speculation about the very core concerns regarding US interest rates. It's a recipe with all the ingredients for a volatile week, if market participants struggle to price in the many vacillating variables moving markets. Watching how the VIX behaves will be the starting point for many-a trader, to get a gauge on to what degree fear and uncertainty exists. Geopolitics: It's conceivable that a new development in Brexit and/or the Trade War could shift sentiment very rapidly. There is a sense a breakthrough -- whether positive or negative for markets -- is upon us in both of those issues. Theresa May's Prime Ministership and her Brexit deal will face an existential threat this week, the possible outcome being a successful no-confidence motion in the Prime Minister, and subsequently the death of her Brexit deal. Trade War negotiations have ostensibly improved, however there are many mixed messages coming from both the US and Chinese governments regarding what this month's planned meeting between Chinese President Xi Jinping and US President Donald Trump at the sidelines of the G20 will yield. Slight to safety: An absence of certainty and clarity on both subjects has traders seeking safety. US Treasuries have rallied, with the yield on the 10 Year note falling to support at 3.07 per cent, a break of which could open downside to 2.95 per cent. The Japanese Yen has also been bid-up, closing last week's trade at 112.83, while the EUR bounced back above 1.14 -- and the GBP recovered some of its losses -- causing the US Dollar Index to pull back. Gold prices have spiked consequently, trading at $1222 per ounce. Other commodities have been supported by a lift in optimism regarding the trade war, with Copper and aluminium closing last week high, however oil prices still appear vulnerable to the downside, as concerns of a global over supply persist. The Aussie pops: Bringing it back closer to home: the Australian Dollar has been a major beneficiary from the weaker greenback on Friday. The Aussie Dollar has broken resistance at 0.7310, to open upside now toward the 0.7450 mark. The trend of US Dollar strength ought not be considered over yet: the yield advantage of holding US Dollars remain and looks likely to persist as the Fed maintains its rate hiking cycle. The tremendous amount of short positioning in the Australian Dollar (still), however, means that a continued pop higher in the A-Dollar is possible, before the more structural factors relating to interest rates differentials reassert themselves. In the week ahead, any sign of a step forward in trade negotiations could fuel an Aussie Dollar rally, with the inverse naturally true if trade negotiations sour. ASX today: Finally, the price on SPI futures is indicating a 17-point jump at the open for the ASX200. As alluded to earlier, a read on volume could be valuable today, especially if the market experiences upside. Of course, being a Monday, it will likely read lower irrespective, so perhaps the question should be to what extent volume deviates from the norm. The short-term trend is lower for the Australian share market and should probably considered so until a significant run back and beyond 5930 is achieved. A reason to buy into the market will be required to achieve this - something today is unlikely to deliver. Looking at the key sectors that drive the ASX200 and the narratives shaping their activity, briefly: the financials could find themselves supported today by a small army of bargain hunters, but another poor showing from Aussie property on the weekend plus more from the Royal Commission this week could drag on the banks; a sluggish day for the NASDAQ on Friday could indicate weakness in the high-multiple healthcare stocks; while the modest lift in commodity prices to end last week, along with the very slightly brighter outlook in the trade war, may benefit the miners.

MaxIG

MaxIG

Volatility lower; risks remain - APAC Brief 12 Nov

Written by Kyle Rodda - IG Australia

Volatility lower; risks remain: Financial markets face far fewer risk events this week, but as has been repeatedly observed in recent months, that does not preclude the possibility of ample volatility. If anything, with so much global economic and political uncertainty at present, the absence of news can make already murky circumstances appear murkier. Traders are still jumpy and rather trigger happy, though implied volatility has been downgraded over the last week, primarily due to the passing some highly significant risk events. Last week's US mid-term elections delivered the outcome markets were expecting -- which in and of itself is perhaps the best outcome of all. While the FOMC stuck to their guns and kept market participants on notice: more than a major stock market correction is required to shift this Fed from its rate hiking path. A familiar story: The ability to price in – at the very least into US equity markets – the result of what was last week's two most significant events has undoubtedly been welcomed by punters. Each event cast a different light on the state of markets, with neither inspiring a great deal of bullishness. It was a sense of cautious relief, it must be said, that nothing too extreme came out of them. Ultimately, the Fed's meeting – which is far and away the more fundamentally important force in markets – provided little to the Bulls to be excited about: it reinforced the internal contradiction (pun intended) present in financial markets currently: strong economic fundamentals are finally feeding into wages and price pressures, meaning the Fed must hike rates, quite possibly at the expense of the upward momentum in stock markets. North American session: Wall Street dipped based on this on Friday. The increasingly familiar dynamic played out again: the prospect of higher interest rates gets priced into rates markets, and subsequently into US Treasury yields, weighing down equity markets, which spark a risk-off flight into US Treasuries, bidding-up that assets' price. The yield on benchmark 10 Year US Treasuries fell over 5 points on the day, as the growth laden NASDAQ fell 1.65 per cent, leading the S&P500 and Dow Jones down 0.92 per cent and 0.77 per cent respectively. The US Dollar climbed on the risk off play – as did (modestly) the Japanese Yen and Swiss Franc – driving gold prices down to $US1209 per ounce and pushing riskier assets like the Australian Dollar back-down to the 0.7226 mark. US data this week: The week ahead presents the possibility that this variety of market activity will manifest, even if only in brief patches, once again this week. As alluded to, economic data and event risk is much lighter, however some key releases of relevance to Fed policy leap from the calendar. Most significantly, US CPI data will be published on Thursday early morning (AEDT), prefacing a speech to be delivered by US Federal Reserve Chairperson Jerome Powell hours later, along with US Retail Sales figures the day after that. Inflation risk has entered the equation in a real way for market participants for the first time in years. While the US data releases this week could print and pass-by with very little reaction, considering the nervousness in financial markets at present, an awareness and preparation for possible spikes in volatility may be prudent. Europe: The end to Wall Street's week followed on from declines in European indices, which fell predominately for the same reasons as their US counterparts. The start of the week will be no less un-friendly than end of the last for European markets, after news, post the trading week's close, that UK Prime Minister Theresa May's latest Brexit proposal has been slapped down once again by the European Union – prompting (allegedly) that four more members of Prime Minister May's cabinet will soon resign. The developments open further downside in the EUR and GBP, which had already plunged further into the 1.13 and 1.29 handle even before this information was known. Oil: Arguably the most significant and news worthy price action occurred in oil markets towards the end of trade last week, as fears around slower global growth coupled with growing concerns of a supply glut pushed the price of WTI to $60.00 and the price of Brent Crude to $70.00. The tenth successive day of falls in the price of oil mark the longest daily losing streak for the black stuff in history, leading OPEC+ to call fall production cuts within oil producing countries. The situation could prove a political hot topic in the months to come: Western leaders (particularly US President Donald Trump) have maintained their vocal desire for lower prices, while the members of OPEC continue to struggle to organise a coherent view of what oil output ought to be given the current global economic and geopolitical back drop. ASX200: SPI futures are at time of writing indicating the ASX200 will recede further from the key 5930 support/resistance level and dip 37 points at today's open. This comes following a thin day's trade for the Australian market on Friday, which saw the ASX200 close 0.5 per cent lower on volumes once again below the 100-day average. Trade across the Asian region didn't deliver much for the Bulls: a weaker Yen failed to translate into gains for the Nikkei, dropping over 1 per cent instead; and Chinese indices dropped by nearly one-and-a-half per cent, and the Yuan slid through 6.95 on occasions, due to reduced optimism about a trade deal eventuating between the US and China. The ASX200 heavyweights appear set to face familiar headwinds today: auction clearance rates were again poor over the weekend, adding to fears about the potential effect the property market slowdown will have on the big banks; sluggish activity in Chinese equities and industrial commodities markets in general have amplified fears regarding global growth and its impact on the materials sector; and a lull in risk appetite has stifled the enthusiasm for growth stocks, diminishing the attractiveness of the local health care darlings. These separate narratives aren't new to market participants, and as always could quickly flip based on the vagaries of the market; but nevertheless, it appears they are for now enough to put the ASX200 on the back foot to start the week.

MaxIG

MaxIG

Volatility - APAC brief 11 Oct

Volatility is up, and risk appetite has been dulled. The VIX traded towards the 22 figure overnight, while currency safe havens such as the Yen were sought amid a somewhat remarkable sell-off across global equities during the European and North American sessions. It’s a matter of markets continuing to adjust to a world of higher interest rates and US Treasury yields – coupled with the expected panic when prices recalibrate to evolving fundamentals. A strong enough argument can be made that we are witness the beginning of the end for the US bull-market: there’s no shortage of voices out there suggesting so. It stands to reason that perhaps riskier plays into growth stocks should be replaced by more conservative investment strategies – say, by rotating into defensive, higher yield stocks. The idea holds merit, but a few days of selling on the back of a less than assured spike in global bond yields isn’t a cogent enough argument to abandon all risk-taking.     North America: Wall Street has demonstrated a broad-based sell-off. Once more: investors are adjusting to changing fundamentals in the face of higher global rates. Sectors with what may be dubbed stretched valuations are struggling, unaided by the kick-up in discount rates and unattractive yields. The tech-sector, embodied by the NASDAQ, has delivered the most significant losses for the US session, down in the realm of 4 percent; but the Dow Jones and S&P isn’t far behind, down about 3.1 per cent and 2.6 per cent (give-or-take) themselves. The sectoral map across all three of these indices is painted a rich red today:  traders are apparently grabbing cash here, liquidating what they can before they get lost in the herd.   The end of a cycle? When markets experience the sorts of structural shifts being witnessed in the last fortnight-or-so, falling back on conventional wisdom can be illuminating. Not to say it provides the answers, but more so that historical knowledge can be drawn upon to show nuance and contrast in the haze of the present moment. What of the economic cycle here? The rationale behind traders’ behaviour might be described as a response to the ever-beating mechanics of the macro-economic process. The Fed is raising rates and growth is apparently reaching a peak, meaning that upside for capital growth may be diminishing. Turning these gains into cash and distributing profit could be the smart-money driver of equity markets, in the expectation that little more can be reaped from what has been sowed.   Upside exists: While compelling, markets function at the influence of far too many distortions to rest on the belief that we are end of cycle. The Fed’s unwinding balance sheet and progressive interest rate normalization is an act without precedent: cycles have been bent and interfered with, making prices a less reliable indicator of financial market phenomena. It’s in part why a sell-off such as the one witnessed in Europe and North America overnight elicits such nervousness. Markets can’t be sure what was once true still applies. In digesting the US experience and how it relates to Fed policy, it must be counter-balanced with notion that global monetary policy is still very accommodative. Granted, this is less so than 4 or 5 years ago, but in the grand scheme of things, with Europe and Japan still in negative interest rates, not to mention a Chinese government with a stimulus bias, reason to believe markets remain well supported are ample.   Bears abound: It’s intermingled with other concerns, for sure, so a bearish sentiment permeating markets is easy to understand. Mystery still reigns regarding the health of China’s economy, and the European Union and the economic zone it presides over looks inherently unsound. European markets participated in the equity market dumping, sucked into that black-hole by widespread panic selling, driving the DAX and FTSE down 2.2 per cent and 1.3 per cent respectively. Rates and bond markets de-risked slightly, however, boosted by the news that key Brexit negotiator Michel Barnier believes a Brexit deal could arrive as soon as next week. The pound has flown toward 1.32 while the EUR is sustaining itself at 1.1520, supported by a diversifying of risk across G4 currencies in response to the night’s equity rout.   Asian equities: The Chinese growth story may be the biggest determinant of the Australian share-market’s fortunes, however: slow growth in China means slow growth in Australia, so the ASX200’s sell-off this month can be explained-away easily when also factoring the raucous activity in global bond markets. The technicals become interesting for the ASX200 here, especially given that SPI futures are pointing to a dumping this morning, with weekly trend-line resistance at ~5860 in risk of being breached. For investors with a preference for the Asian region, attractive valuations abound, explaining the little jump in the Hang Seng yesterday, with investors lured into an appealing P/E ratio across that index below 10:1. Similar valuations exist in Chinese shares, offering a high-risk-high-reward dynamic for investors: a strong will is a requirement before jumping into Asian markets however, because volatility will stay the norm.     The Middle Kingdom: China will struggle for as long as the trade-war rages, but on balance policy markets appear well equipped to tackle the matter. Overnight it was announced that the Chinese government would include a greater number of financial institutions “systemically important” (read: too big to fail), to offset the weekend’s credit-boosting endeavour of cutting the Reserve Ratio Requirement. The slip of the off-shore Yuan to around 6.93 last night also suggests the PBOC will calmly and gradually let the currency ease to support China’s growth. Although lost in the bloodbath last night, commodities prices, down on aggregate apparently due to the tumble in oil, are displaying signs of some green shoots: industrial metals are broadly of off their lows, suggesting some signs of optimism toward Chinese growth and the region’s markets.

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.  

JasmineC

JasmineC

USMCA replaces NAFTA, CAD rises - EMEA Brief 1 Oct

The U.S. and Canada agreed to a trade deal that would preserve a three-way bloc with Mexico, setting the stage for their leaders to sign the accord by the end of November. The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA. Mexican peso and Canadian dollar gains as uncertainty is lifted and greater stability takes hold of the Americas. The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. In the UK this week the Conservative party is holding its annual conference. Brexit talks are bound to be high on the agenda and could cause some volatility as the narrative continues to play out. Hammond could also add flavour to this years budget which could hint at trading opportunities to come. Tuesday sees a speech by Jay Powel. After the Feds interest rate rise last week speculators will be looking at any hints they have on monetary policy. Asian overnight: A somewhat mixed session overnight has seen the Japanese markets push into the green, while the Australian ASX 200 provided the opposite move in the absence of Chinese and Hong Kong markets due to national holidays. Weekend data from China did little to raise confidence for Australian stocks, with the manufacturing PMI and Caixin manufacturing PMI both declining. The non-manufacturing PMI survey did rise, yet Australian concerns are certainly focused on the manufacturing sector as a lead to how their exports markets will fare going forward. Finally, the Japanese Yen declined on the news of weaker figures for the Tankan manufacturing index, non-manufacturing index, and manufacturing PMI. UK, US and Europe: The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. Italian Finance Minister Giovanni Tria is certain to face questions about the nation’s 2019 spending plan even though it’s not on Monday’s Eurogroup agenda in Luxembourg.  Theresa May faces the battle of her political life to retain control of the governing Conservative Party as top Tory politicians undermined her leadership. After arch rival Boris Johnson went for the jugular, Chancellor Philip Hammond swept in to defend her in an increasingly chaotic political scene. Looking ahead, we have a host of economic PMI releases from Europe, although for the most part they are final readings. That being said, the UK manufacturing PMI is one of the few figures that represents the first release for the month, with markets looking for a marginal decline. That PMI theme carries into the US session, with manufacturing figures from both Canada and the US. Given the breakthrough in NAFTA negotiations, expect to see continued volatility for the Canadian dollar and Mexican Peso.  South Africa:  The Jse Allshare Index is expected to open firmer amidst today's positive global equity market sentiment. Commodity prices are trading marginally lower and the rand slightly weaker as the dollar finds some short term strength. BHP Billiton is down 0.1% in Australia, suggestive of a flat to slightly lower start for local diversified resource counters. Today's economic calendar is light in terms of scheduled data releases, with UK and US manufacturing data perhaps the most relevant catalysts to look out for today.   Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK mfg PMI (September): survey forecast to rise to 53.8 from 52.8. Market to watch: GBP crosses 3pm – US ISM mfg PMI (September): forecast to fall to 60.5 from 61.3. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades Tesla likely to dominate headlines today as the SEC ruling that Elon Musk should stand down as chairman (but maintain his CEO position). Nielsen Interim CEO of Danske as Borgenfor relieved following money laundering scandal. Assura continued to grow during the first half of the year to 30 September 2018, completing the acquisition of 39 medical centres and two developments at a combined cost of £108.2 million. HNA Group Co. shrinks debt by $8.3 Billion. More needed to regain trust of investors. TMX Group earnings release above expectations. Barclays upgraded to buy at Berenberg
Castings upgraded to buy at Peel Hunt
Thomas Cook upgraded to hold at Berenberg
Kaufman & Broad raised to hold at Kepler Cheuvreux AB InBev downgraded to hold at Jefferies
EasyJet downgraded to underperform at Bernstein
Sampo downgraded to neutral at JPMorgan
Telecom Italia cut to underweight at Barclays IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.  

IG-Andi

IG-Andi

USD soft going into FOMC - EMEA brief 5th July

Asian markets fall for the fourth day and major currencies are generally trading in a tight range.  MSCI Asia-Pacific index down 0.5% whilst Japan's Nikkei (the Japan 225) loses 1%. USD slightly softer going into US Initial Jobless Claims and FOMC minutes later today. Gold is holding steady before Fed minutes, whilst copper and zine are stuck near their one year lows on trade woes. Oil prices fall as Trump slams OPEC on twitter and blames the cartel for rising gas prices. This issue has been raised a number of times over the last few weeks as it could cause a major issue for the 'Trumphouse' going into the November midterms. Meanwhile China's duty on U.S. crude looms. Goldman Sachs are still bullish on Commodities as a whole and believe trade war fears have been overdone. "All of these concerns have been oversold. Even soybeans, the most exposed of all assets to trade wars, is now a buy." Clarification by the FCA on PPI compensation could means UK banks may have to add to the £45bn they’ve already set aside for claims. FMOC later today. Asian overnight: Asian markets traded lower once more, as market sentiment continues to suffer in anticipation of the impending Sino-US tariffs on $34 billion worth of goods. Yesterday’s tweet from Donald Trump calling for lower oil prices has had a knock on effect to the equity markets and tempered some of the gains seen through the week thus far. UK, US and Europe: Looking ahead, the focus shifts from the UK to the US, with yesterday’s Independence Day meaning we will see markets on the other side of the Atlantic play catch up with Europe. Appearances from BoE governor Carney and ECB member Mersch will be the highlights for Europe, with markets more focused on the plethora of data points out of the US. ADP payrolls data, composite, manufacturing and services PMI figures in the afternoon pave the way for the latest FOMC minutes. Keep an eye out for the dollar for the impact of the days economic releases, while stock markets will be closely followed for how much they will follow yesterday’s lead in Europe. South Africa: After yesterdays public holiday, US futures are trading flat this morning while Asian markets continue to find short term pressure lending itself to a flat to lower start on our local bourse this morning. The dollar is trading relatively flat while commodity prices, which have a relatively large impact on the local SA index, trade mostly lower ahead of the US implementation of trade tariffs on China. BHP Billiton is trading 0.54% lower in Australia furthering the notion that we will see a softer start on locally listed resource counters today. Tencent Holdings is trading 0.5% lower on the Hang Seng, suggestive of a similar start for major holding company Naspers this morning.  Economic calendar - key events and forecast (times in BST) 1.15pm – US ADP employment report (June): expected to rise to 180K from 175K. Markets to watch: US indices, USD crosses 1.30pm – US initial jobless claims (w/e 30 June): forecast to be 221K from 227K. Markets to watch: US indices, USD crosses 3pm – US ISM non-manufacturing PMI (June): forecast to fall to 58.2 from 58.6. Markets to watch: US indices, USD crosses 4pm – US EIA crude inventories (w/e 29 June): expected to see stockpiles fall by 1.6 million barrels. Markets to watch: Brent, WTI 7pm – FOMC minutes: these will provide further insight into the Fed’s decision to raise rates, as well as the shift on the committee that resulted in the dot-plot suggesting four rate hikes in 2018, from the previous three. Markets to watch: US indices, USD crosses Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades China’s ZTE has received a 30 day trade ban relief from Trump. The US provide a third of the components needed by the smartphone manufacturer who have seen a 60% decline in share price wiping off $11bn from the company valuation since the trade war talks. Anglo American sees volatility spikes on take over rumours. Anglo American Platinum Limited (SA) has accepted an offer from Royal Bafokeng Platinum Limited ("RBPlat") to purchase its 33% interest in the Bafokeng Rasimone Platinum Mine joint venture (“BRPM JV") for a total purchase consideration of R1.863 billion. Associated British Foods said its full-year outlook was unchanged, as improvement at Primark is cancelled out by weakness in its sugar division. Group revenue for the 40 weeks to 23 June was up 3% overall, and 2% at actual exchange rates. Primark sales were up 6% on last year, but AB Sugar revenue was 17% lower.  Purplebricks suffered an adjusted operating loss of £21.3 million, despite strong growth in the UK and Australia. This compares to a £5.1 million loss in 2017.  Glencore has announced a $1 billion share buyback, which will run from today until the end of the year.  EasyJet carried 7.9 million passengers in June, up 2.3% from a year ago, while the load factor rose to 95.4% from 94.8%.  Aegon upgraded to buy at HSBC
Bauer upgraded to buy at Kepler Cheuvreux
Tullow upgraded to overweight at Barclays
Daimler upgraded to buy at Bankhaus Lampe Hapag-Lloyd downgraded to neutral at Citi
Kappahl downgraded to reduce at Kepler Cheuvreux
Munich Re downgraded to neutral at JPMorgan
Soco downgraded to underperform at RBC Featured Video from IGTV Please note: This information has been prpared 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.

JamesIG

JamesIG

US/EU trade talks go well - EMEA brief 26th July

Asian equity markets mixed overnight on better than expected Trump trade talks, but poor US futures - notably Facebook results. Saudi Arabia is suspending the shipment of oil via the Red Sea following an attack from Yemeni Houthi. Gold steady as dollar eases after US and EU trade talks. Big results day for the European market with Shell, Diageo, Nestle, Daimler, and AB InBev set to give trading updates. The corporate focus remains crucial for US markets of late, with Amazon, Intel, McDonald’s, and Starbucks all reporting their latest figures today. Asian overnight: Overnight markets traded in somewhat indecisive fashion, with weakness in Chinese and Hong Kong indices coming amid strength in the Japanese Topix index. The Nikkei traded marginally lower, while the ASX 200 was flat on the session. This comes amid a session of mixed messages over in the US, with disappointing Facebook earnings driving a sharp decline in tech stocks. However, with the US and EU striking a truce and promise to bring down tariffs across the board, there is also a bullish theme to be seen. UK, US and Europe:  The move in the US is led by the Nasdaq following a poor reception to Facebook results. The ongoing trade war narrative remains in the market place as Donald Trump meets with EU leaders. European data has kicked off with the release of the German Gfk consumer climate number, which ticked moderately lower from 10.7 to 10.6. The eurozone focus will be maintained through the day, with today’s monetary policy decision from the ECB bringing heightened volatility and focus on the euro. We are unlikely to see any move from Draghi & co, yet this may not necessarily mean that we see the meeting pass without any fireworks. The US focus will be upon the impact of the EU-US trade deal, with many hoping this would become a blueprint for future dealings with China. On the calendar front, look out for core durable goods unemployment claims, and crucially the US trade balance data.  South Africa: Markets are expected to trade cautiously ahead of this afternoons ECB meeting and tomorrows Advance GDP data out of the US. Metal prices are trading flat to lower this morning. The rand is slightly weaker this morning although, trades near its best levels of the last few weeks. BHP Billiton is 0.3% lower in Australia, suggestive of a softer start for local diversified resource counters. Tencent Holdings is 2% lower in Asia, suggestive of a similar start for local holding company Naspers which has a 20% weighting in the Top40 Index. Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Tullow Oil reported a pre-tax profit of $55 million for the first half of the year, from a $348 million loss a year earlier. Revenue was up 15% to $905 million and net debt fell to $3.08 billion. The firm said that it did not yet believe a dividend was appropriate.  Vodafone reported a 4.9% fall in revenue for the first quarter, but annual organic adjusted earnings guidance was left unchanged at 1-5%. ITV said that first-half adjusted pre-tax profit fell 7% to £354 million, but revenue was 8% higher at £1.85 billion. Royal Bafokeng Platinum (SA) anticipates a loss per share ("LPS") for the six months ended 30 June 2018, of between 13.5 cents and 10.5 cents (representing an improvement of between 10% and 30%), compared to a LPS of 15 cents for the previous corresponding period (the six months ended 30 June 2017). A headline loss per share (“HLPS”) of between 7.5 cents and 4.5 cents (representing an improvement of between 51% and 70.6%) is anticipated, compared to a HLPS of 15.3 cents for the previous corresponding period.  Anglo American Plc (SA) a half year financial update showed earnings per share to have decreased by 6%. Please note: 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.

JamesIG

JamesIG

US-China empire building, Eurozone stability, Brexit - DFX Key Themes

The United States and China Jostling for Economic Supremacy The world’s largest economies are starting to update on the status of their health. And, though it may not seem to be the case in these speculatively charged markets, financial performance relies heavily on a healthy global expansion. This past Friday, China reported its third quarter GDP reading. The 6.5 percent clip would be an enviable pace for most of the developed world, but for this debt laden country, this is slowing to a pace that is more likely approaching ‘stall speed’. In historical context, the reading represented the slowest clip of expansion for the country in 9 years – a period that was plagued by a global recession that had in turn prompted the government to plow funding towards infrastructure spending to buy it more time. Time is crucial for the world’s second largest economy. It needs to be balance its relatively rapid pace of growth with financial stability long enough that it can solidify its position as one of the dominant economic superpowers.  For decades, the country has relied on the rapid growth that is borne from trade, financing, speculative appetite and practices that emerging market countries often utilize that are considered unacceptable among their developed counterparts. That said, it is odd that the second largest economy is still classified as an ‘emerging’ market and one of the roots of contention from the United States and others. Over the past three to four years, China’s intent and timeline have become more clear. Having avoided a the Great Recession, they had seen their standing in the global economy move up to a more stable plateau. To ensure they secured their position, the government has attempted to turn towards a more accepted growth plan and to reduce capital borders in order to become a full-fledged member of the globalized community. Without interruption, that initiative would have succeeded. Unfortunately for the Politburo, the Trump Administration has exerted enormous pressure on the country and threatens to undermine growth and/or tip the financial stability balance to create a permanent hurdle.  The question of how successful this effort to stymie the economic engineering effort will be is only one facet of the equation, there is also the question of how much fallout the US itself will suffer along the way. The United States’ effort to bring trade pressure against its largest economic peer will come with an economic cost to the instigator, which they are attempting to offset by fostering investment and business growth through tax cuts and fiscal spending – a combination that breaks norms of its own (deficit control). In the week ahead, we are due the United States’ 3Q GDP update. This is the period through which the trade war truly ramped up, and it will be used as an evaluation of whether the polices are boon or burden at home. Should this and other more timely economic readings head lower, buoyant sentiment readings over the past year will start to flag and make a self-fulfilling prophecy of financial concern.  The Euro’s Fundamental Path is Growing More Complicated  For the most part, the Euro has spent the past 18 months either in a fundamentally enviable position or simply a neutral bearing that could take advantage of weaker counterparts. Economic activity has been slow but steady with members bearing extraordinary austerity following the Eurozone sovereign debt crisis finally turning a corner. Further, the initial threat of the region having to pursue the same costly economic war against the United States was averted when EU President Juncker agreed with US President Trump to avoid further tariffs so long as both sides continued to negotiate. Meanwhile, the mere anticipation of a rate hike from the European Central Bank leveraged the kind of speculative front-running appeal for the Euro through much of the past year that so closely mirrored the Dollar’s own charge in 2014 and 2015. That passive state of speculative appeal is starting to falter however. While growth readings still seem to be following a stable path, the commitment to slower growth to achieve fiscal improvement through austerity is starting to break down. Populism is spreading across the continent.  Chief concern in the evaluation of Euro-area conviction is Italy. The country’s government has applied pressure and backed off in regular tide of ebb and flow; but through these phases, ever increasing the tension. It seems we have reached the point of no return where rhetoric will no longer be enough to satisfy markets. Heading into this past week’s EU Summit, the leadership of the Italian government made clear that it intended to rebuff budget restrictions to support growth and fulfil campaign promises. There was no mistaking the Union’s perspective on Italy’s intended path: they said the spending and deficit projections in their plans were unacceptable. This standoff remains unresolved, but the financial markets are starting to pull back to curb their exposure to the risk. The FTSE MIB is suffering more acutely than its large counterparts and Italian sovereign bond yields are climbing rapidly. A 10-year yield spread of over 400 basis points over the Germany bund equivalent is considered a level akin to serious financial pressure.  We were just above 300 basis points to close out this past week, but that was before the news after the close that Moody’s had downgraded the country’s credit rating a step to Baa3. That will have an inevitable impact on funds that have to abide credit quality when dictating their exposure. In the week ahead, we have another assessment of Italy’s financial condition coming from Standard & Poor’s. This fundamental impact on the Euro is not the only theme competing for influence. Monetary policy is another fundamental strut that could buckle or hold the currency strong through the growing pressure. There is no change expected from the gathering Thursday, but there is growing concern over the internal and external risks for the Eurozone. If they cool expectations for the first hike coming mid-2019, there is still premium for the Euro to give up. A further complication to consider: if the Euro drops materially, expect the Trump Administration to raise its pressure on the regional economy.  Brexit Risk Jumps after EU Summit, Rumor of Border Breakthrough, Protests and New Credit Ratings  The Brexit countdown is taking on a Edgar Allen Poe-level resonance. The European Union summit this past session was specifically targeting discussion between the UK and 27 leadership to see if they could make a high-level breakthrough on the divorce proceedings. The primary hold up at the end of the gathering remained the border issue and the complications that it invites. It may seem that there is plenty of time to negotiate with a little more than five months until the official split, but there is considerable work to do in passing the proposal through so many different governments and working out the technical aspects thereafter. So long as this situation is unable to pass the critical step of an acceptable draft agreement between both sides, the Sterling is likely to see steady retreat as capital funnels out of the country to avoid the uncertainty facing London’s financial center specifically. With the risks growing, the attention on progress will intensify.  With that said, there seemed a possible breakthrough in the closing hours Friday when it was reported that Prime Minister May was prepared to drop their Brexit demands on the Irish border issue in order to earn a breakthrough. Such a move would likely earn the ire of Brexiteers who would balk at likely permanent participation in the EU’s customs union. It remains to be seen if the UK’s government would back such a appeasement, but it doesn’t seem enough for many Brits. Over the weekend, a protest in London calling for a second EU referendum drew reportedly between 600,000 and 700,000 participants – one of the largest in the capital’s history. It is unlikely however that the government will return to the polls on the issue unless there are a number of political turns that force the issue. Ahead, we will have to keep a very close eye on the headlines to see what transpires in the political environment in England as well as between the UK and EU. That doesn’t mean though that there aren’t any meaningful milestones on the docket to mark on our calendars.  At the very end of the coming week – after the close Friday – we are due two credit rating updates on the United Kingdom from Standard & Poor’s and Fitch. These groups have generally maintained a wait-and-see perspective until it became clear that there would be a compromise scenario or a crash out. However, time is a factor that they can no longer ignore in this equation. With each week that passes without a breakthrough, the economic and financial ramifications deepen. More stark warnings are likely if there is not a confirmation of the border issue and a downgrade is not impossible.  

JohnDFX

JohnDFX

US traders return - APAC brief 27 Nov

Written by Kyle Rodda - IG Australia US traders return: It’s nice to be back to some normal programming. The big-wigs on Wall Street have returned to their desks and volumes across the market are looking far healthier. After last week’s sell-off and volatility, and well before the meaty part of trade this week, traders appear to have had their appetite for risk whetted. Only slightly, of course: there is an acute awareness that the next seven days will hurl up some major events and some significant uncertainty. However, the VIX is off its highs and below 20 once again, and riskier assets are feeling some love. There were patches of underperformance yesterday, naturally – our ASX200 happened to be one of them, along with Chinese indices – but as it applies to most the major indices, a healthy coat of green is covering the screen to kick-off the first 24 hours of the week’s trade. Asian session: The tide turned during the Asian session, with no true impetus behind it. If anything, the fundamentals we received during Asia’s trade made for ugly viewing: Japan’s Flash Manufacturing PMI data was released, and that disappointed markets, adding to fears of slower global growth; while New Zealand Retail Sales figures put-in an abominable showing, printing flat quarter-on-quarter versus expectations of a 1.0 per cent expansion. They were non-stories, though, in the ultimate context of yesterday’s trade, as futures markets pushed-higher on pricing of a solid start to the week for equity markets. Some macro-excuses to buy stocks did arrive in the European session, when reports that Italian policy makers were reviewing their maligned budget filtered through markets, compounding the slight lift in confidence engendered by the weekend’s rubber-stamped Brexit deal. European trade: Across European indices, the DAX jumped 1.45 per cent, the FTSE climbed 1.20 per cent, and the Euro Stoxx 50 1.13 per cent.  Bond yields edged higher across the Continent and throughout North American, while the positive developments in the Italian fiscal crisis narrowed the spread between German Bunds and Italian BTPs. The fall in US Treasuries saw the yield on the 10 Year note easing to 3.06 per cent and the yield on the 2 Year note to 2.83 per cent, narrowing the spread between those two assets to approximately 23 basis points. The higher yields supported the US Dollar, which returned to the 97-level according to the US Dollar Index. The Japanese Yen was the biggest loser of the major currencies, dropping over half-a-per cent to trade within the middle of the 113-handle; however, gold, the Euro and Pound traded relatively stable. Wall Street: At time of writing, US stock indices are on the cusp of registering quite a solid day. Volumes are higher on average too, reflecting that there is some substance behind what is being dubbed as a "relief rally". It's more a bounce to be fair – the kind we've seen before since the global stock market correction took hold. Nevertheless, for the bullish and opportunistic, it's justifiably proven a respectable 24 hours. US tech stocks have lead the market higher, supported by a bounce in oil prices, which have helped narrow corporate credit spreads and spur greater appetite for risk. The troubles for tech-stocks and oil haven't passed yet -- the big picture hasn't changed -- though (just maybe) there are signs that the bearishness driving the downside in those assets is abating. ASX200 yesterday: The action in financial markets in overnight trade has SPI futures indicating a 44-point jump at the open –  a dynamic if realised, will regain yesterday's session's losses from the opening bell. Activity was quite high on the Australian share market yesterday, with volumes approximately 5 per cent above the 100-day moving average. The liveliness in markets was predominantly driven by a dumping of the mining stocks, which were pummelled by the considerable sell-off in iron ore, following the plunge in steel rebar futures over the weekend in response to greater concerns about Chinese economic growth. Overall, the materials sector was responsible for a noteworthy 25 points of the ASX200's losses during the day’s trade, with the likes of BHP and Rio Tinto sliding just over 3.5 per cent. Aussie Dollar: The circumstances also led to a slight pull back in the AUD/USD, which generally has lost some of its lustre. Upside momentum has slowed, as the pop higher brought-about by a squeeze on traders’ short positions looks to have stalled, if not subsided. Macro-fundamentals have eased the pressure on the AUD/USD in November, as traders unwind their bets of an aggressive Fed in 2019: the yield-spread between the interest rate sensitive US 2 Year Treasury note and the 2 Year Australian Commonwealth Bond narrowed to as little as 75 basis points. That has expanded once more, but with heightened volatility in the markets and sentiment interfering with fundamentals, a crude assessment of the Bollinger Band suggests that the myriad of macroeconomic risks in the next month could see the AUD/USD move within a broad range between 0.7020 and 0.7450 into the medium term – with the local unit currently smack-bang in the middle of that range based on the weekly chart. ASX200: Looking ahead: Now that financial markets have returned to a normal state, getting a gauge on sentiment becomes considerably easier. Positioning will begin taking place across asset classes for the series of US Fed related events in the next 4 days, combined with the weekend's major G20 meeting. The implications for the breadth of global markets are seemingly endless, but as it applies to the ASX200, the outcome of both concerns is profound. IG client sentiment is giving generally bearish signals presently – something that will only become further entrenched if the Fed come-out more hawkish this week and US-China trade negotiations deteriorate. Support at 5600 (give or take) will be where the bulls will be hoping for a floor in the event of a worst-case scenario; while a bullish break-out can't be confirmed until at least 5930 is breached.

MaxIG

MaxIG

US Sanctions, Currency Wars and Financial Crises - DFX Key Themes

It is Not Wise to Start Financial Fires in a Market so Parched for Value The financial markets find themselves in between two storm fronts. On the one hand, there is the seasonal liquidity drain that is associated with Summer trade. More historical norm than actual exchange closures, the ‘Summer Doldrums’ present a consistent curb on volume, open interest, volatility and productive trend year after year. However, the restraint is not guaranteed. Though not as common as those Fall (for the Northern Hemisphere) triggered crises and deep bear trends, there are certainly bouts of panic that originate in these quiet months. And that is why we should pay closer attention to the other storm front that has consistently stood at the border of our collective consciousness. We have watched as growth forecasts have cooled, the limitations of monetary policy to offer temporary support have entered mainstream discourse and protectionism has emerged to threaten one of the most consistent sources of stability in globalization. These are not new risks, but they have been regularly brushed to the side in favor of short speculative opportunities to be pursue distractedly. Yet, draining liquidity in these questionable conditions has acted to call greater attention to the risks at hand. And, now with the tension applied by the United States on peers and counterparts alike, we are seeing the growth of clear conflict threatening to force the issue of more candid evaluations of value. Trade wars had – and still has – the capacity to trigger a full scale deleveraging of excess risk, but the temporary stay in the spread of kind-for-kind retaliations among developed world giants soothed imminent fears. This front is likely to erupt once again in the not-to-distant future under more pressing circumstances. In the meantime, a sister action in the form of US sanctions placed on less-friendly countries may take up the reins on global sentient. The Trump administration reversed its participation in the nuclear deal with Iran (27th largest economy) and restored sanctions on the country much to the condemnation of the other participants of the deal. The US has also moved to apply new penalties on Russia (12th largest economy) in response to its supposed use of nerve agent on a former spy. The USDRUB soared to a two year high this past week. And, showing the most severe short-term impact of all was the quickly escalating sanctions that the US is placing on Turkey (17th largest economy) for ostensibly the country’s refusal to release a US pastor swept up during the failed coup. The country’s currency has dropped over 55% versus the Dollar (through Monday’s open), and this time the financial exposure for major economies (particularly European) was quickly seized upon. Let’s see if this fire can be contained. 
Is the US Placing Pressure on Major Counterparts Like the  EU Through Proxy?  The Trump Administration has likely started to recognize that there are rumblings of coordination from those countries that are already under the influence of the United States’ sanctions or feel they soon will be. That is likely a key reason the President struck a conciliatory tone with EU President Juncker when a few weeks ago he agreed not to pursue further tariffs – particularly on autos – so long as the two economic superpowers were negotiating. That said, it is clear that the strategy being employed on the US side depends on applying enough pressure that counterparts are willing to sacrifice more in order to win a compromise to find relief. That brings in the proxy pressures that the US has seemingly favored over the past weeks in the stead of outright trade wars. As mentioned above, the US has announced sanctions against Iran, Russia and Turkey in short order. These moves would certainly draw less criticism from Americans dubious of the government’s foreign policy moves as each is considered more adversary than ally. Yet, there may be more to these pursuits than simply following a moral compass with global relations. Other countries have supported efforts to promote relationships with these countries over the past years which has entailed exceptional investment alongside diplomatic capital. On two fronts in particular, this particular application of pressure has had enormous side effects for the Europe. With Iran, the EU is still trying to hold together the agreement made between the OPEC member and the other participants of the original nuclear agreement, taking a lead to promote stability. When President Trump stated in a tweet that those that county to do business with Iran could have their business with the US halted, some business leaders took it seriously and looked to curb trade. Yet, the EU responded saying any European companies that complied with the United States’ demands on Iran – and thus jeopardized the effort to hold the agreement together – would face penalties from European authorities. With Turkey, there is no slow build up. The rapid tumble in the country’s currency (Lira) has risked the stability of assets foreign interests have pursued. European banks are particularly exposed and that led the ECB to voice concern over their connection should instability grow. While this rapidly escalating proxy pressure on Europe by the United States’ actions maybe unintentional, the nature of how it is playing out suggests otherwise. 
Dollar Rally a Result of Policy and Justification to Devalue? On July 20, President Trump lashed out (via Tweet as his want) at the Euro and Chinese Yuan claiming the currencies were being manipulated to render an unfair competitive advantage to their respective economies. Such claims are dubious at best. With the Yuan, history shows the country has a penchant for exerting influence over the activity level and direction of its ‘Renminbi’ to help promote economic, financial and social stability at home. However, their ability to keep all these efforts leveled out on the horizon is increasingly troubled. What’s more, a steady charge higher for USDCNH is exactly what would be expected if the United States’ tariffs on China were having their intend effects. As to the criticism of the Euro, there is little evidence to support that view. Four years ago, the anger would have been justified when the ECB said it would applied monetary policy in order to prevent the EURUSD exchange rate from passing 1.4000 – there must have been an agreement behind closed doors to allow this given how blatant the effort. This claim now, however, finds little support in action or event threat. Again, this is likely evidence of a strategy with questionable execution. Making a claim that multiple major currencies are being unfairly devalued – one others may agree to out of historical assumption and the other more dubious – can be used as pretext for enacting a policy aimed at counteracting the stated inequity. If there is indeed interest for US officials to abandon the ‘strong Dollar’ policy as has been hinted at multiple times over the past months and actually introduce policy to sink the currency, that appetite will be significantly bolstered this past week with the surge for the USD versus both the ‘majors’ and emerging market currencies. Arguably the result of the Trump Administration’s own policies, it may nonetheless serve as the foundation for a new course of global financial conflict. 

JohnDFX

JohnDFX

US Mid-Terms Preview - 6 Nov

Written by Kyle Rodda - IG Australia I'm mad as hell and I am not going to take this anymore! It was this sentiment in November 2016 that raised political-renegade and anti-establishment Republican Presidential candidate Donald Trump from rank-outsider and laughing-stock to President of the most of powerful country in the world. No one seemed to see it coming, and as electoral college votes were slowly counted on Election Day almost exactly 2 year ago, the world sat in awe as what was considered a near impossible feat only 18 months prior came to shocking fruition. America, we were told, was about to become great again. Almost two years to the day has passed, and with arguably the most significant US mid-term elections in recent memory to be decided by the American voter over the course of the next 24-48 hours, the question becomes: will the American polity deliver another shock to the world? If there's one thing that 2016 reminded financial markets participants, it is that the map is not the terrain. Pollsters, pundits and market traders may try to price in the probabilities of a series of outcomes, but all the information that makes up our complex political reality remains too difficult to access and understand. A humbleness is always required when forming assumptions on what truths the democratic process may reveal: a modest acknowledgement that though the world may look clear and complete to our own eye, a total comprehension of the various and unique realities occupied by the several hundred million of individuals dictating the historical process remains beyond the reach of a single mind. In saying this, it does not mean an honest enquiry should not be undertaken to induce a possible explanation for the events of the past, and subsequently infer what this may mean for events in the future. It's telling that the quote included in the opening sentence of this commentary comes from the classic-American film, Network, produced all the way back in 1976. In the film's famous monologue, its protagonist -- a ranting T.V. anchor turned prime-time cultural evangelist named Howard Beale -- delivers a deranged and scathing assessment of modern American life: "Everybody knows things are bad. It's a depression. Everybody's out of work or losing their job...and there's nobody out there who seems to know what to do, and there is no end to it". The rant finally ends with Beale imploring his viewership to go to their windows and scream "I'm mad as hell and I am not doing to take this anymore!" Though the cultural context of the film was vastly different to that of 2016 America, the voting members of the American public at the year’s Presidential election proved they felt the same. After 9 years of what must have felt like empty promises from the political elite about an economic recovery that never trickled down to the middle class, America's silent majority finally cracked and spewed forth into mainstream society. They were sick of society's rich getting richer thanks to policies that didn't seem to be designed to help them; and they were tired of the fact that the members of the (supposed) elite class were shipping off their jobs -- to workers in some foreign nation, no less, and all in the name of saving a buck at their expense. It was these set of circumstances -- which have been grossly simplified here, of course -- that galvanised a significant sub-section of American society to scream at the ballot box in November 2016 "I'm mad as hell and I'm not going to take this anymore". Though in our reality it was not a psychotic T.V. anchor who proved the mouthpiece of the people, but a New York businessman, turned reality TV star, turned social media provocateur, who promised them that he could return to them what was rightfully theirs’ -- and in doing so, Make America Great Again. This social upheaval turned the global political order upside down. The once inexorable forces of globalisation, political liberalism, and expanding economic interconnectedness were all the sudden turned on its head. The enraged and forgotten people of American society were set to reclaim their destiny. But as the world awaits the latest expression of the God-given and inviolable right of the US voter to exercise their choice on who will compose their chambers of congress, the question is: are Americans, as they were in 2016, still mad as hell? It may be cynical, but in a representative democracy like the US, voters will vote for those who can promise to improve their quality of life and economic fortunes. In the lead-up to the 2016 US election, the fledgling US economic recovery had seemingly fizzled, with little sign of any benefit to the middle class. The economy was beginning to flatline, the jobs being created were low skilled and undesirable, wages and living standards were stalling or going backwards in real terms, and the stock market was trading sideways. US voters felt poorer, their opportunities appeared dim, and the future didn't look like it would provide anything better. Move forward to November 2018 and it feels as though the world (and the American voter) is in a very different place. The US economy is roaring, growing at 3.5 per cent according to the last reading -- a pace strong enough to keep the US labour market at full capacity and the unemployment rate to 3.7 per cent. Inflation remains stable despite the ever-tightening labour market, but as of Friday night's Non-Farm Payroll figures, wages growth is above 3 per cent per year for the first time since the GFC. The stock market, despite experiencing two major corrections this year, has also hit record highs twice in 2018 and consumer sentiment is still trending upward towards 15-year highs. Love him or loathe him, US President Trump has played a major role in bringing about this sense of economic euphoria. Politicians often over-state their influence and importance to the fortunes of the economy. The US economy was trending in the direction it currently finds itself in for several years, with the extreme monetary policy enacted by the US Federal Reserve likely its greatest driver. However, massive (and probably unnecessary) late-cycle fiscal stimulus from the Trump administration has sent the US economy into warp speed; while his chest-beating and patriotic fervour has ostensibly unleashed investors’ animal spirits. The question is now though, whether voters will attribute their relatively better lot in life to US President Trump, and award him at the polls. Undoubtedly, other issues come into consideration for the very diverse American electorate when voting Republican or Democrat. Irrespective of the very many and meritorious issues motivating the US electorate, logic does suggest that if the popular narrative is true -- that President Trump was elected based on social and economic dissatisfaction, and that he himself is responsible for turning this around -- some kudos at the ballot box could be forthcoming. Betting markets at first glance aren't supporting this notion: the bookies have the democrats winning back the House of Representatives relatively comfortably, and the Senate looks set to be held by the Republicans. Such an outcome, although far from an endorsement of US President, would not be a calamity for him. It's well known that an incumbent President generally loses seats in congress come their first mid-term elections, as the sheen comes-off "the new guy" following the realisation that he (or presumably she, when the day arrives) can't meet every expectation they set as a candidate. (Source: The Conversation)   With this all considered: what could this all mean for financial markets? First, the major caveat must be that the major forces behind economic activity will almost certainly remain the same: the US economic cycle will continue to unfold, and the US Federal Reserve will likely persist with its rate hiking cycle. Amid the political noise, when it is all said and done, the economy will do what the economy intends to do, meaning the flow on impacts to financial markets, particularly regarding the risk to equity markets of higher global interest rates, will keep broadly unchanged. In saying this, there are several areas where marginal changes may be witnessed. Primarily, the best outcome for financial markets is often the expected one -- the one already "priced in" -- so a Democratic house combined with a Republican senate might be the ideal scenario here. Looking further into the many nuances though, several elements of the Trump doctrine and policy platform may come under fire consequent to the retaking of some power from the Republicans by the Democrats.   The biggest issue up for grabs must be the trade war and broader US-China relations. The past week has seen a softening stance from the White House towards China, which has talked up the imminence of a deal between the two warring nations. An extra dash of Democrat blue in congress reintroduces the globalists to the equation, who will likely prove much more sympathetic to the notion of making peace with the Chinese. President Trump will maintain his executive powers, implying that he can continue to slap-on his tariffs on national security grounds if he sees fit. However, with a more divided congress, horse trading becomes a bigger thing, meaning concessions demanded by Democrats could temper Trump's hawkishness. A de-escalation in the Trade War would be considered good for Chinese and therefore global growth. The possibility of static or reduced tariffs would assay come anxieties regarding slower Chinese growth and would possibly mark a definitive turn-around in China's equity bear-market. The Yuan would also appreciate, leading to a short-term pop higher in the Australian Dollar, supported by a probable jump in commodity prices all the way from iron ore, to the classic barometer of economic growth prospects: copper. The Japanese Yen, gold prices and even the US Dollar would fall on the back of higher risk appetite, although the greenback would likely sustain its trend higher in the medium to long term by way of virtue of the US Fed's interest rate hikes. The Nikkei and DAX, which have been the heaviest hit of developed market indices in this trade war, would probably experience an uplift, courtesy of reduced anxieties about industrial tariffs -- especially on automobiles -- and softer Chinese growth. Similar gains would be experienced on the Dow Jones, and to a lesser extent the S&P500, which would benefit from a rally in industrial stocks. The ASX200 would participate in the global bounce in growth optimism, led by gains in commodity prices and subsequently the materials sector. Persistent concerns about the strength of the big banks however— due to domestic challenges regarding higher global funding costs and the softer Australian property market – would still smother optimism.   The other hot issue of financial market import coming out of the US mid-terms will be US President Trump's fiscal policy. Such as with the trade-war, greater checks and balances on the President from increased influence by the Democrats on the White House would force some fiscal restraint. The twin deficits building because of Trump's fiscal profligacy would be curbed, easing pressure on bond yields towards the back end of the curve. Economic growth might well slow down somewhat as stimulus is removed, taking some of the heat out of the US economy; but price pressures would settle somewhat because of a more stable economy, removing some of the impetus for the US Fed to hike hastily. The outlook for earnings growth in US equity markets would probably weaken as fiscal stimulus waned - though it must be remarked this would have happened to some extent anyway considering Trump's corporate tax cuts have already been absorbed by shareholders. Ultimately, although inflation risk would be reduced, significant enough price growth would almost certainly remain. The US Federal Reserve's interest rate hikes would stay atop of the list as the biggest risk to share market performance, as higher rates stretch the valuations on growth stocks in sectors like US tech further, undermining the upside to equities indices such as the NASDAQ. A possible benefit, though, would be the counterbalance from the Democrats’ influence in congress on the often-unpredictable President Trump, but that may come in the form of improved sentiment alone. Overall and in the end: as has already been stated, but bares mentioning once more, speculating on the political, economic and financial market outcomes of the democratic process is fraught with danger, and must be approached with humbleness. It's nigh on impossible to tell with complete certainty what the US mid-term elections will hurl at the world, let alone financial markets. The Trump election shocked the world in 2016, as the American polity stood-up to make their dissatisfaction known to the global community. Whether such resentment can be mobilised again and cause another historical upset, only time will tell. One thing is for certain though, and that this mid-term election is a referendum on President Trump's legitimacy, and will have tangible impacts on global politics, economics and financial markets in the months and years ahead.

MaxIG

MaxIG

US mid-term outcome - APAC brief 8 Nov

Written by Kyle Rodda - IG Australia The fallout: The US mid-terms have passed, and while there were signs throughout yesterday's trade that the vote would throw up a few curly situations, the outcome fell broadly in line with market expectations. The VIX has dropped and US equities, paced by the NASDAQ, have subsequently rallied, primarily on the knowledge that everything went according to plan -- proving the notion that the biggest drag in markets all-in-all is uncertainty. There are enumerable possibilities, all with various implications for traders, opened-up by yesterday's result, and one assumes that they'll be digested calmly by market participants in the times ahead. Ultimately, however, one major risk has been navigated through without much bloodshed, allowing traders to return their attention to arguably the more significant, fundamental issues at hand. Gridlock: The term that perhaps has been hurled around most since it was confirmed that the Republicans would hold the US Senate and the Democrats would nick the House of Representatives is "gridlock". In the so-called "age of bipartisanship", a split in power within congress all but assures the adversarial tone of the late-Obama era returns. In a representative democracy, in principle, that need not be cause for concern, but it does imply greater inertia in legislative action. That means Tax Cuts 2.0 (as they've been dubbed) are all but dead, buried and cremated, and that a push for fiscal restraint by the Democrats could complicate issues around budget policy and the national debt ceiling in the future. US bond markets: The possible dynamic has shown up in prices already. An analysis of the US Treasury yield curve reveals this. The fact yesterday's results ensure a possibly stagnant congress has been interpreted as a continuation of the status quo in the short term. The yield on interest rate sensitive US 2 Year Treasuries has ticked higher to 2.94 per cent over night on expectations that the current growth formula will go unchanged – and lead to a continuation of the US Federal Reserve's rate-tightening regime. Conversely, the yield on fiscal policy (read: debt and deficit) sensitive US 10 Treasuries has dipped slightly to 3.19 per cent, on the belief that a debt blow-out from Trump's planned tax cuts and infrastructure spending program will not go ahead. Currency markets: The consequence of this shift in expectations regarding US fiscal policy is the US Dollar has sold-off overnight. It appears the interplay of forces is the ideal recipe for a slower rise in the greenback: global growth remains supported in the short-term, benefitting riskier currencies, but lower long-term yields are making the USD relatively less attractive. The knock-on effect has seen the EUR and Pound rally above 1.1450 and 1.3140, supported by strong German industrial output figures last night; and commodity-bloc currencies such as our own Australian Dollar has definitively broken its downward trend to trade at 0.7280. The balance between a weaker greenback but greater risk appetite has kept the USD/JPY flat at 1.1340, while gold has also remained steady at $US1226 per ounce. What for the trade-war? The implications for the other major global macro-risk from yesterday's vote, the US-China trade war, has thus proven a touch unclear. China's equity markets closed lower for the day, the Yuan whipsawed, and prices in growth proxy commodities -- such as copper --fell, seemingly on the uncertainty of what a greater representation of Democrats in Congress means for US foreign policy. In principle, the philosophically liberal-internationalist Democrat party could lobby for greater multilateral engagement with China and other world powers, but in this new age of populism, old assumptions may no longer prove reliable. Futures markets are projecting a better day for the Asian region, however a flicker of greater volatility in Asian markets should be expected leading into the highly anticipated G20 summit at the end of the month. ASX200: SPI futures are indicating a 28-point jump at the open for the ASX200 this morning, as the local market looks to extend its solid gains this week. The day yesterday ended in a 0.4 per cent gain for Australian shares, on reasonably solid breadth of 64 per cent. Volume was below average owing to the major event risk of US mid-term elections once again, however a rotation away from defensive sectors and into growth stocks and cyclicals supported the narrative that the outcome of yesterday’s vote is positive for the equity bull market. The ASX200 now sits on the cusp of technically reversing the short-term trend brought about by October’s massive stock market correction, with a meaningful hold of around 5930 today the level to watch. Today’s major events: Amid all the news and analysis around US mid-terms, a quick refocusing on the week’s other risk-events will emerge in markets today. Of significance today: the RBNZ met this morning – in what is probably the key event for the Asian region – and kept interest rates on hold as expected. The tone struck by the RBNZ has thus far been judged as rather dovish, legging the Kiwi Dollar’s run higher above the 0.6800 handle. Turning attention to more pressing global event-risk, it comes no bigger than tonight’s meeting of the US Federal Reserve. The Fed won’t move rates, that much is known. The attention will be directed instead towards the Fed’s commentary about its flagged December interest rate hike, plus its views on further rate hikes into 2019.

MaxIG

MaxIG

US markets closed - EMEA brief 4th July

Asian overnight: Another bearish session overnight saw Chinese and Hong Kong indices lead the decline, with the first round of tariffs on Chinese goods set to take effect on Friday. The recent decline in the yuan was arrested, with strong dollar selling pressure from Chinese banks looking like intervention from the Chinese authorities. Australian data came in mixed, with a strong retail sales reading counteracted by a lower than expected trade balance figure. Meanwhile, the Chinese Caixin services PMI rose sharply, driving the measure to rise from 52.9 to 53.9.

UK, US and Europe: The services PMI theme looks set to continue, with European nations releasing their own version throughout the morning. The big focus will be upon the UK services PMI figure, with the release playing a key part in dictating GDP estimates for Q2. Meanwhile, the US markets are closed as the country celebrates Independence Day. Economic calendar - key events and forecast (times in BST) 9.30am – UK services PMI (June): expected to fall to 53 from 54. Markets to watch: FTSE 100/250, GBP crosses Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Sainsbury’s said that sales rose 0.8% in Q1, and were up 0.2% on a like-for-like basis. Price cuts had helped to boost performance.  SIG reported a 0.6% rise in first-half revenue, with currency improvements offsetting bad weather. Revenue was flat on a like-for-like basis.  National Express has secured a €1 billion contract to operate buses in Morocco, with 500 buses carrying 109 million passengers a year across 61 routes.   Topps Tiles suffered a 2.3% drop in like-for-like sales in the 13 weeks to 1 July. BN FP upgraded to outperform at RBC
GFT upgraded to hold at Kepler Cheuvreux
Petra Diamonds upgraded to outperform at RBC Brunello Cucinelli downgraded to hold at Berenberg Please note: This information has been prpared 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.  

JamesIG

JamesIG

US elections, a round of rate decisions, global disputes - DFX Key Themes

Remove the Political Bias, Focus on the Volatility  There has been plenty of political risk keeping the markets at a steady simmer these past months. Some situations like Italy’s budget stand-off with the European Union and the Brexit negotiations are more overt concerns. However, the general rise of populism and the erosion of cross border diplomacy (trade wars, sanctions, failed trade deals, etc) represents a more systemic risk. Yet, despite the ubiquity of this fundamental influence, there is an explicit focus on this theme through the coming week in the form of the United States’ mid-term election. The discourse in the country has become toxic, which will leverage the domestic market’s attention and ensure a broad evaluation of influence to encompass the factors that can steer the economy. Further, given the pressure the United States has exerted on the rest of the world via tariffs and sanctions largely via the Trump Administration’s executive powers, the election takes on global significance.  While there is little doubt that the world is watching, there is considerable ambiguity over exactly how it will impact the markets. With tariffs or another break down in Brexit negotiations, it is easy to draw the lines to market influence. In the US election, there is far more social stake and clash of personalities than direct financial implication. That is not to say the ultimate effect on the economy and market are not significant – they are. However, it can be difficult to separate these elements. Nevertheless, it is crucial that we do so. The foundation of successful investing is removing emotion from the equation as much as possible. Besides religion, there is probably nothing more likely to elicit emotion than politics. When we put aside the anger and mania that radiates out from this event, we are left with few possible scenarios that can translate into key domestic and global policies that can impact the markets (see Christopher Vecchio’s article on this for more detail). This election will only translate to the legislative branch when we account for federal reach on key positions.  If the Republican party retains both the Senate and the House, that would be seen as the ‘status quo’ as it presents continuity to the situation we’ve had this past two years. It is far from a happy and functional government, but it would still be possible to generate short-term growth via a planned second tax cut plan and perhaps reviving the discussion of an infrastructure spending program. Yet, the growing debt load over the long-term paired against the risk of a slowing economy will loom. If the one or both of the houses of Congress flip to a Democrat majority, pressure will increase significantly. That will lead to difficult progress on programs and likely lead the President to fall back on executive powers to approximate his desires. Overall, that will punctuate the uncertainty and volatility in the markets moving forward – perhaps securing and hastening a more systemic risk aversion for which the market has been threatening since February.  The Asymmetric Potential in the Fed, RBA and RBNZ Rate Decisions  When there is an event like the US mid-term elections on the docket, it is easy to overlook event risk that is scheduled for release after – and even before – the systemic distraction. Exploiting a very different theme of speculative interest and source of growing concern over the coming week are three major central banks’ rate decisions. Each is expected to end in no actual change to their benchmark rate or other unorthodox policies, but the market is effectively tuned to the nuance for which they were reference in their accompanying reports. Before we consider the potential of each, it is important to consider the wholesale influence that they have on financial system. Whether individual market participants appreciate it or not, the stability and reach of their markets are heavily dependent on the extremely accommodative policies the major central banks have committed to over the years.  The abundance of cheap funds has lowered the assumption of risk while also deflating the rate of return – necessitating riskier and leveraged exposure in order to make a competitive rate of return. That translates into considerable risk taking. Should the spectrum continue to slowly shift away from easing to early tightening – following the lead of the Fed – the more readily the masses will recognize the risk in their exposure. That will raise the sensitivity to risk trends and encourage de-risking that can accelerate into a crisis. As for the individual events themselves, the Federal Reserve’s decision will garner the greatest global attention. Despite – or perhaps exactly because of – the Fed’s tempo of tightening, the market’s do not expect a hike at this meeting. The fourth hike the majority of the FOMC forecasted in the September SEP was given a December timetable by the market’s. No change, but language that confirms a fourth hike would leave the Fed untouchable as the most hawkish central bank for carry purposes, but the market will treat it as status quo. The most feasible surprise would come in more restrained language that would curb established rate expectations which would in turn sink the Dollar (and likely risk trends).  In contrast, the Australian (RBA) and New Zealand (RBNZ) policy events are expected to end with no change and language that reflects the same ‘neutral with a modest dovishness’ that they have maintained for the past few years. Both the Australian and New Zealand Dollars have deflated for months to the point where they have significantly reduced their responsiveness to their detrimental yield bearing. Even if the groups raised the stakes on their dovish views, it would likely translate into a small market response. Alternatively, should they offer any improvement in their view and possible intentions, there would be a disproportionate rally from their currencies.  He Said, He Said: US-China Trade War, Brexit, Italy  Though we do not have the benefit of specific events and time frames on updates for some of the other more systemic concerns lurking in the financial system, that doesn’t make them any less potent a threat. Though the coming week, there are three general themes of ongoing concern that will remain on my radar. The First is the US-China trade wars. This situation has managed to avoid a clear path much less a genuine resolution to the point that markets are starting to grow wary of any remarks that could be considered signs of an improved path. This past week, we were reminded of the importance of this cold economic war when conflicting views were espoused – this time on the same side of the negotiation table. The US President voiced his optimism that a corner was turned in the negotiations after a call with his Chinese counterpart with reports that he had called on his cabinet to draft a proposal to find a solution. That helped extend the capital markets’ rebound. Yet, that optimism was quickly muted when Trump’s chief economic adviser said he was not given direction to come up with a plan and that he was less confident about the future of the relationship than he was in previous months. And, just to ensure we were fully confused on the point, the President made further remarks soon after the adviser reiterating his initial statement.  Look for any mentions of production discussions before the G20 summit over the coming week first as campaign rhetoric and after the election as planning. Across the pond, the Brexit situation seems to find itself steeped back into despair after brief interludes of optimism charged by supposed progress. At this point, the holdup is finding agreement on the UK’s side. Last week, the earlier reports that the Prime Minister was willing to make concessions on an important point of disagreement to make a breakthrough, progress yet again stalled as her cabinet revolted. There is a cabinet meeting on Tuesday. Theresa May will need to get an agreement from her own government under the new parameters whittled down with the last EU Summit rejection. In the background, there are rumors that a solution is being honed in on, but their rhetoric in public certainly isn’t doing them any favors in market and business sentiment terms.  Then there is the clear contrast in perspective between the Italian government and other European Union leaders. There is no ambiguity in this contentious disagreement. Italian leaders have repeatedly committed to increase spending well beyond what the EU considers acceptable. European leaders and central bank members have shown little interest in making an exception to the austerity rules for the region (and a backstop should market’s punish Italy in the latter’s case) for fear of losing stability internal and confidence externally. If capitulation is not found from one side, there is really no alternative solution as they head towards an existential crisis for another member finding its way out of the Union. And, unlike the UK, Italy is more deeply integrated as a member of the monetary agreement that shares the same central bank and currency. 

JohnDFX

JohnDFX

US and China agree tariff ceasefire; Markets soar - EMEA Brief 3 Dec

The US and China have agreed a temporary ceasefire on additional tariffs on each others goods at the G-20 summit in Argentina to allow for trade talks to continue in the new year. Dow futures soared more than 450 points as investors have reacted positively to the US-China news. Nasdaq futures also rose around 2.7%, followed by S&P 500 futures which jumped 1.7%. The dollar depreciated on Monday as investors looked to take up positions in riskier assets, such as the Australian dollar which rallied 0.75% and the New Zealand dollar which rose 0.5%. The dollar index, which measures the value of the dollar versus six major currencies, traded down 0.36%. European markets are expected to open higher this morning, again as a result of the announcement to postpone tariff escalation. The FTSE 100 is currently trading at  7,087, 107 points higher, the DAX 208 points above it's previous close, whilst the CAC is set to open up 83 points. Asian equity markets also traded higher, the Shenzen composite rose 3.5% followed by the Shanghai composite which increased by 2.9%. The increases came following a data release from the Caixin Manufacturing Purchasing Managers' Index which indicated factory activity increased in China compared to last month. Oil prices surged on Monday due to the US-China trade war truce, WTI crude futures were up to $53.63 a barrel, up 5.4%, whilst Brent crude futures were up 4.8%.  Qatar's Energy Minister has announced that the country will leave OPEC on the 1st of January 2019, alluding to a "technical and strategic" change to develop and increase natural gas production. UK, US and Europe: The European markets are set to rally after a ceasefire in the trade war between the US and China, after Trump and Xi reached an agreement over dinner in Buenos Aires on Saturday. The deal should see both China and the US hold off on additional tariffs on each other's goods for the next 90 days, whilst negotiations continue in a bid to reach a long-term agreement. Helen Qiao, China and Asia economist with Bank of Amarica Merrill Lynch, explained that "In contrast to the fear — especially in Asia —that the hawks in US administration would make impossible demands, evidence of President Trump working towards a trade deal with China has emerged".  With the announcement of a 90-day truce in the US-China trade war, how will this impact commodities? We have seen a surge in the price of oil ahead of the much anticipated OPEC meeting, but what impact will it have on base metals? Join our #IGCommodityChat on Thursday 6 December at 1pm (UK time) to discuss how trade wars are affecting base metals with Author and Economist Daniel Lacalle and John Meyer, partner and analyst at SP Angel. Get involved in the debate by tweeting your questions to @IGTV or by commenting in the section below. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Netflix is under scrutiny by HMRC as the British operation declared sales of £23.9m, way below what the Times estimates the business generates.  Convenience store chain McColl's has issued a profit warning today, as the company highlights the collapse of supplier Palmer & Harvey as a "significant supply chain disruption". Stobart Group has announced that dividends will be cut for the fourth quarter to 1.5 pence. The firm said in a statement "The board believes it is prudent financial discipline to use proceeds from further disposals in the medium term primarily to invest in value-creating opportunities based on sustainable operating cash generation and to maintain a strong balance sheet". 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

US & China ramp up tensions - EMEA brief 07 Aug

The Asia equity market ex-Japan are looking at their lowest levels since July last year. Tech sector as a whole was hit by a drop in chip stocks yesterday as well as a knock to social media. Investors are cautious that new U.S. tariffs on China could come into play at any time. Yen and Swiss franc are looking to be bid up for those looking at safe harbours. Non-farm payrolls are out later today. Asian overnight: Yet again trade concerns weighed on Asian markets, with the Hang Seng posting its worst week since February. Tech stocks remain under pressure in both the US and China, with the momentum trade in the Nasdaq seeing a stark turnaround. A rise in US gasoline reserves hit oil prices and helped drive energy stocks lower. UK, US and Europe: Yesterday’s ADP numbers were weaker than forecast, so there will be some nervousness among dollar bulls ahead of NFPs this afternoon, while before this we have eurozone GDP figures. Trade war concerns remain front and centre, as the US and China ramp up the tensions. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 10am – eurozone GDP (Q2): expected to be 0.4% QoQ and 2.2% YoY, from 0.4% and 2.5% respectively. Market to watch: EUR crosses 1.30pm – US non-farm payrolls (August): NFPs expected to come in at 187K from 157K, while the unemployment rate holds at 3.9%. Average hourly earnings to be 0.3% MoM, in line with last month. Markets to watch: US indices, USD crosses 1.30pm – Canada employment data (August): 15,900 jobs forecast to have been created, from 54,100 a month earlier. Market to watch: CAD crosses Corporate News, Upgrades and Downgrades Playtech said that it has sold its 10% stake in Plus500 for £176 million. The proceeds will be used or general corporate purposes and to reduce net debt.  AstraZeneca said that the FDA had granted a breakthrough therapy label for its asthma treatment.  Aixtron upgraded to hold at Baader Helvea
BioMerieux upgraded to buy at Kepler Cheuvreux
Equinor upgraded to buy at SEB Equities
Idorsia upgraded to hold at Berenberg Burberry cut to neutral at Goldman
MorphoSys downgraded to hold at Berenberg
Safran downgraded to hold at SocGen
Shire downgraded to hold at Berenberg 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.  

JamesIG

JamesIG

Update on trade war - APAC brief 18 Sep

US President Trump’s administration has announced the next round of tariffs on $US200bn worth of Chinese imports. The tariffs will be at a rate of 10 per cent, increasing to 25 per cent by the end of the year. The tariffs will be implemented on the 24th of September. The Chinese have stated that they will not come to the negotiating table if this second round of tariffs were implemented. We will be awaiting their response in the coming days.   The price action quoted below is evolving, but there is considerable risk-off behaviour and the day ahead is poised for heavy selling while market participants assess the possible impacts of the latest trade war escalation.   ASX: SPI futures are pointing to a slight dip at the open for the ASX200 of about 5 points. In the face of a day of thin trading courtesy of it being a Monday, combined with a bank holiday in Japan, the Australian share market did well to avoid the sell-off that gripped Asian equities yesterday. Fears relating to slower global growth showed up in the commodity sensitive materials sector and the growth-stock-heavy health care space, but despite this, the broader Index managed to push higher to settle slight above last week's high of 6280. Given the geopolitical risks constricting market sentiment today, a further push above that mark seems unlikely. But if clear air can be found, the next test for the ASX and its budding recovery sits around 6205.     US Markets: Wall Street has demonstrated weakness not witnessed for several weeks. Having bucked the global trend for some time, price action in US indices overnight displayed signs that traders are becoming wary of the consequences of heightened hostility between the US and China. Tech stocks led run lower overnight, resulting in 1.43 per cent tumble in the NASDAQ and a 0.56% fall in the S&P500. The benchmark S&P500, as a barometer for US equities, is still in a relatively strong position, remaining close to the top of its upward trend channel. However, according to IG data, sentiment is against the index, with 60 per cent of traders short on the market, exposing the 2870 support level as a noteworthy pivot point.     Asia: Trade within the broader Asian region to start the week has proven a dour affair. The trade war has cast a shadow over Asian indices, with any counter arguments around attractive stock valuations, or planned intervention from policy makers doing little to staunch sell-offs in these markets. The CSI300 is primed to hit new lows, opening today's session 13 points above its 52-week low, and with futures markets indicating a near 1 per cent drop at the open. The Hang Seng is showing some resilience, following a day that saw that index unwind much of last week's recovery rally. The interesting one today will be the Nikkei, which comes back on line after a public holiday yesterday and is showing signs of a noteworthy jump at the open despite a safe-haven play into the Yen overnight.   Emerging markets: The bearishness weighing-on major developed markets will keep pressure on vulnerable emerging markets. Fears that the Chinese economy may falter were behind the renewed sell-off, driving emerging market equities down 1.2 per cent yesterday. Losses in emerging market currencies were relatively contained considering this, but that was largely owing to a weaker greenback. India’s Rupee suffered a fresh bout of selling, after Indian policy makers efforts to stabilize the country’s financial markets failed to assay investors’ concerns about financial stability in the Indian economy, translating into increased selling pressure on currencies ranging all the way from the Philippine Peso to the Turkish Lira.     Commodities and safe havens: The instability in emerging markets coupled with the effects on global growth of the US-China trade war has hit commodities and prompted a play into safe-haven assets. Copper prices maintained its downward trend to start the week, while oil prices also appeared to manifest demand-related concerns. The Bloomberg Commodity index was down 0.4 per cent at the end of the North American session, portending further losses to materials stocks today. Gold prices rallied back towards resistance at $US1207, as traders sold out of the US Dollar and avoided a play into US Treasuries, preferring to park safe-haven funds in the JPY, EUR and GBP. The trade dynamic led to a paradoxically steady AUD/USD overnight, trading at around 0.7180 for much of the North American session, though it must be noted the local unit slipped against most other major currencies.   RBA Minutes: The major event today during the local session will be this morning’s release of the minutes from the RBA’s most recent meeting. Few surprises are expected from the minutes, with recent economic data doing most of the talking for the Australian economy of late. Interest traders have kept wedded to the idea that interest rates will remain on hold until early 2020, something the RBA has done little to contradict in recent months. As is always the case, today’s minutes will be perused by traders for fresh insights into the hot points relating to the domestic economy’s health: this time around, that will likely come in the form of discussion about out of cycle rate hikes from the major banks and concerns about the strength of Aussie households. A major response to today’s news looks unlikely but watch for moves in the Australian Dollar with the realms of support at 0.7150 and resistance at 0.7200.   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.

JasmineC

JasmineC

UK GDP today - EMEA brief 10 August

Asian markets move lower on the rather tedious reiteration of trade war fears. Huge volatility spike sees Turkish Lira dropping 13.5% against the USD. Oil prices edged up on worries that reimposed U.S. sanctions against Iran would tighten supplies. UK growth (Q2), trade (June) and production data (June) later today. Asian overnight: Asian markets followed their US counterparts lower, as trade fears continue to impact market sentiment. Japanese markets where the biggest loser over the session, with a big outperformance in the Q2 GDP figure (0.5% from -0.2%) paving the way for a push higher for the Yen. Elsewhere, the Russian ruble and Turkish lira continue to fall amid strained relationships with the US and political concerns. UK, US and Europe: Looking ahead, GDP remains a focus, with the UK figures to watch out for. Given the new monthly growth readings, watch for that figure alongside the wider quarterly one. With UK manufacturing production, trade balance, and industrial production also being released, it is likely that the pound is set for a volatile morning. In the US session, keep an eye out for the Canadian jobs data alongside the US CPI inflation reading. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK growth (Q2), trade (June) and production data (June): Monthly GDP reading expected to rise from 0.2% to 0.3%, YoY GDP 1.3% expected from 1.2%, and MoM expected to rise from 0.2% to 0.4%. Balance of trade expected to see a larger deficit of -£3 billion, from -£2.79 billion. Manufacturing production expected to fall from 0.4% to 0.3% (MoM), while industrial production is expected to rise from -0.4% to 0.4%. Markets to watch: GBP crosses, UK indices

1.30pm – Canadian jobs report (July): Employment change expected to fall from 31.8k to 24k. Unemployment exected to fall to 5.8% from 6%. Market to watch: CAD crosses

1.30pm – US CPI (July): YoY expected to remain flat at 2.9%, while MoM figure is expected to rise from 0.1% to 0.2%. Market to watch: USD crosses Corporate News, Upgrades and Downgrades SSP has launched a $175 million US bond offer to pay down existing debt. Private placement notes will be issued in October in five series, maturing between 2025 and 2028.  Moneysupermarket.com has completed the acquisition of Decision Technologies, a home communications and mobile phone comparison business.  BMW upgraded to equal-weight at Morgan Stanley
Paddy Power Betfair upgraded to neutral at Credit Suisse
Renault upgraded to overweight at Morgan Stanley
Telefonica upgraded to buy at Jefferies Bakkafrost downgraded to hold at SEB Equities
Basic-Fit cut to equal-weight at Morgan Stanley
Rolls-Royce cut to underweight at JPMorgan
Hill & Smith downgraded to hold at Berenberg 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.

JamesIG

JamesIG

UK Data to forecast stability going into Brexit talks? - EMEA Brief 16 Oct

U.K. monthly average earnings and monthly unemployment release today at 9:30 BST. Earnings forecast to be stable at 2.6% whilst the unemployment rate is forecast to be 4%. The releases could be an important signal to the current economic health of the UK. The US federal budget deficit rose 17% to $779 billion in the 2018 fiscal year due to a surge in government spending. EM currencies rallied to a 2-month high as the Turkish Lira leads the way, climbing as much as 2.1%. The Brazilian Real and the SA Rand were also up, bolstered by the weaker Dollar caused by lower than expected US retail figures. China confirms a CPI (YoY) of 2.5% recovering two figures from the previous 2.3%. Oil prices could surge to all-time highs and ricochet across the global markets if the US imposes economic sanctions on Saudi Arabia amid heightened tensions over the disappearance of journalist Jamal Khashoggi. Bitcoin, Ether and Ripple jump in price as investors shift confidence from the dollar-pegged Tether. Asian overnight: A mixed session has seen Japanese and Australian markets gain ground despite losses throughout the Chinese and Hong Kong indices. Continued US trade war concerns are causing the market sentiment to remain weighed down. The Nikkei was the one standout performer, gaining over 1% amid a JPY sell-off overnight. Data-wise, the Chinese CPI reading saw a notable rise to 2.5% as expected, causing gains in the AUD. Although these have been largely erased as  the RBA minutes pointed towards continued low interest rates. The AUD unemployment rate change due on Thursday is important to consider and could see volatility around the AUD/USD. The expected figure is 5.3%. UK, US and Europe: The European session will be of particular interest today, with UK jobs in focus. Keep an eye out for the average earning figure. Yesterday’s schedule for the Italian coalition to put forward their new budget to the EU has been pushed, and as such we should see this come into play today. With the Italians expected to stand resolute for now, there is a good chance of 10Y yields rising further. With the US and Saudi Arabian relationship potentially turning sour, keep an eye out for oil prices which could spike in the event that Trump decides punitive action is necessary. Going forward, Germany is set to release the Import Price Index and the ZEW survey about economic sentiment. The data is forecast to be -9.1 vs the previous -7.2 in Europe. Volatility surrounds Italy as they await EU’s verdict with the Italian cabinet raising next year’s target budget deficit from 1.8% to a sharp 2.4% of GDP. A key thing to watch out for is the spread between the Italian BTP and the Bund as it is currently well above 300 - an increasing spread is indicative of rising volatility and uncertainty, especially for the banking sector. The EU leader summit this week is also likely to affect the markets as Prime Minister Giuseppe Conte is set to give a speech, whilst EU negotiator Michel Barnier will present a form of Brexit conclusion. In preparation for Brexit, Coinbase has planned to move to Dublin as part of their expansion in the EU and to retain the benefits of passporting for EU companies.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK employment data: August unemployment rate to hold at 4%, and average earnings including bonus to rise 2.4% in August from 2.6%. September claimant count to rise to 10,000 from 8700. Market to watch: GBP crosses

10am – German ZEW (October): economic sentiment to fall to -14 from -10.6. Market to watch: EUR crosses Corporate News, Upgrades and Downgrades Meggitt has upgraded revenue guidance, with organic revenue growth expected to rise 7-8%, from a previous 4-6%. Stronger-than-expected Q3, up 6%, drove the improvement.  Merlin Entertainments reported a rise in revenue, but warned that the cost environment was ‘challenging’. Tighter labour markets across the globe have put pressure on wage costs.  British American Tobacco has revised down its full-year revenue target for next-generation products, due to a flat market in Japan and a product recall in the US. US retail giant Sears files for bankruptcy after failure to meet a $134m repayment. Cepsa, the Spanish oil and gas company, pulls its IPO plans amid market turmoil. This follows on from our piece yesterday on the correlation between IPOs and volatility. Admiral upgraded to buy at Goldman
Aggreko upgraded to outperform at RBC
Antofagasta upgraded to outperform at Macquarie
Homeserve upgraded to buy at Citi ConvaTec downgraded to neutral at JPMorgan
Intu downgraded to neutral at Citi
Superdry downgraded to hold at Stifel
Smith & Nephew 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

UK CPI today - EMEA brief 18th July

Oil prices dropped after an industry group reported that U.S. crude inventories rose last week, defying analyst expectations for a significant reduction. Wage growth in Britain is slowing according to new data out yesterday, casting a shadow on the likelihood of a BoE rate hike in August. All eyes should be on UK CPI data later today. Feds Powell said the “best way forward”, despite an impending trade war, was to continue to gradually increase rates. IBM have backed a ‘stable coin’ supposedly pegged to the USD and running on the Stellar blockchain network. You can have your say on which new cryptocurrency IG offer in our community poll. Asian overnight: A mixed bag for Asian markets has seen losses throughout Chinese and Hong Kong indices, while Japanese and Australian markets enjoyed a more positive session. Japanese stocks in particular enjoyed a boost from a weakening yen, with USDJPY reaching a five-month high. UK, US and Europe: Last nights positive speech on the US economy by Federal Chair Person Jerome Powell, combined with some better than expected results from the financial sector to help stage a rebound in US equity markets. European concerns turn to the UK once more, with the latest inflation data due out this morning. Coming off the back of a somewhat underwhelming UK jobs report yesterday, the market expectations for a strong rise in CPI could be a key determinant of BoE sentiment ahead of their August meeting. Also look out for the eurozone CPI reading, although this is a final revision. In the US, building permits and housing starts push the agenda onto the housing market, yet with Jerome Powell set to give his second monetary policy testimony in as many days, there is a chance he will grab the headlines. With crude price showing significant volatility over the past week, traders should watch for the US crude inventories figure, following the substantial drawdown in stocks announced last week. South Africa:  The positive sentiment is echoing into US Futures this morning and expected to translate into our local Index on open as well. The dollar has strengthened to weigh on precious metal prices. The rand has also weakened against the greenback. BHP Billiton is trading 3.29% higher following an upbeat FY18 operational update this morning, with gains expected to be replicated on the company's JSE listing. Tencent Holdings is up 0.3% in Asia, suggestive of a marginally firmer start for major holding company Naspers. Miners of precious metals are expected to underperform our market today on account of the softer pricing of the underlying commodity.  Economic calendar - key events and forecast (times in BST)
9.30am – UK CPI (June): YoY inflation to rise 2.5% YoY from 2.4%, and core CPI to be 2.3% from 2.1% YoY. MoM CPI to be 0.4%, in line with May. Markets to watch: GBP crosses 10am – eurozone CPI (June): final YoY figure to be 2% from 1.9%, and 0.1% MoM from 0.5%. Markets to watch: EUR crosses 1.30pm – US housing starts & building permits (June): starts to be down 4% MoM from a 5% rise, and permits to be up 0.7% MoM from a 4.6% fall. Markets to watch: USD crosses 3.30pm – US EIA inventories (w/e 13 July): stockpiles forecast to fall by 1.9 million barrels, from a 12.6 million decrease a week earlier. Markets to watch: Brent, WTI Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades GVC said that net gaming revenues had risen 8% on a constant currency basis, for the first half of the year. Online business grew 20% over the same period. The World Cup and warm weather boosted performance.  Premier Foods said that sales rose 1.7% in the 13 weeks to 30 June, with good performances from the Mr Kipling and Batchelors brands.  easyJet expects headline pre-tax profit to be £550-590 million for the year to the end of September, up from previous forecasts of £530-580 million. Revenue rose 14% to £1.6 billion for the third quarter. Full-year headline costs per seat, excluding fuel, are expected to be 3% higher, from a previous 2% forecast rise, due to higher levels of industrial action.  Aker BP Upgraded to Buy at Norne Securities
Ascential Upgraded to Buy at Goldman
Brenntag Upgraded to Buy at Commerzbank
Proximus Upgraded to Hold at Jefferies Bonava Downgraded to Reduce at Kepler Cheuvreux
De’ Longhi Cut to Hold at Kepler Cheuvreux
Fresnillo Cut to Sector Perform at Scotiabank
Schibsted Downgraded to Hold at SEB Equities Featured Video from IGTV   Please note: This information has been prpared 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.

JamesIG

JamesIG

UK Annual Budget Plan to be announced- EMEA Brief 29 Oct

Philip Hammond to announce the last UK annual budget plan before Brexit on Monday HSBC announces a rise in profit before tax of around 28% year-on-year to $5.922billion IBM to acquire Red Hat for $34billion, buying all shares at $190 each Jair Bolsonaro wins Brazilians Presidential election with just over 55% of votes Merkel’s Christian Democratic Union votes falls to 28% from 38.3% from the last election Economic growth for China fell short of expectations, including an economic slowdown in recent shipping data Investcorp to increase investment in the US, as well as looking to expand into the Asian markets, particularly China and India Michael Higgins wins 56% of votes and re-elected as Irish president Italian government to step in if a crisis in the banking sector occurred Crude oil continues to drop, declining around 12% and working on its worst month since 2016 Shanghai composite and Shenzhen composite falling by 0.95% and 0.83% in this mornings trade, whereas, the Nikkei 225 increases by over 1% and ASX 200 by 0.98% SIT Investment Associate’s warns that the bond market could surge on spiking interest rates Asian overnight: Another bearish session overnight saw losses across the majority of markets, with Chinese stocks hit hardest after the Shenzhen composite dropped 3%. The technology sector was once again targeted by sellers, with Japanese markets being impacted by a significant selloff. We also saw Japanese retail trade data fall from 2.7% to 2.1% UK, US and Europe: Looking ahead, a somewhat quiet economic calendar sees a focus on US data, where personal spending and the core PCE price index data should provide some form of volatility for dollar volatility. The government is to reconsider a new budget plan if a Brexit deal with the EU does not come into plan. Mr Hammond explains that the original budget forecast was based on an “average-type free trade deal”, therefore if the UK leaves without an agreement, this could change. The forecasted budget is pressured to add extra funds for the universal credit rollout, after claims that millions of households could potentially lose money under the new system. It also has plans to release expected budgets of around £30billion for roads in England, £900million in business rates and £650million to rejuvenate high streets, as well as an increase of £2billion on mental health services and another freeze in fuel duty. South Africa: Commodity prices are trading mostly lower this morning, while the dollar remains firm. The rand is weaker against the majors. Tencent Holdings is down 1% in Asia, suggestive of a softer start for major holding company Naspers. BHP Billiton is trading 1.4% higher in Australia this morning, suggestive of a higher start for local resource counters.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 12.30pm – US personal income & spending (September): income to rise 0.3% MoM and spending to rise 0.4% MoM. Market to watch: USD crosses 11.30pm – Japan unemployment (September): rate to rise to 2.5% from 2.4%. Market to watch: JPY crosses Corporate News, Upgrades and Downgrades HSBC posted better than expected profits in Q3, following a reduction in costs, with adjusted pre-tax profits coming in at $6.19 billion (up 16%). The ability to rein in costs is positive going forward, with operating expenses falling 6.9% to $7.97 billion over the period.   Ford’s production line in Bridgend to close from the 29th October to 2nd November Asda to potentially cut up to 25,000 jobs as they begin consultations with staff in regards to job roles and working hours Hitachi shares decline around 8% as its Chemical Co enters its second falsification scandal this year Barclays to not face trial over its emergency fundraising from Qatar in 2008 financial crisis MTN Group For the quarter ending 30 September 2018, group service revenue increased by 10,0% y/y  and group data revenue increased by 23,9% y/y.  Raubex Group Ltd for the interim period, revenue decreased by 4% and headline earnings per share decreased by 72.8%  Famous Brands for the interim period, revenue increased by 5.4% and headline earnings per share by 10.6% Royal Gold Downgraded by Zacks Investment Research to Strong Sell 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

Twitter earnings today - EMEA brief 27th July

European shares seen opening slightly higher Interest rates and details of asset purchases by the ECB remain unchanged after yesterdays meeting. No mention of protectionist policy or further details on the supposed resolution of aluminium and steel tariffs were given by Draghi. Prescription cannabis for medical use is now legal in the UK after a reclassification of the drug. Amazon smash forecasts of $2.54 EPS with a healthy $5.07 for their end of years. Sky broadcaster and broadband provider profits are soaring amidst the Comcast and 21st Century Fox bidding war. Copper is looking to gain this week for the first time in seven. After three days worth of gains oil slipped on a quieter trading day, however the black gold remains supported by Saudi transport disruption. Asian overnight: A somewhat steady, if indecisive session overnight saw moderate gains across the Japanese and Australian indices, while Chinese and Hong Kong markets drifted lower throughout the session. Asian markets are trading marginally lower this morning although the Australian All Ordinaries is up nearly 1%. Yesterday’s Facebook driven losses on the Nasdaq had a limited impact on tech shares in Asia, with Hong Kong the only market to see downside for their tech sector. On the data front, Japanese Tokyo core CPI rose to 0.8% (from 0.7%), in a welcome continuation of the rare rise seen last month.
 
UK, US and Europe:  US Index Futures are staging a partial rebound this morning after yesterday's Nasdaq led decline following worse than expected results from Facebook.  The dollar has softened overnight and in turn we have seen some marginal gains in commodity prices. Looking ahead, a quiet day from Europe means the focus will be firmly fixed on the US GDP figure, which is expected to rise sharply to over 4%. Trump’s excitement at the ‘best financial numbers on the planet’ could possibly be another lead on the potential release, given his announcement about “looking forward to the jobs numbers” on the day of a massive NFP outperformance back in June. The corporate calendar remains busy, with Twitter earnings maintaining the focus on tech stocks today. Meanwhile, we also have the likes of Exxon Mobil, Chevron, Colgate, Merck, and American Airlines numbers to look out for. South Africa: The rand is slightly firmer against the majors. BHP Billiton is up 2.2% in Australia, suggestive of a positive start for local diversified miners. Tencent Holdings is down 0.75% in Asia, suggestive of a similar start for major holding company Naspers. Markets are expected to trade cautiously into this afternoons US GDP data release where consensus estimates predict an economic expansion of more than 4% q/q in the worlds largest economy.  Economic calendar - key events and forecast (times in BST)
1.30pm – US GDP (Q2, first reading): growth forecast to be 2.1% QoQ. Markets to watch: US indices, USD crosses 3pm – US Michigan confidence index (July, final): forecast to fall to 97.1 from 98.2. Markets to watch: US indices, USD crosses Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Reckitt Benckiser saw an outperformance in its infant formula business, with a 7% rise in sales for that segment helping drive a 4% increase in like-for-like sales for the business as a whole over the second quarter. It was that bullish development in their infant formula business, particularly in China, which helped raise their full-year sales outlook. Pearson are on track to return the business to profitability this year, after a rise in demand in US and online helped deliver an outperformance for what is traditionally a quiet first half of the year. The second half of the year is usually where the company makes the bulk of its profits, and with first-half adjusted operating profit of £107m, this was well ahead of the £85m expected. BT Group saw a 1% rise in core earnings for the first quarter, thanks largely to cost savings, and strong business in its EE mobile unit. However, the firm also saw underlying revenue down 2%, which fell in line with market expectations. Rightmove saw pre-tax profit rise 12% in the six months to June, with revenue up 10% as their revenue per advertiser rose to £987, from £911. The number of agents using the platform remained largely flat despite housing market struggles, helping enable a 14% rise in their interim dividend, to 25p a share. Oando Plc  Interim results showed turnover increased by 11%, N297.3 billion compared to N267.0 billion (H1 2017). Gross Profit increased by 53%, N51.0 billion compared to N33.4 billion (H1 2017).  Royal Bafokeng Platinum anticipates a loss per share ("LPS") for the six months ended 30 June 2018, of between 13.5 cents and 10.5 cents (representing an improvement of between 10% and 30%), compared to a LPS of 15 cents for the previous corresponding period (the six months ended (30 June 2017). A headline loss per share (“HLPS”) of between 7.5 cents and 4.5 cents (representing an improvement of between 51% and 70.6%) is anticipated, compared to a HLPS of 15.3 cents for the previous corresponding period.  William Hill Upgraded to Hold at Peel Hunt
Tekmar Group Rated New Buy at Berenberg
NCC Upgraded to Buy at Berenberg
Rosneft GDRs Upgraded to Buy at Goldman Amerisur Resources Cut to Sector Perform at RBC
Inchcape Downgraded to Hold at HSBC
SSE Downgraded to Hold at HSBC
Ebro Foods Downgraded to Neutral at Haitong
  Featured Video   Please note: 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.

JamesIG

JamesIG

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