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Global market landscape - APAC brief 15 Nov

Written by Kyle Rodda - IG Australia The global market landscape: November’s gains, as modest as they were, have been snatched it would seem, across Wall Street indices and Australia’s ASX200. The bloodletting has been profuse once more this week, and it seems that diminishing number of momentum chasers have had handed to them another dose of market reality. To be fair, this latest round of selling has been precipitated by a new risk: tumbling oil prices. The price of the black stuff bounced overnight, but this was of course only after a considerable plunge that sent prices into a technical bear market. Energy stocks have been pummelled, and its sparked concerns that debt instruments secured to oil held by many corporates are at a materially higher risk of default. That’s turned a commodity problem into a real-financial problem. US markets: That’s what has manifested in markets overnight. Credit spreads on US investment grade credit have blown out again, compounding the existing concerns relating to the effects Fed tightening will have on (deteriorating) liquidity conditions. The 3-month Libor rate for one, despite relatively lower volatility since the end of October, has continued to march higher, further stifling financial conditions. The assumed affect this dynamic will have on global credit availability has hit financial stocks, and those areas of the market considered highly leveraged – like US tech – driving a remarkably synchronized sell-off across Wall Street Indices last night. At time of writing, the Dow Jones, S&P500 and NASDAQ have pared losses for the session, leading into the final moments of trade, but this turnaround only occurred after an announcement by UK Prime Minister Theresa May she has cabinet support for her Brexit deal. US Treasuries and US CPI: US Treasuries have caught a bid on last night’s trade, with the yield on the US 10 Year Treasury note falling to 3.10 per cent, and the yield on the US 2 Year Note falling to 2.85 per cent, narrowing the spread between those two assets to 25 basis points. A haven play into Treasuries was fortuitously supported by (on balance) softer CPI figures out of the US overnight: annualized core CPI dipped from a month earlier to 2.1 per cent. The figures momentarily dulled fears of inflation risk, permitting traders to discount such anxieties, as risk-off assets, such as US Treasuries, were sought. It’s a trade with shrinking efficacy, however, and it won’t be long before the new-normal of elevated volatility, caused by a hiking US Fed, snuffs it out.  Fed policy and Powell’s speech: This is because despite all the volatility already seen in financial markets in recent months, it won’t be enough to stop this Fed from hiking interest rates. Indeed, circumstances could change, and a risk too difficult for the Fed to ignore could derail these plans. As it stands now though, Jerome Powell’s Fed has little sympathy for the crocodile tears of market participants. He and his team are concerned with Main Street and its wellbeing, and for now, the average American punter (at least, according to the data) is doing rather well. Wall Street will just have to adjust to this world of less accommodative monetary policy – just as markets ought to do when they are functioning properly, and without artificial support. For this reason, the day ahead will find itself hinging-on a speech to be delivered by Chairperson Powell, with traders waiting for any word that may indicate a more dovish view. Geo-political risks: There are genuine macro-risks currently, and although not as significant as the structural factors relating to US Fed policy, they have and will continue to drag on US and, as such, global growth. Ironically enough, even considering this week’s equity market plunge, the outlook for matters relating to Brexit and the US-China trade-war has probably improved. The so-called “all-level” talks between the US and China has been welcomed by investors, and as of early this morning, UK Prime Minister Theresa May has announced that she has secured cabinet support for her recently negotiated Brexit deal with the European Union. The warmer sentiment generated by both stories has led to a sell-off in the US Dollar in favour of the Pound and Euro, which are presently trading above 1.30 and 1.13 respectively; while the Australian Dollar has appreciated in line with offshore-yuan to trade at resistance around 0.7240. ASX200 yesterday: SPI futures have picked up very slightly as Wall Street pares losses to end the North American session. The good-news (for markets, that is) story about Brexit and its progress has delivered the sugar hit necessary to boost trader confidence, during what has otherwise been a challenging week for the bulls. Yesterday’s trade for the ASX200 saw technical levels kicked aside, with much of market activity surely attributable to some irrational panic. Energy stocks suffered throughout the day, as did high-multiple-stocks in the health care sector, along with the heavy-weight banking stocks. The 1.74 per cent tumble really kicked-off around mid-day when Chinese money-supply and credit figures spooked market participants. Weak Chinese Retail Sales data seemed to weigh on Chinese equities, with the CSI 300 shedding another 1 per cent. The day ahead: An already very broad-based sell-off – breadth ended at a narrow 15 per cent – accelerated by way of virtue of the weak Chinese data, leading to breaks of support at 5825, 5800 and 5785. Another day of plus-1 per cent losses is rather improbable today, especially given the positive Brexit news, and that employment data is the only major local release. The market isn’t demonstrably oversold yet, and momentum hasn’t crossed to a point where hastened selling should take place. Furthermore, though bright spots are hard to find, a small minority of bargain hunters are surely to be sniffing around for value after three successive days of declines. More generally, pressure remains to the downside in the medium term: 5690 should be watched for as the next key price-level, a breach of which could open-up downside to 5600, and see the local index return to the very sticky range it occupied for 6 months in 2017.

MaxIG

MaxIG

Cabinet summoned to Westminster as draft Brexit deal reached - EMEA Brief 14 Nov

Theresa May faces a crucial cabinet meeting today at 14:00 UK time as she seeks support from senior ministers for her draft Brexit deal between the EU and the UK. In light of the news of a potential Brexit deal being agreed, the pound rose 0.12% against the dollar on Wednesday morning and 0.16% against the Euro. The US equity markets generally ended down as Wall Street fails to claw-back earlier losses from the lackluster performance of the energy sector. The S&P slipped 0.2%, it's fourth straight decline, the Dow fell by around 100 points and the Nasdaq closed flat. US crude has dipped 7% settling at $55.69, a one year low, which has sent the energy market into a sell-off mode as OPEC and other oil producers have been increasing output as well as exemptions granted by the US on buying oil from Iran. However, we may see a correction soon as producers will meet next month to discuss the supply of oil. Overall a mixed session for Asian stocks on Wednesday after varied results on China's economy and the oil drop. Shanghai Composite Index fell 0.9%, the Hang Seng dropped 0.8% and Japan's Tropix Index saw an increase of 0.2%. Interesting news surrounding digital money, as the IMF indicates that central banks should consider issuing digital currencies. Head of the IMF Christine Lagarde said whilst speaking in Singapore "I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy". Asian overnight: A mixed session overnight saw gains in Japan counteracted by weakness across most of the other major markets. The Australian ASX 200 was the notable under-performer, falling over 1% thanks to substantial weakness across the energy sector in the wake of the crude decline. That decline was partly down to the OPEC monthly report which saw markets shift focus onto the oversupply that seems likely in 2019. Data-wise, we have seen a whole host of economic releases, with Japan falling into negative growth for Q3 (-0.3%), while Chinese releases fared somewhat better given the rise in fixed asset investment and industrial production.  UK, US and Europe: The main focus of today is likely to be on Brexit concerns, given yesterday’s breakthrough in talks. The final agreement is far from assured a safe passage, and thus the market reaction is likely to be heavily impacted by the ability to pass through Parliament. With that in mind, expect sterling volatility, with any signals of how the votes might go likely to play a major role. Also watch out for the latest inflation data, with UK CPI expected to rise to 2.5% today. In mainland Europe, markets will be keenly following the latest eurozone Q3 GDP number, alongside the industrial production figure. Finally, the US follows on from the UK with the inflation theme, where CPI is expected to rise to a nine-month high.   The news of a potential Brexit agreement will have eased investors fears over a no-deal scenario, we've already seen an increase in the value of sterling due to the announcement. The deal addresses the Northern Ireland backstop, one of the most highly contentious issues which was creating a dead-lock in getting a deal over the line. It is believed that the draft deal aims to avoid a hard border with Northern Ireland by keeping the UK aligned with the EU customs union for some time. However, this has caused many Brexiteer's and the DUP, who have a confidence and supply agreement with the Tories, to question exactly how this proposal will work in practice. Interesting to see trader sentiment today in the UK and European markets as a volatile session is expected, will we see the markets go in the green or is it still too early to get behind this Brexit deal? Not everyone was pleased with the announcement of this potential Brexit deal. Jacob Rees-Mogg announced he could withdraw his backing for Theresa May as "She hasn't so much as stuck a deal as surrendered to Brussels and given in to them on everything that they want and tried to frustrate Brexit". Fellow Brexiteer Boris Johnson claimed that "this is just about as bad as it could possibly be", if the leaked reports about the deal are true. Lookout for breaking news after the crunch cabinet meeting today, which is scheduled to go ahead at 14:00 UK time. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK CPI (October): prices to rise 0.2% MoM and 2.6% YoY from 0.1% and 2.4% respectively. Core CPI to be 2.2% from 1.9% YoY. Market to watch: GBP crosses 10am – eurozone GDP (Q3, 2nd estimate): QoQ growth to be 0.2% from 0.4%. Market to watch: EUR crosses 1.30pm – US CPI (October): prices to rise 0.3% MoM and 2.4% YoY, from 0.1% and 2.3% respectively. Core CPI to rise 0.2% MoM from 0.1%. Market to watch: USD crosses Corporate News, Upgrades and Downgrades Numerous reports suggesting that airline Flybe has been put up for sale after issuing a dramatic profit warning less than one month ago, the company's shares have fallen nearly 75% since September. SSE has announced losses of £246.4m for the six months to the 30th of September, the chairman of the British energy firm said "This is disappointing and regrettable, but important changes are now being made to the way SSE manages its exposure to energy commodities". WeWork has reported that Japanese technology group Softbank has invested a further $3bn into the office space provider. Smiths Group plans to separate out its underperforming medical division from the rest of the firm/ Q1 trading revenue fell 1%, thanks to good growth at the energy division that offset poorer performance at its medical unit. Underlying growth for the full-year is still expected to match last year’s.  Workspace Group suffered an 18% fall in first-half profit, to £101.6 million, although net rental income rose 17% to £35.4 million. The dividend was raised by 20% to 10.61p.  British Land said that first half underlying profit fell 14.6% to £198 million, and added that the retail market remained challenging. Auto Trader upgraded to buy at Peel Hunt
Burberry upgraded to add at AlphaValue
Tullow upgraded to hold at Panmure Gordon BB Biotech downgraded to hold at Baader Helvea
ThyssenKrupp downgraded to hold at HSBC
Rio Tinto downgraded to sell at Liberu 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

Fleeting relief - APAC brief 14 Nov

Written by Kyle Rodda - IG Australia Fleeting relief: The Chinese and Americans are talking again; and the UK and European Union are nearing a deal. Those are the two stories that have turned the dour sentiment that characterized the first trading day of the week into something resembling optimism. Perhaps it’s another relief rally – every time the world doesn’t end we get one of those. Like when US mid-terms passed with few surprises, things going as they ought to engender nice feelings in the guts of traders. And not unjustifiably, either: the trade war and Brexit have become the two biggest bugbears in developed markets. In fact, 2018 may well be remembered in financial market history as the year the three biggest economic blocs’ almost tore one another apart – well that, and the very significant turn in US Fed monetary policy, of course. Is this the turning point? If this sounds all a little grand, that’s because it is; and it is why although the headlines read well this morning, the text of the story is one that we’ve read before. Could this time be different? Quite possibly. The steps taken by Chinese Vice Premier Liu He and US Treasury Secretary Stephen Mnuchin to re-engage in talks is a considerable step forward, ahead of what is a planned meeting between the two nation’s Presidents, US President Donald Trump and Chinese President Xi Jinping, at the sidelines of this month’s G20. And the news that UK Prime Minister May has effectively secured a deal with her European Counterparts – one that includes an Anglo-friendly outcome on the Irish border, it’s been reported – bares the signs that (at the very least) the British and Europeans are on the same page. A long way to go: Nevertheless, there is an amplitude to cover for the negotiating teams on all sides relating to both respective issues to feel comfortable that, this time around, this is the true beginning of the end. The political machinations driving both matters forward are occurring (naturally) behind closed doors – away from the prying eyes of the press and the public. For all we know, both or either one of the conflicts may be well advanced towards a resolution. From what has simply been reported thus far however, little has materially changed – at least for now. Even when stripping aside the important point that even if these issues were to disappear, the bigger fundamental challenges facing financial markets would remain, the very many sticking points to arrive at an end in the Trade War or Brexit means that turbulence inevitably lies ahead, whatever the outcome. Asian action: The price action in markets, as it evolved throughout global trade, apparently reflects this notion. When the news broke about a possible step forward in negotiations between the Chinese and Americans, China’s equities flew, erasing a one per cent loss to close day one per cent higher. The Yuan – a better barometer– pared its losses to trade back at the 6.95 handle, and the Australian Dollar rallied above 0.7200 and the New Zealand Dollar paid a visit above 0.6750. The Nikkei, which had been down by 3-and-a-half per cent on less than one per cent breadth, rallied to contain losses to – a still considerable – 2 per cent, courtesy, in part, to a fall in the Yen to 114.00 resistance. European follow-through: Futures markets also turned to price in the relief-pop across US and European equities, and as news filtered through about the potential Brexit-deal during European trade, traders hit the buy button. The DAX, which would have certainly fed on the prospect of reduced tensions between the US and China, added 1.30 per cent, and the Eurostoxx 50 gained 0.96 per cent for the day. The FTSE100, it must be said, only managed to register a flat finish for the session; but this was largely due to the rally in the Pound. The GBP/USD rallied above the 1.30 handle briefly and the EUR/USD pushed above 1.1250, forcing the USD to recede from its 18-month highs – a dynamic that also saw commodities generally turn higher for a period. Wall Street fizzle: Flash forward to this moment (or really, to the moment at which this is being written): US equities are entering the final hour of trade having erased the gains attained in early trade. As has been described, the attractive headlines about the Trade War and Brexit have proven not enough to change the fundamental landscape, for now. The VIX remains hovering just below the 20-level, and a general sense of risk aversion has pushed the yield on 10 Year US Treasuries back to 3.14 per cent. Another day of losses for oil, that has seen the price of Brent Crude plunge to $US65.14, has also been blamed for the poor showing for US stocks. In a choppy end to the session caused by below average volume, the Dow Jones is down around 0.5 per cent, the S&P500 is down 0.2 per cent, while an early tech-bounce has (thus far) supported a flat day for the NASDAQ. Australia today: SPI futures have followed US indices down at the back end of the North American session, indicating that now the ASX200 is expecting a more-or-less flat open. It was another wipe out for the local market yesterday, with the Australian share market closing 1.8 per cent lower, led by losses in the healthcare and information technology sector. A handful of companies going ex-dividend, including heavy weight Westpac, certainly exacerbated he ASX200’s fall, however a breadth of 10 per cent shows this was a widespread sell-off.  Australian trade could prove to be eventful today following Wall Street’s lead. The economic calendar is robust: locally, Wage Price Index data is released, while abroad, Chinese Fixed Asset Investment and Industrial Production data is printed. The Australian Dollar is exposed to downside in the event these three releases underwhelm – 0.7150 is a realistic level of support to watch for – and the ASX200 appears vulnerable to break below a key level at 5820, if Wall Street’s selling follows through.    

MaxIG

MaxIG

Is the UK running out of time to reach a Brexit agreement? - EMEA Brief 13 Nov

Theresa May´s cabinet is set to meet today in order to try and find a solution to the Irish border crisis, the main headache for Brexit talks in the last few months. As a result of the uncertainty regarding a Brexit deal, the GBP weakened against its major pairs, falling by almost 1% against the US dollar and 0.2%against the Euro. The Dow Jones lost 2.32% on Monday falling by 602 points to close at 25,387.18, after Apple suffer another hit and worries over global trade continue. The Nasdaq re-enters correction territory as it lost 2.8% to close at 7,200.87. Goldman Sachs shares suffered their biggest loss in 7 years, leading the S&P 500 to drop 2% to close at 2,726.22. The fall comes after the Malaysian finance minister demands a full refund of the $600million fees they paid To GS in order to help set up the fraudulent state investment fund 1MDB.  Cigarette shares dip on Monday as the US Food and Drug Administration (FDA) consider banning menthol cigarettes. The fall was led by British American Tobacco that lost almost 11% closing at 2.962,50 as investors fear over the future of the newly acquired US menthol brand Newport. A smaller than expected demand for vaping products has also led to the company´s revenues to miss targets for the year so far. Italy has reached its deadline to submit a revised budget draft to the EU but, despite pressure from Brussels, Italy shows little signs of altering its budget as it targets to boost government spending. Because of this, Italian bond years rose again on Monday, increasing between 1.3% and 3.5% across the curve. Asian markets start the day in the negative territory but seem to recover into the afternoon. The Hang Seng dipped to 25,092 at the open but has recovered in the afternoon trading above Monday's closing price. The Nikkei 225 has been trading at a 2% loss from the previous close whilst the ASX 200 is ending the day 1.8% lower.  Airline stocks have been hurt after the OPEC cartel announce they are looking to stabilise oil prices by reducing supply after prices have fallen around 20% in the last month. International Consolidated Airlines (IAG) closed 0,9% lower on Monday at 637,60. Asian overnight: Asian markets followed their US counterparts lower overnight, with a sharp deterioration in Apple shares sending tech stocks lower in markets such as the Topix, ASX 200, and South Korean Kospi composite. This came after two of Apple’s suppliers cut their earnings forecasts, causing markets to worry whether iPhone sales had peaked UK, US and Europe: The Pound has had a tough start to the week as the markets start to factor in the possibility of a “no deal” Brexit. As it is becoming increasingly possible that Theresa May is not going to be able to pass a deal in Parliament before the deadline on March 29th, the pound is starting to come under pressure against major currencies such as the Euro and the US Dollar. The Brexit negotiations have come under heat as Theresa May has tried to create a UK customs union in order to avoid a hard border on the Island of Ireland. But the EU has rejected this idea by enforcing the backstop plans which lock in the UK in a relationship with the EU which cannot be ended without the EU´s permission. We can expect the Pound to trade with increased volatility this week as key meetings will shape whether there is a possibility of a Brexit deal to fit all. After the recovery from the 2008 financial crisis, the stock markets have been performing seemingly well keeping a consistent uptrend throughout the years but the trading activity of the last month have left investors worried over the health of the financial systems. As earnings have been consistently increasing and companies are performing well, there have been talks about how long this sustained growth can last, questioning if the markets have reached their boiling point. After October became one of the worst trading months in years, the month of November had seemed to bring some relief to stock markets, but after Monday's sharp decline it shows that the markets remain volatile. All it took was bad production figure for Apple and possible regulatory action against Goldman Sachs to send the stock market into a downfall. As the potential for a slow down in economic growth and earnings is starting to take place amid ongoing trade wars and  rising interest rates, investors are advising clients to remain cautious and reduce the amount of risk by diversifying their portfolios in order to be prepared for the months to come. Looking ahead, UK jobs data provides a focus on the pound, with average earnings expected to rise sharply to a three-year high of 3%. Also keep an eye out for the German ZEW economic sentiment survey, coming in a week that is expected to see the German Q3 GDP reading hit negative territory. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK employment data: claimant count to rise by 3200 from 18,500 in October, while unemployment rate holds at 4%, and average hourly earnings rise 2.6% in September. Market to watch: GBP crosses
10am – German ZEW (November): economic sentiment to rise to -12 from -24.7. Market to watch: EUR crosses
11.30pm – Australia Westpac consumer confidence (November): index to rise to 103 from 101.5. Market to watch: AUD crosses
11.50pm – Japan GDP (Q3, preliminary): forecast to be -0.3% QoQ from 0.7%. Market to watch: JPY crosses Corporate News, Upgrades and Downgrades Taylor Wimpey said that sales rates grew in the second half, up to 0.77 from 0.71 a year earlier. The current order book was up 9% over the year, to £2.4 billion.  Vodafone suffered a loss of €7.83 billion for the first half, arising from the disposal of Vodafone India, higher financing costs and de-recognition of a deferred tax asset in Spain.  Experian suffered a 5% drop in pre-tax profit to $470 million for the first half, while revenue rose 7% to $2.36 billion.  Allied Minds upgraded to buy at Jefferies
Anglo American raised to hold at Global Mining Research
Zurich Airport upgraded to hold at Santander
Total upgraded to buy at AlphaValue IP Group downgraded to hold at Jefferies
ThyssenKrupp downgraded to hold at Bankhaus Lampe
Orpea downgraded to neutral at Credit Suisse
Sophos downgraded to hold at Shore Capital 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

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

Saudi Arabia to curb Oil production - EMEA Brief 12 Nov

Crude prices gained, as Saudi Arabia leads OPEC and its allies into cutting Oil supply from December. The Saudis mentioned seasonal factors among concerns for weaker demand, as they laid ground for a wider production curb in 2019. Gold holds steady near a one month low as it keeps losing lustre as a safe haven to the benefit of USD. Spot gold was little changed at $1,209.57 per ounce at 01.21 GMT. Will the commodity benefit from a more divided White House? Yuan proxies such as AUD and NZD are experiencing downward pressure as traders hedge against interest rates hikes from PBOC.  Yuan is gaining ground as a safe haven, amidst gloomy global outlook. The Euro could benefit from a rebound in German growth, as the country accounts for almost one third of the euro-zone economy. Expectations are growing as, according to the VDA German carmaker association, 440,000 new cars were produced in October, compared to 310,00 in August. The downward pressure on US Treasuries could weaken, after 10-year yields started coming down from almost a 7-year high, as oil moved higher overnight.  Asian equities edged higher this morning overcoming the drag on Friday of Large-cap US stocks (the Nasdaq lost more than 1.5%).  Australian shares added 0.13 percent, while Japan's Nikkei stock index gained 0.11 percent. Asian overnight: A somewhat uninspiring session saw Chinese markets provide the only substantial move, with the Shenzhen composite rising over 1%. The FTSE China A50 rebounded amidst positive expectations for industrial data to be released on Wednesday and Alibaba’s record sales volume yesterday. Meanwhile, Japanese, Hong Kong, and Australian markets largely posted very moderate gains to kick off the new week. On the data front, Japanese PPI eased from 3% to 2.9%. UK, US and Europe: May braces for a tough week to keep her Brexit plan alive. Opposition from both sides mounts and one area of contention is a clause that would allow the  UK to exit the Customs Union only via a bilateral agreement. According to International Trade Secretary Liam Fox, a second referendum is not even in question. The Cabinet was expected to meet today, but yesterday there was no sign of progress. Meanwhile, major US banks are planning to shift about €250 billion of balance-sheet assets to Frankfurt because of Brexit.

Italian treasuries have the highest yield among investment-grade bonds in the euro area and piqued the interest of M&G Investments and BlueBay AM LLP. Yield on Italian sovereign dept keeps plummeting before tomorrow, which is the deadline to submit a revised budget plan to the EU, as the markets downplay the risk of Italian populist politics. However, the Italian coalition government has already dismissed Brussels' ultimatum and warns that the plan remains unchanged.  Looking ahead, Veterans' Day in the US means we will see lower volumes throughout the day. Given that there are no major events to note throughout the European session, we are likely to see a continuation of the running themes of the weekend, with crude and sterling grabbing market attention.  Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 6:00 - JPY Machine Tool Orders. Previous at 2.9% vs actual at -1.1%. Higher tracks trends in machine tool orders placed by major manufacturers means higher capital spending. Corporate News, Upgrades and Downgrades  AstraZeneca said that its diabetes drug had ‘significantly’ reduced the risk of hospitalisation for heart failure.  Playtech has reaffirmed its full-year guidance, although trading in Asia had hit performance. Overall growth outside Asia remained resilient.  Diageo said that it would launch an additional share buyback programme after an agreement to sell nineteen brands to Sazerac for a total of $550 million.  Burberry upgraded to neutral at Intermonte
Logista upgraded to neutral at Credit Suisse
DSV upgraded to buy at Berenberg
Danske Bank upgraded to buy at Kepler Cheuvreux
Hikma downgraded to hold at Peel Hunt
Panalpina downgraded to hold at Berenberg
Richemont downgraded to outperform at Raymond James
UniCredit downgraded to neutral at Intermonte 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

Holiday conditions vs risk, Italy on a collision course, Brexit inevitabilities - DFX Key Themes

Will Holiday Conditions Save Us from Fundamentals and Speculation?  Normally, there is not a strong appetite for holiday trading conditions because it can materially slow markets – and most traders seek out volatility, even if it is as much a risk as a basis for potential. However, this year, there will be a strong appetite for the typical conditions associated with the time of year. In 2018, we have seen an extraordinary bout of volatility with dramatic bear waves in benchmark risk assets like the US indices through February and October while the progress of the previous years of this decade long bull run has grown increasingly uncertain. We have yet to see a commitment to a bear trend by the S&P 500 and its ilk, but it is a far greater probability in these conditions – systemic shifts more readily occur after periods of consolidation rather than sudden ‘V’ tops or bottoms. It is against this backdrop that the promise of November and December seasonal performance expectations can raise hopes. The ‘holiday’ markets and ‘Santa Clause Rally’ are popular reference to the same general market conditions.  Through the closing 8 weeks of the year, holidays break up the momentum that can build behind systemic trends, losses are booked for accounting purposes and open period for funds encourage portfolio changes. There is a reason that such seasonality expectations exist, there is statistical relevance behind the views. Yet, as the saying goes: ‘this time may be different’. Historically, the S&P 500 has accumulated an oversized portion of its annual gains through the final two months and the VIX volatility index has in turned dropped through the same period denoting a reduction in the variability of returns (in other words, risk). That said, conditions and context matter. If the markets are unstable and there is outsized exposure, sparks can turn into flames that raze a financial system. There are plenty of catalysts to track as potential catalysts of crisis, from trade wars to political instability to monetary policy normalization. Yet, it is the general state of the financial system that truly represents the threat.  The excessive leverage taken on by investors (notional and thematic), businesses (buy back shares with proceeds of bond issuance), consumers (revolving credit and housing) and governments (growing debt burdens) makes the growth we have enjoyed these past years look borrowed and far more threatening than reassuring. That excess is already showing through in certain corners of the financial system. The steady dive in emerging markets, high yield fixed income and global shares relative to the unrealistic buoyancy of US stocks signal some sign of recognition. Nevertheless, it is clear that such appreciation hasn’t translated into capitulation. Deleveraging is essential and it will occur via intent or force with timing dependent on the method.   Pushing Brexit to the Breaking Point  An emergency November summit between European Union and United Kingdom leaders to secure a deal on Brexit will only occur should the latter party make significant progress on its position involving critical points of impasse at the previous meeting. And, recent reports don’t offer much to be enthusiastic about. Multiple times over the past month, we have seen enthusiasm trumpeted on breakthroughs among UK government and between the UK and EU; but each time, that confidence was quickly snuffed out. It seems virtually impossible to satisfy all relevant parties in this stalemate. The Prime Minister’s cabinet has a concentration of hardliners that demands no alternative to an absolute Brexit is acceptable. In contrast, Parliament is more flexible in its interest to maintain some connection to the shared markets and is willing to bend on some points of contention – though the number of its rank open to a second referendum creates some inherent difficulty.  And, then there is the EU itself. The collective wants to maintain strong economic ties with the large economy, but it is not willing to make exceptions to its requirements for access for fear of other countries demanding the same benefits as they file their own Article 50 withdrawal intentions. This past week, the UK’s transportation minister resigned from the cabinet owing to his belief that the deal they can reach with the EU would not be the Brexit that the country had voted for, and a second referendum on the new terms would be necessary. Ultimately, this will not materially change the general complication of the process; but it does speak to the frayed nerves and quickly winding down clock. PM May has stated repeatedly that ‘Brexit means Brexit’ and that they fully intend to push forward when the two-year time frame for Brexit negotiations expires at the end of March. Adding the countdown to this situation only raises the risk that difficult negotiations will ultimately prove a push over a financial and economic cliff. If there is ultimately a breakthrough immediately at hand, there still are significant difficulties brought on by the short time left to work up technical requirements and to push through approval for all the member countries.  That said, should the situation continue to shamble forward, the risks grow exponentially as businesses and investors move operations to avoid the unknowns that they march towards – already the 3Q GDP figures reported a further reduction in business spending. The flight in capital will in turn slow growth and undermine confidence figures which slowly graduate into more systemic economic factors. A financial crisis may not come to pass until later, however, as liquidity can hold up to hesitation – though not capital flight. It is growing clear that there is no ‘best case scenario’ with this situation whereby there will not be additional political, economic and/or financial stress for some participant in the divorce. Investors should be concerned with the subsequent issues, but they may not have the luxury given the threats so prominent in the immediate risks.  Is an Italian-EU Debt Crisis Inevitable? Financial and political fractures in the European Union will continue to erode confidence for an entire trading session. In the week ahead, Italy’s standoff with the European Community over its plans to defy austerity measures the previous government had agreed to will hit another important deadline. After the EC rejected Italy’s budget proposal a few weeks ago for setting spending targets and GDP estimates too high, the country was told to go back to the drawing board to significantly reduce the projected 2.4 percent spending to GDP ratio it had planned. In the lead up that second effort due on Tuesday, Prime Minister Conte and Deputy PM Salvini made clear they had no intention of making significant changes to appease Brussels. If that is true, there is almost no chance that this situation will not devolve into some measure of an existential crisis for the Union.  The middle ground is extraordinarily far for both parties with Italy operating on a voter mandate to rebuke austerity and Europe seeing little chance of avoiding an avalanche of anger amongst members should it make another exception to its budgetary rules to a country that has such an extraordinary debt in a general period of global economic strength and while so many of its peers are holding true to significant austerity. If the standoff between this country and collective does not turn off its current course, it could cause irreparable damage to the Euro’s standing in the currency market. The world’s second most liquid currency depends on the stability of its unions. If a member of this smaller subset were to leave – especially the third largest – it would carve out a significant portion of GDP and financial liquidity not to mention raise the risks of other countries following suit from ‘virtually zero’ to ‘probable’.   Holding ‘European’ exposure against those risks would be a non-starter, especially if the situation were to unfold alongside global risk concerns (more likely). Specific interest in individual countries can continue to hold up, but identifying what portion of a country’s market will be unaffected by the financial ripples would be difficult and a bridge too far if risk aversion is undermines patience and nuance. Should this threat balloon, the lessons of the European sovereign debt crisis between 2009 and 2012 will be revisited. Yet, this time, populism is far more pervasive, the region is still recovering from the previous austerity and the central bank has no capacity to ramp up ramp up support beyond LTROs which will find its effectiveness as diminished as the QE program that replaced it.   

JohnDFX

JohnDFX

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

Dividend Adjustments 12 Nov - 19 Nov

Expected index adjustments  Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video.    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount RTY GRC US 14/11/2018 Special Div 200 RTY TSBK US 15/11/2018 Special Div 10 RTY CFFN US 15/11/2018 Special Div 39 RTY RILY US 15/11/2018 Special Div 8 RTY CNS US 16/11/2018 Special Div 250 RTY SBSI US 20/11/2018 Special Div 2 How do dividend adjustments work?  As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.  

MaxIG

MaxIG

May to Visit Brussels Following Brexit Progress – EMEA Brief 09 Nov

Theresa May to visit Brussels today to meet with EU leaders. The visit will see May attend ceremonies marking 100 years since the end of the First World War and she will also have a working lunch with French President Emmanuel Macron which is expected to cover the Brexit deal following news of a draft withdrawal agreement this week. US Fed holds rates as expected with a further hike anticipated in December which saw USD gains and Treasury yields hit highest level since 2008 Chinese President Xi Jinping has sought to reassure companies of the Chinese economy following slowing economic data and trade war speculation as he offered tax breaks and financing help. Chinese PPI fell 0.3%, in line with expectations whilst CPI remained at 2.5% YoY Oil continues to trade low following increased OPEC exports, increased US output and exemptions granted to the Iran sanctions. The US now has a higher crude oil output that both Russia and Saudi Arabia Gold is trading lower following USD gains after the Fed announcement Disney have announced their Netflix competitor will be called Disney+ and will launch by the end of 2019 Volkswagen have announced they will sell an electric car to rival Tesla at a price of $23,000 Bombadier shares fall 20% following an announcement they will cut 5000 jobs and sell two businesses for $900 million  Asian overnight: A hawkish Fed has sent Asian markets lower, with the Hang Seng leading the losses after falling more than 2%. The US central bank held off for now, yet it is clear that we will see further rates hike in the near future, raising the cost of borrowing from the US. Energy stocks fared particularly bad, as the recent weakness in crude prices took its toll on markets such as the ASX 200 and Hang Seng. Data-wise, all eyes were on the Chinese inflation data, with PPI falling from 3.6% to 3.3%, while CPI remained flat. UK, US and Europe: Looking ahead, the UK comes into focus amid the release of Q3 GDP, manufacturing production, industrial production, goods trade balance, and the NIESR GDP estimate. Meanwhile, the US session brings PPI inflation, alongside the Michigan consumer sentiment survey.  Theresa May will visit Brussels today following news that the UK cabinet was invited to review a draft withdrawal deal. The EU had been said to be considering a summit without the inclusion of Theresa May so they could assess the current situation and allow their leaders to put questions forth to their chief negotiator Michel Barnier. DUP leader Arlene Foster is said to be unhappy with the proposed solution regarding the Irish border that is currently speculated to be in the withdrawal agreement. Foster stated a letter she received from May implied a contingency Northern Ireland customs border that May said she would not allow to come into force but the leader of the DUP has said its inclusion raises alarm bells. This visit comes just one day after the UK Brexit secretary Dominic Raab admitted he wasn’t aware of how important the Dover-Calais crossing was to trade for the UK. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK GDP (September), trade balance (September): GDP to rise 0.5% over the previous three months, from a 0.7% rise in August, and trade deficit to narrow to £1.1 billion. Market to watch: GBP crosses 1.30pm – US PPI (October): forecast to be 0.3% MoM from 0.2%. Market to watch: USD crosses 3pm – US Michigan consumer sentiment (November, preliminary): index to fall to 95 from 98.6. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades The US is suing UBS in relation to defrauding investors in the approach to the 2008 financial crisis Informa said that revenue rose by almost a third in the first ten months of the year, and it remains on track to meet full-year expectations.  Morgan Advanced Materials said that sales had risen by 7.2% over the ten months to 31 October, and that the outlook for the full year was unchanged.  Grainger has acquired a development in north London for £41 million.  S4 Capital has confirmed it is in discussion with Mightyhive about an acquisition but also talked down speculation saying it is often in discussion with several marketing services about a possible acquisition KPMG have announced they will no longer offer consultancy work for their audit clients in an attempt to reduce conflicts of interest AO World will acquire Mobile Phones Direct for £32.5 million Hochschild Mining upgraded to outperform at RBC
Inchcape upgraded to buy at HSBC
Tele2 upgraded to buy at DNB Markets
Valneva upgraded to hold at Kepler Cheuvreux BillerudKorsnas downgraded to neutral at Goldman
Smurfit Kappa downgraded to sell at Goldman
Centrale del Latte d’Italia cut to hold at UBI Banca
Legrand downgraded to hold at SocGen IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 

IGAaronC

IGAaronC

The tone of overnight trade - APAC Brief 9 Nov

Written by Kyle Rodda - IG Australia The tone of overnight trade: All eyes back on the fundamentals – that’s the attitude now. The post US mid-term election rally stalled overnight, as investors turn their attention to this morning’s US Federal Reserve meeting. The Fed have kept interest rates on hold – that much was already baked into the price. Market activity to close the week will primarily be dictated now by how market participants interpret the language in the Fed’s accompanying policy statement. It’s been considered rather neutral thus far, and for equity markets, that’s not necessarily a positive result. Almost inexplicably, the US Dollar has rallied upon the release, despite very little new information being revealed in the statement. The argument for that may be that given October’s stock market volatility, a more dovish Fed was expected – true to form, this Powel-led Fed is not for turning, apparently sticking to the central bank’s existing outlook. Global price action: The conservative-bent to last night’s trade meant that equity markets traded more-or-less flat to lower. Asia provided a strong enough lead to the Europeans, however our region was last to the party in this week’s relief rally, so that meant little to European traders. Europe’s equities were reasonably mixed – generally down on the day. Stable and less risky assets therefore caught a bid, driving global bond prices higher. Bloomberg’s Commodity Index edged quite modestly higher, though both gold and copper traded rather directionless for most of the overnight session. The big mover in the commodity space was oil once again, with the black stuff continuing its tumble. WTI Crude has ticked into the $60.00 per barrel mark and Brent Crude has fallen to the $70.00 per barrel level, as traders adopt the position that there will remain a short-term surplus of oil in global markets. Wall Street session: At time of writing, Wall Street is entering its final moments of trade and the Fed’s monetary policy statement hasn’t inspired terribly much bullishness. Volumes are up on Wall Street, which is in stark contrast to European indices, that saw markedly below average volumes during their trading session. Activity in US Treasury markets is strong, with traders apparently judging that the Fed’s position is still one of firm, gradual rate hikes. The yield on interest rate sensitive US 2 Year Treasury note has ticked higher to a new post-GFC of 2.965 per cent, but the yield on US 10 Year Treasury Bond has remained hobbled by the outcome of the mid-week US mid-term election outcome, trading at 3.235 per cent. The spread between those two assets has thus narrowed once more to approximately 26 points. Currency markets: Across broader currency markets, the stronger greenback has exerted its influence: The Dollar Index began a rally overnight, and post-Fed has posted daily gains of 0.5 per cent.  The USD/JPY is knocking on the 114.00 handle’s door, while the other popular risk off pair, the USD/CHF, fell to 0.9945. The USD/CAD has rallied, by way of a combination of a stronger greenback, lower oil prices and developing news of another breakdown in trade relations between the US and Canada. The EUR/USD has fallen deeper into 1.13 and the GBP/USD has dipped back to float within the 1.30 (perhaps in part due to the release of UK GDP data tonight). Regarding the latter two pairs, they came under pressure overnight after the European Union warned that the Italian budget deficit is running the risk exceeding the bloc’s limit of 3 per cent. That sent bond spreads wider and placed additional weight on European equities, although the weaker Pound apparently provided a minor leg up for the FTSE100, which finished the session in the green. The Aussie battler: The Australian Dollar hasn’t escaped King Dollar’s might this morning, falling to 0.7270 (or thereabouts). The very illustrative spread between US 2 Year Treasuries and the Australian Commonwealth Government Bond equivalent has expanded to 90 basis points. A spread that wide has in recent times precipitated a tumble in the AUD/USD, however it must be remarked that the Aussie battler isn’t trading quite so much on fundamental themes in the market. Improved global growth optimism and heightened risk appetite this week has supported commodity-bloc currencies, but the best explanation for the local units’ rally is an unwinding of short positions in the market. Although this is only a short-term phenomenon, and the fundamentals will likely reassert themselves, the AUD/USD’s break of its trend channel supports the notion that upside to 0.7310, even possibly 0.7450, exists. RBA Monetary Policy Statement: The Reserve Bank of Australia’s quarterly Monetary Policy Statement could be one determinant of this move. The document, released at 11.30AM this morning, will be perused by traders for hints regarding the outlook for the Australian economy, and forward guidance from the RBA about its rate hike outlook. It must be assumed that little-less than the rosy picture painted by the RBA about the economy should be expected. This is especially true given the statement accompanying Tuesday’s monetary policy meeting upgraded the central bank’s employment, growth and inflation forecasts. As always, the fine print, hidden meanings and other semantics will dominate the analysis of the document, with interest given to the RBA’s view on the strength of Australian households. Arguably, it’s the combination of high household debt, falling house prices and its impact on future consumption and inflation that is keeping interest hikes on ice, so any indication about these matters could prove significant. ASX200 today: SPI futures are indicating today that the sputtering end to Wall Street trade will manifest in a 13-point drop for the ASX200. Yesterday’s trading session was a fruitful one for Australian investors: the local index climbed over half-a-per-cent for the day, led by an 18-point contribution to the index by the financial sector. In positive signs for risk appetite, growth sectors – in the form of health care stocks and IT stocks – topped the sectoral map. The ASX200 closed trade at 5928, just shy of a very key resistance level at about 5930. The failure to break above this mark is telling, but not surprising – and will likely prove a formidable barrier in the future: doing so would be a clear indicator of an (on balance) bullish control of the market, after the bears took the reins during October’s correction.

MaxIG

MaxIG

China's economy holds up as imports and exports rise- EMEA Brief 08 Nov

China’s dollar denominated imports and exports rise by 21.4% and 15.6% respectively, in comparison to year ago, however, its overall trade surplus was lower than expected, valued at $34.01billion for October, versus $35billion US Attorney General Jeff Sessions fired by Trump where Matthew Whitaker, his Chief of Staff to take over temporarily Theresa May announces that the withdrawal deal is 95% complete, and invites Cabinet Ministers to read the UK’s draft deal with the EU General secretary of Merkel’s CDU, Annegret Kramp-Karrenbauer, assumed to be the next leader, according to experts US to enforce final anti-dumping and anti-subsidy duties, increasing from 96.3% to 176.2% on Chinese common aluminium sheet products Reserve Bank of New Zealand official cash rate remains at 1.75% UBS Group expecting to be sued by the US department of Justice in relation to the mortgage securities from 2006 Stocks in Asia rise with the Hang Seng index increasing by 0.96%, Shanghai composite rise by 0.61% and Shenzhen composite 0.6% Last week’s US oil production figures increases to 11.6million barrels a day Australia to generate a new investment fund of A$2billion to deliver loans to Pacific Nations to build infrastructure International Energy Agency expects Nuclear power production to develop by 46% by 2040, with the majority of the net increase from China and India
  Asian overnight: Stock markets are on the rise once more today, with China providing the single outlier to a largely positive overnight session. Japanese markets were the big outperformers, as traders shift out of the safe haven Yen in the wake of yesterdays midterm election results. We also saw Japanese economic data slip, with bank lending and core machinery orders both falling short of expectation. The New Zealand dollar has been rising gradually, after the RBNZ kept rates steady as expected. Meanwhile, Chinese trade data received a welcome boost, with a rise in both imports and exports, despite trade war fears. To a large extent this is expected to represent a move to front load transactions ahead of the imposition of tariffs.  UK, US and Europe: Keeping on the theme of trade data, the German figures have not been as kind, with imports and exports both slipping into negative growth. Keeping in the eurozone, look out for the EU economic forecasts later in the morning. However, all eyes will turn towards the US, with the FOMC providing their latest monetary policy decision. Markets expect to see little change this time around, gearing us up for a final hike in December. President Donald Trump, who had criticised his top law official for many months, fires US Attorney General Jeff Sessions, who will be replaced by Matthew Whitaker, his Chief of staff. Whitaker has been assigned to look into special counsel Robert Mueller’s investigation of Russian meddling in relation to the 2016 US election.  

Theresa May claims that the withdrawal deal is 95% complete, although an agreement in relation to the hard border in Northern Ireland has not come to a conclusion. Even though the deal is not fully complete, the Cabinet Ministers have been invited to read the UK’s draft deal with the EU.
  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US jobless claims (w/e 3 November): initial claims to fall to 213K from 214K. Markets to watch: US indices, USD crosses
7pm – FOMC decision (delayed by a day due to elections): no change is expected at this meeting. Markets to watch: US indices, USD crosses
Corporate News, Upgrades and Downgrades AstraZeneca said that Q3 earnings fell by 37% to 71 cents per share, while revenue was down 14% at $5.34 billion. The full-year outlook was retained, with core earnings per share of $3.30 to $3.50.  Burberry reported an 8% rise in adjusted operating profit, to £178 million, although sales were down 3%. The interim dividend was left unchanged at 11p per share.  Sainbury’s suffered a 40% drop in half-year profits, to £132 million, due to restructuring costs and expenses arising from a planned merger with Asda. Excluding exceptionals, pre-tax profits rose 20% to £302 million. The outlook for Christmas trading remained uncertain, and profit margins in the general merchandise division remain under pressure.  Samsung announced on Wednesday that they will release a smartphone which can fold in half  Tesla chair of the company’s board replaced by Robyn Denholm Societe Generale net income increases 32% in comparison to last year, as third-quarter results are announced. It’s net income reported at 1.2billion Euros versus expectations of 995million Euros Siemens fourth-quarter profit declines by 46% to 681million Euros, but higher than the expectations of 595million Netflix to focus its expansion on the audience in the Asian market, particularly focusing on India, as this is believed to be the bulk of the growth Facebook blocking over 100 Facebook and Instagram accounts as they receive a tip-off in regards to the accounts from law enforcement, which they believe it could be linked to Russia’s Internet Research Agency Microsoft to tackle cybersecurity, wanting to work with Trump and Congress Hyundai Motor and Kia Motors to invest an extra $250million in Grab, a Singapore-based technology company Ping an Technology contributed 6.3% of Ping an Group’s operating profit in the first three-quarters of 2018, in comparison to 0.9% last year Campari upgraded to neutral at Goldman
Grieg Seafood upgraded to accumulate at Fearnley
United Internet upgraded to buy at Commerzbank
Stabilus upgraded to buy at Bankhaus Lampe

CGG downgraded to equal-weight at Morgan Stanley
Evonik downgraded to equal-weight at Barclays
G4S downgraded to sector perform at RBC
Kendrion downgraded to hold at ING
  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

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

Democrats Take Control of the House; Republicans Hold Senate - EMEA Brief 7 Nov

US mid-term elections have resulted in a gridlock in Washington, Trump's Republican Party hold the senate having had key victories in Texas, Indiana and North Dakota. The Democrats have gained control of the House of Representatives which has set up a divided Congress until the next presidential election in 2020. The dollar has dipped as the dust settles on the results of the mid-terms, the Euro and Yen both rose 0.2% against the dollar. The dollar index, which measures the value of the dollar relative to a basket of foreign currencies, was also down. The Asian markets reversed earlier gains as results began to filter in from the mid-terms, the Hang Seng dipped 0.2% and Tokyo's Tropix fell 0.4% after initially gaining 1.2%. The Nikkei also saw a late fall and finished down 0.28% as investors locked in profits after the news broke that the Democrats took control of the House of Representatives. Shadow Brexit secretary Sir Keir Starmer has announced that if MPs are left "blind" as to the details of the UK's future relationship with EU the Labour party will vote against a Brexit deal, increasing the pressure on Theresa May. Oil prices dipped as the US allowed buyers of Iranian oil sanction wavers, US crude fell 0.56% whereas Brent slipped 0.25%. UK, US and Europe: Trump had declared victory in the US midterms as he wrote in Twitter "Tremendous success tonight. Thank you to all!", although he will face increased challenges when attempting to push through policies due to the Republicans losing the House. US equities traded slightly higher as the mid-term results went generally as expected, S&P futures traded 0.3% higher. Dow Jones futures were also up around 0.4%, followed by Nasdaq futures rising 0.6% as markets welcomed the fact that there were few surprises at the polls. However it's not all good news, according to the chief strategist at CCB International Securities, people could view investing in the US as being less appealing due to the more divided political landscape stating it "could be quite disruptive". Interesting to see how the European markets react to the results, as major European indices are generally expected to react positively to the notion of no news is good news. The lack of clarity over the terms of the UK's divorce from the EU is causing concern in Westminster. Ahead of his meeting with EU officials today, the shadow Brexit secretary reminded May that MPs have been promised a "detailed, precise and substantive" Brexit agreement that parliament will be allowed to vote on. On Tuesday, the Prime Minister indicated to her cabinet that she is confident of agreeing a deal with the EU, but reiterated that it would not be "done at any cost" as deliberation continues over the contentious issue of the Irish boarder.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Adidas has lowered revenue expectations for the full year after releasing their third quarter results, previously forecasts were 10% while the sports giant now expects growth of between 8% - 9%. BMW has announced a fall in profits in their Q3 results as operating profit fell 27%, which was below expectations, as the firm indicates high research and development costs has impacted profits. ITV has warned that advertising revenue is expected to be down around 3% in Q4 after reporting a marginally better than expected 2% rise in 9-month ad revenue. Pre-tax profits at Marks & Spencer have rose 7.1% to £126.7 million within the last six months, however revenue was down 3.1%. Food, M&S's largest turnover business unit, revenue fell by 0.2% due to "tough trading" conditions in the competitive landscape. 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

America votes - APAC brief 7 Nov

Written by Kyle Rodda - IG Australia America votes: Now we play the waiting game, it seems. The US electorate have set off to the polls to vote in their mid-term elections, and the world now awaits their decision. Financial markets aren’t exempt from the interlude, trading on very thin volumes, as traders opt to stick to the sidelines until a result is revealed. There appears a very general unwillingness to jump-in to markets ahead of the crowd on this event, presumably owing to the incredible surprises public votes have thrown-up in the past. A collective “let’s just wait and see” approach has been adopted by market participants, who will surely jump back into trading in a flurry once an outcome to the US mid-terms is known. As it stands, a reclaiming of the House of Representatives by the Democrats, and a hold of the Senate by Republicans is the bookies’ tip – a deviation from this outcome is where some degree of volatility may emerge. ASX200: SPI futures are presently indicating a slim 8-point dip at the open for the ASX200, following a day where the Australian share market rose by almost 1 per cent. Volume was nearly half of the 100-day Average-Volume-At-Time yesterday, courtesy of not just looming US mid-term elections, but also the Melbourne Cup public holiday in Melbourne. The lull provided opportunity for the bargain-buyers to jump into the market and try to pick-up a few good deals. The thin trading accentuated the bid-higher of the ASX200, resulting in a day’s trade of 70 per cent breadth. The day’s rally was certainly little to crow-home about: the thin volume exaggerated the upward move and took the ASX200 index merely to the top of a sideways trading range (between 5805 and 5875) that the market has occupied since the start of the month. RBA: The event of most significance during Asian trade yesterday (outside the horse race, presumably) was the RBA’s monetary policy meeting. No move and few surprises were what punters expected, and the price action in markets reflected that – the AUD/USD barely budged, trading between 0.7205 and 0.7215 after the release. There was some interesting detail in the accompanying policy statement however, that illustrated the gradually shifting perspective of the RBA on the local economy: the unemployment forecast was revised down to 4.75 per cent by 2020; the inflation forecast was pinned-down to 2.25 per cent by some point in 2019; and the central bank’s assessment on credit growth acknowledged it had now “eased”. Asia: Across the broader Asian region, a continuation of the week’s themes played-out. Like the ASX, thin activity propped up the Nikkei and Hang Seng, with the latter experiencing volumes a relatively significant 17 per cent below average. Chinese indices witness more-or-less normal trading and it showed in the results: the CSI300 (for one) was down -0.6 per cent for the day, primarily due to traders exiting their long positions in Chinese stocks again, after the excitement about possible progress between the US and China on trade negotiations fizzled. Futures markets are projecting a flat to weaker start to Asian session today; however, as the results of US mid-terms filter through throughout the day, expect outsized reactions in Asian equities if some surprises eventuate. Wall Street session: As of this week, Wall Street closes at 8.00AM (AEDT). At time of writing, the lacklustre trading and thin volumes that has characterized markets the world over this week is generally holding true for US stocks, too. A fine green layer of paint is covering equity indices today, with the Dow Jones, S&P500 and NASDAQ all slightly higher for the session, following a down-session in European shares earlier in the day. A bounce in US tech stocks has underpinned the move, with the NASDAQ experiencing very close to normal trading activity throughout the North American session. US Treasury Yields have furtively ticked higher overnight, taking the yield on benchmark 10 Year US Treasuries to 3.22 per cent, and the yield on the US 2 Year note to a new post-GFC high of 2.92 per cent. US Treasuries and Currencies: The price action in US bonds will be worth watching once mid-terms are done-and-dusted, especially given that the next major risk event this week will be the meeting of the FOMC on Friday morning (AEDT). Equity markets have often sold-off based on a spike in bond yields in the recent past, and if the Fed on Friday espouse a hawkish view for rate hikes in 2019, the repricing of US interest rate expectations could spark some sort of sell-off in US Treasuries and global equity markets. As it applies to the US Dollar, currency markets have also proven stagnant ahead of US mid-terms. The greenback is weaker, but that appears largely due to a (very) modest bid higher of the Pound and Euro on the back of Brexit optimism. Despite the uncertainty of the US elections, the Yen remains weaker and gold has dipped to $US1226 per ounce. Oil: The most significant price action over the past 24 hours has been the continued fall in oil prices. The price of the black stuff plunged further last night -- to the low$US62 and $US72 per barrel mark in WTI and Brent Crude, respectively -- as fears of undersupply, courtesy of fresh US sanctions on Iran, were quelled. News that the White House had provided temporary exemptions to some countries to continue importing Iranian oil, coupled with a pledge from Russia to aid the Iranians move their oil stockpiles onto global markets, have been the major drivers of the sell-off. One must also surely assume the Saudi's are boosting their output to stave-off more bad press after the murder journalist Jamal Khashoggi. Nevertheless, the fall in oil prices has weighed on USD/CAD and dragged the overall Bloomberg commodity index down for the day.

MaxIG

MaxIG

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

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

Is a Soft Brexit close? - EMEA Brief 5 Nov

May seems to have secured concessions from Brussels to let her keep all of Britain in a customs union and avoid a hard border. How close is a Brexit deal?  Sterling briefly jumped to a two-week high on Monday on growing hopes of a smooth Brexit. The U.S. dollar struggled on Friday. The dollar index, which measures the greenback against a basket of major currencies, was last off 0.1 percent at 96.459.  Against the safe haven yen, the dollar held at 113.25 . The euro was flat at $1.1389 . Asian equities followed suit, with HK’s Hang Seng falling as much as 2.4%. President Xi Jinpings’s vow to cut import tariffs at the expo in Shanghai carried little market reaction. US sanctions on Iranian oil will be effective again from today. However, US crude oil inventories rise for the fifth consecutive week, the longest since March 2017. Amidst excessive supply concern, WTI crude lost 0.8%. Yesterday in Qatar, younger royals were elevated to executives. The country faces regional isolationism since the embargo in 2017 by Saudi Arabia and its allies. Analysts agree the changes could accelerate economy growth of the state. Qatar is the world’s top Liquified Natural Gas exporter. 10-day historical volatility for Bitcoin is lower than the S&P500. Swings in October, one of the worsts for bulls, sent the Nasdaq into correction territory and the S&P500 on the edge of one. Asian overnight: Stock markets are in decline at the start of the week, with the Asia Pacific session showing widespread selling. Hong Kong’s Hang Seng fell as much as 2.4% while Japan's Topix fell 1.1 percent at the 3 p.m. close in Tokyo. President Xi Jinpings’s vow to cut import tariffs at the expo in Shanghai carried little market reaction as there was no decisive hint. Meanwhile, BOJ Governor Kuroda hinted that Japan is no longer in a situation where it’s best to be "decisively implementing a large-scale policy to overcome deflation”. The central bank still needs to stick persistently with its stimulus program to achieve its 2% inflation target.  Japanese treasuries to be monitored. UK, US and Europe:  The prolonged silence over Brexit was broken as May was reported to have secured concessions to keep the UK in a customs union. May is due to discuss the latest proposals with her cabinet tomorrow. According to Mizuho Bank Ltd. The GBP could jump past $1.35 within two days if a divorce is agreed. The GBP is down more than 10% from pre-Brexit vote and, according to a Bloomberg survey, it could regain about half of that in case a deal is reached. Pound swings could be looming. The conundrum of the Italian budget plan keeps widening as Lega Nord and 5 Stelle fought over the weekend on amendments after the initial rejection from the EU. The government has until the 14 November to submit a revised plan (with deficit less than 2% of GDP, against the 2,4% of the current one). Today, EU finance minister will gather in Brussels to discuss the situation. Italian sovereign debt modestly slid on the weekend but held flat overnight. US Treasury will auction a record $83bn in notes and bonds this week as budget gap grows and fiscal stimulus unwinds. Markets are expected to be skittish ahead of U.S. congressional midterm elections on Tuesday.  Opinion polls show a strong chance that the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with President Donald Trump's Republican Party likely to hold the Senate. Trades hedging the risk of higher rates over the coming days piled up. Meanwhile, yield on US 10-year Treasuries fell 1 basis point to 3.207%. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 09:30 -  UK Markit services PMI: consensus at 53.3, previous at 53.9 13.25-  Bank of Canada Governor Poloz holds a speech in London 15:00 - USD ISM Non-Manufacturing services Composite: consensus at 59.1, previous at 61.6 Corporate News, Upgrades and Downgrades Micro Focus said that annual revenue guidance will be at the higher end of the expected range, with an improved revenue trajectory in the second half.   Hiscox reported that gross written premiums increased in double digits in the nine months to 30 September. Despite a strong Q3, growth is expected to moderate towards year-end.  Barclays upgraded to buy at Bankhaus Lampe
ING upgraded to buy at Kepler Cheuvreux
Paddy Power raised to equal-weight at Morgan Stanley
SKF upgraded to buy at Kepler Cheuvreux BPER Banca downgraded to sell at Goldman
Hoist Finance downgraded to equal-weight at Morgan Stanley
Intesa downgraded to sell at Goldman Sachs 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

Global event risks - APAC brief 5 Nov

Written by Kyle Rodda - IG Australia
  A historic week ahead? One does get the sense that some of the biggest risks plaguing financial markets -- over the course of several months, if not years -- may be coming to something resembling a definitive end. This isn't to suggest that extreme bouts of volatility, like those experienced throughout the month of October, have been put behind us; but that we are at least reaching a critical juncture for some of the biggest macro-economic challenges facing market participants. There's a cliché often quoted in markets, and that is that the only thing worse than bad news is uncertainty. Though the potential for heightened risk and volatility remains ever present amid a constantly shifting fundamental landscape, perhaps a closure to some of the bigger challenges hanging over global markets may prove enough (at the very least) to unshackle sentiment and support renewed bullishness amongst investors and traders. US event risk: Just in the United Stated alone, several events pencilled into the financial market calendar this week jump-out as possible flash points for some of the big global economic issues. US mid-term elections on Tuesday give a gauge on the much-speculated-about mood of the American electorate and provide insight into what capacity US President Donald Trump will possess to exercise his policy platform in the future. The FOMC Meeting on Thursday will clarify whether the global share market correction experienced last month may derail the Fed's plans to hike interest rates again in December – and then a further three times in 2019. And the introduction of US sanctions on Iran on Monday (US time) will provide a firmer understanding of to what extent the removal of Iran from global markets will have on whipsawing oil prices. European and Asian event risk: Looking beyond the trials and tribulations of financial markets in the United States, promising signs of major breakthroughs regarding Brexit and the US-China war have emerged. News reports over the weekend have warmed the idea that a Brexit deal could be negotiated, by some time before November 21. The reports suggested that Prime Minister Therese May is inching toward a deal that would allow the UK to remain in the European customs union -- possibly alleviating many of the deal-stalling concerns relating to the Irish border. Regarding the US-China trade-war, markets were bolstered by leaked reports -- since contradicted by some members of the White House -- that US President Trump, following his "long and very good” conversation with Chinese President Xi Jinping, had instructed his cabinet to draft a trade-deal with China NFPs and US fundamentals: The prospect of resolutions to several of the world's major economic and geopolitical issues supported investor sentiment on Friday but proved inadequate in sustaining the week's share market turnaround in the face of the week's most significant economic release: US Non-Farm Pay rolls. The data reaffirmed that the US economy is still booming, printing a better than expected jobs-added-number of 250,000 (versus a forecast 190,000) -- a figure strong enough to maintain the unemployment rate at 3.7 per cent despite a climb in the participation rate. As is always highlighted, with the US economy having long been at nominally full employment, it was the wage growth number that preoccupied market participants: in what amounts to the strongest growth in wages since the GFC, the data revealed that workers earnings had climbed on an annualised basis by 3.1 percent. The Fed and US rates: The strong US labour market numbers were a stark reminder to market participants that with the US economy running so hot, the subsequent signs of a build in price pressures may turn interest rate considerations from the US Federal Reserve from a matter of choice, to one of absolute necessity. Interest rate markets immediately reflected this reality, driving bets of a December rate hike from the Fed back around 80 per cent. The dynamic bid the US Dollar higher, and prompted a self-off in US Treasuries, pushing the yield on Benchmark US Treasuries 8 points higher to 3.21 per cent. US equity markets were dragged lower by way of virtue of this dynamic, led by the NASDAQ – which added to the losses sustained after Apple Inc. results contained a profit guidance downgrade – to close 1.04 per cent lower.
  Global currency action: The reminder that US interest rates may hike in a steeper trajectory than expected pushed the EUR and Pound lower, which dropped below 1.14 and 1.30 respectively – before those currencies rebounded because of greater Brexit optimism. The solid gains made by the AUD/USD, which had itself climbed during Asian trade above 0.7240 on the back of the greater hopes of an imminent US-China trade deal, were unwound, dragging the A-Dollar back below 0.7200. The CAD fell in tandem with our local unit, though some of the losses with regards to the latter came consequent to the considerable fall in the price of oil to $US72.00 per barrel (in Brent Crude terms). The Japanese Yen also declined, as did the Swiss Franc, proving the conviction behind the move into the Greenback. While the only currency that truly maintained its rally against the US Dollar was the Chinese Yuan, with that currency holding to 6.89 level on the belief that China's policy makers have what it takes to support and stabilise a slower Chinese economy. The greater confidence in China’s markets also galvanized a rally in emerging markets assets: the MSCI Emerging Market index leapt to its highest level in 30-days.
  ASX200: SPI futures are now indicating a 5-point drop at the open for the ASX200, following a Friday that brought a mixed day for the ASX200, as well as the Asian region. Confidence that China has the fortitude to stimulate its way through slower economic growth, coupled with the prospect that a US-China trade deal can be reached, drove the CSI300 over 3 per cent higher, and the materials sector on the local share market one per cent higher. The materials space was primarily responsible for the ASX200's 0.1 per cent gain, only marginally offsetting the 0.38 per cent bank-led fall in the financials sector. It will be a dichotomy that may dictate trade once more today and into the early stages of the weak, after auction clearance rates demonstrated further signs of weakness in the domestic property market. The potential softness in bank stocks, combined with several RBA-related event risks, and the still uncertain global backdrop, may test the positive price action witnessed in the ASX200 this week, which fought gallantly to close last week's trade above 5930 support/resistance, and display tentative signs of a recovery from October's market correction.      

MaxIG

MaxIG

Dividend Adjustments 5 Nov - 12 Nov

Expected index adjustments  Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 5 Nov 2018. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video.    NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a 
cash neutral adjustment on your account. Special Divs are highlighted in orange. Special dividends this week Index Bloomberg Code Effective Date Summary Dividend Amount RTY COLB US 6/11/2018 Special Div 14 RTY HFWA US 6/11/2018 Special Div 10 RTY MPX US 8/10/2018 Special Div 10 RTY NHTC US 9/11/2018 Special Div 18 SPX ROL US 8/11/2018 Special Div 14   How do dividend adjustments work?  As you know, constituent stocks of an index will periodically pay dividends to shareholders. When they do, the overall value of the index is affected, causing it to drop by a certain amount. Each week, we receive the forecast for the number of points any index is due to drop by, and we publish this for you. As dividends are scheduled, public events, it is important to remember that leveraged index traders can neither profit nor lose from such price movements. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.     

MaxIG

MaxIG

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

Positive China-US Trade Talks Ease Investor Sentiment - EMEA Brief 2 Nov

Trade tensions between the US and China have finally shown signs of easing as Donald Trump described the conversation he had with Xi on Thursday as "long and very good" and later tweeted that trade discussions were "moving along nicely". Chinese stocks rally in afternoon trading following Trump's tweet, as the Shanghai Composite rose 2% along with a 3.5% increase in Hong Kong's Seng index. US stocks also reacted positively to the potential progress of US-China trade relations. The Dow gained 264.98 points, the Nasdaq rose 1.8% ahead of Apple's quarterly earnings whilst the S&P climbed 1.1%. Investors reacted negatively to Apple's earnings for its fiscal Q4 as the tech giant missed shipment estimates on iPhone's and announced major changes to its reporting, shares tumbled more than 7% and fell below the historic $1 trillion market cap. Good news for Brexit? The EU has floated a compromise on a plan for the Northern Ireland boarder that would give the UK stronger guarantees that a customs border would not be needed along the Irish Sea, the UK is expected to respond to the compromise next week. The dollar has appreciated 0.3% against the yen, mending the previous day's losses. Aussie dollar extended its rally following the positive news regarding China and the US, as AUD increased 0.5% against USD. Oil continues to decline as US crude prices fall 2.5% to $63.69, it lowest level in seven months due to US sanctions on Iran coming into full force next week and continued global tensions with Saudi Arabia. Asian overnight: Sharp gains across the board overnight have reflected improving optimism over a potential trade deal between the US and China, with Chinese and Hong Kong markets rising over 3% in the session. News of the positive talks between Trump and Xi Jinping have helped reverse some of the Yuan losses, with the Chinese currency hitting the highest level in three-weeks. Data-wise, the Australian retail sales figure came in below estimates, falling to 0.2% from 0.3%. UK, US and Europe: The news of Trump's phone call with President Xi has eased investors fears of a prolonged trade war between the two nations, as equity markets begin November with a broad rally after a rough October. There have been reports that the US president has gone as far as asking officials to draft a preliminary proposal for a potential trade deal with China. Interesting day ahead for the markets, have we seen an end of the October sell-offs or is the market overreacting to tweet from Trump? Watch out for volatility today as the eagerly watched US Non-farm payrolls announcement is due at 12:30 UK time. Looking ahead, we have the second UK PMI reading of the week, with the construction sector coming under scrutiny in the wake of yesterday’s disappointing manufacturing PMI survey. This is released alongside a host of other PMI surveys throughout Europe, yet for the most part, it is the UK release which is an initial figure rather than a revision. Looking at the afternoon, the US and Canadian jobs reports are expected to bring about a sharp rise in volatility for the dollar and Canadian dollar. On the corporate front, watch out for earnings data from Berkshire Hathaway, Exxon Mobil, and Chevron.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK construction PMI (October): forecast to rise to 52.5 from 52.1. Markets to watch: GBP crosses 12.30pm – US non-farm payrolls (October), trade balance (September): payrolls expected to be 189K from 134K a month earlier,, unemployment rate to hold at 3.7%, and average hourly earnings to rise 0.3%. Trade balance to see deficit narrow to $52.4 billion from $53.2 billion. Markets to watch: US indices, USD crosses 12.30pm – Canada employment report (October): 25K jobs forecast to have been created, from 63,300 a month earlier, and unemployment rate to hold at 5.9%. Markets to watch: CAD crosses Corporate News, Upgrades and Downgrades The CEO of DNA sequencing firm Illumina Francis deSouza has announced plans to purchase Pacific Biosciences for $1.2 billion. Macquaire Group has increased its expected earnings, it reported annual profits will be up 10% compared to last year as the investment bank eyes a record profit. ING underlying profit up in Q3 to 776 million euros, beating expectations in spite of the firms 775 million euro money laundering penalty. Starbucks shares have rallied as the company reported better than expected earnings and same store sales growth in its fiscal Q4. Barclays has confirmed that their chairman, John McFarlane, will retire as chairman in May next year and will be replaced by Nigel Higgings, current deputy chairman of Rothschild & Co. Paddy Power Betfair has upgraded annual guidance thanks to a good period for its new US business. Underlying earnings are now expected to be between £465 and £480 million, from a previous £460 to £480 million.  IAG said that it now expects earnings to hit €7.2 billion per year for the 2018-2022 period, up from the previous estimate of €6.5 billion. It also raised its targets on capital expenditure and its target for average seat per kilometre growth.  Axel Springer upgraded to buy at HSBC
BAE upgraded to outperform at Credit Suisse
Big Yellow Group upgraded to buy at Kempen & Co
DS Smith upgraded to buy at Vertical Research Bilia cut to hold at Kepler Cheuvreux
Deutsche Post downgraded to hold at HSBC
Panalpina downgraded to reduce at HSBC
Wirecard downgraded to underperform 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. 

GeorgeIG

GeorgeIG

Market Sentiment - APAC brief 2 Nov

Written by Kyle Rodda - IG Australia Market sentiment: The final session of the week is upon us, and though a Friday can throw-up any number of shock events, the week has been a relatively good one for equity market bulls. Of course, this is primarily being led by a stable equity market in the US, but that strength has filtered through global equities to generate positive activity. Naturally, the ASX200 has benefitted from this dynamic, delivering an opportunity of circa 215 points for traders, based off last week’s lows. The risks to markets are still very elevated, but a dip in volatility below a 20 reading on the VIX has investors calmer than they were this time last week. Choppy trade and violent turns in sentiment could arise at any moment, and there is still some way to go to convincingly reverse October’s ugly sell-off. However, for the many who prefer to look on the bright side of life, signs of a turnaround are here. Overnight: SPI futures are presently indicating a very modest 3-point dip for the ASX200, on the back of an overnight session where risk appetite was high. Sentiment was boosted by positive Tweets (a statesman like medium for political discourse nowadays, of course) from US President Donald Trump relating to the US-China trade war. The news, coupled with weaker than forecast ISM Manufacturing data, led the USD to abandon its bid higher, pushing the EUR above 1.14 and the Aussie Dollar above 0.7200, as the yield on US 10 Year Treasuries slipped to 3.14 per cent. The strong sentiment was boosted by solid US earnings, building upon the cheer engendered by news in the Asian session that China plans to ramp up its economic stimulus efforts. While fears of a spike in oil prices waned once more, on news that OPEC output climbed by the most since 2016. European trade: Winding back the clock marginally further, European markets registered a more tepid day of trading. The DAX was up 0.18 percent while the FTSE finished a sliver higher than flat. Corporate news was lighter relative to the US, but the calendar was filled by numerous economic data and macro events. The biggest was the meeting of the Bank of England, who kept rates on hold and flagged that despite their rosy view on the British economy, their monetary policy settings will probably remain still for the near future. Irrespective, the pound continued to climb, aided by the weaker USD, but primarily on the basis that a Brexit deal will soon eventuate. European trade establishes a significant set-up for its final day of trade, ahead of a slew of PMI prints across the continent. ASX200 Yesterday: Reflecting upon yesterday's session for the Australian shares, the modest 0.2 per cent gain belies some of the significant stories moving the market. Trade Balance was gang busters, showing a trade surplus of over $3.0b, courtesy of a climb in iron ore prices generated by the recent round of Chinese economic stimulus. The miners naturally benefitted from the results, which added to already strong daily gains thanks to the announcement of a special dividend and share buyback from BHP. Even in light of the strong day for the materials space, it was the continued swings in the banks that truly dictated trade, after NAB posted results that were judged to not quite as bad as expected. The NAB closed the day higher as a result but was the only of the Big 4 to do so, as investors balance the positive news of signs of successful restructures by the banks, against the broader challenges of slowing credit growth and a cooling property market. US tech: A play into big-tech is what is leading Wall Street higher – a conspicuous risk given the tone of the recent market correction. The NASDAQ is the biggest winner of the three oft-watched US equity indices, registering gains of over 1 per cent. It would appear investors see a level of value in the US technology giants, even considering their proven vulnerability to shifts in interest rates expectations. It’s always a risk to bundle every US-tech company together and assume their fortunes are eternally correlated. The internet monoliths, Facebook and Twitter, deliver a vastly different value proposition than that of a Microsoft, Amazon or Apple – the latter whose earnings generally disappointed this morning. News on any one of the tech giants becomes of relevance to the index trader, but for the value-searcher, separating the substantial fundamentals from the fluff is a necessity. US equity market risks: The reasoning behind highlighting the (for many) well-worn distinction between the big tech stocks is that, on balance, risk is skewed to the downside across that industry. The US tech industry remains bolstered by money following momentum and flow in the pursuit of the next market unicorn. It’s what in large part keeps the market running higher despite a mix of valuations and tepid market fundamentals. The mega-cap staples in the US technology space can’t be ignored, and as market participants digest Apple results, it should be reminded that the biggest of these companies still appear investor essentials for many. Nevertheless, when reviewing the depth of the NASDAQ and its influence on US equity market strength, lowly dividend yields and relatively stretched valuations mean the performance of US indices overall are very liable to the sort of shocks witness in October. US Non-Farm Payrolls: The bounce in equities this week in mind, tonight's US Non-Farm Payrolls is of tremendous significance. Once again -- and as has been so for years -- the key number in tonight's release is the wage growth component, which is forecast to reveal annualised wages growth of over 3 per cent. If realised, it will prove a testament to the roaring power of the current US economy, already posting growth of 3.5 percent and unemployment at 3.7 per cent. Though for Main Street this is a refutably a good thing, a wage growth figure at forecast or above will be un-welcomed by investors, who will need to promptly re-reprice the higher likelihood of an aggressive Fed. This week's play into US equities has been underpinned by a significant drop in bond yields. If markets are forced to factor in an aggressive Fed once more, a replay of October's marked sell-off may return to equity markets.  

MaxIG

MaxIG

Global Stocks Rebound After Worst Month Since 2012 - EMEA Brief 01 Nov

Global stocks rebound after worst month since 2012. Corporate earnings in the US and Europe have helped ease lingering worries over rising interest rates, trade tensions and a slowing global economy. The S&P 500 rose 1.1% and the Nasdaq Composite gained 2%. The Dow is currently trading flat after jumping more than 350 points at yesterday’s open. Asia-Pacific Indices mostly started November on a stronger footing. The Hang Seng was 1.8% higher and Taiwan’s Taiex gained 0.4%, however, Topix was down 0.5% whilst the ASX was roughly flat. The pound sterling rose by almost 0.7% following a report that Theresa May had negotiated an agreement for British financial services companies to maintain continued access to European markets after Brexit. Dominic Raab also predicts a Brexit deal to be made by November 21st.  A series of UK economic releases are due today, including: the Manufacturing PMI, a summary of Monetary Policy, and the all important BOE Inflation Report, providing a projection of inflation and economic growth over the next 2 years. The AUD rose 0.95% against the USD after a better than expected trade surplus in September as exports rose and imports fell. AUD/USD currently at 0.714. Turkish Lira drops as the country’s finance minister announced tax cuts that led to doubts over the government’s pledge to take a more disciplined fiscal approach. Brent crude continues its decline, down 0.44% and currently trading at $74.74 a barrel, . Gold is up 0.71% at around $1224 an ounce. Asian overnight: Chinese stocks rose on Thursday on the back of a signalling of a new round of economic stimulus measures by Chinese Communist leaders, in hopes to shore up confidence as the country faces slower growth and the US-China trade war. This comes as an official gauge of Chinese factory output (PMI) weakened to its lowest level in more than two years in October, indicating pressure on the economy. Japanese markets provided the one outlier to an overwhelmingly positive session in China, Hong Kong and Australia. Tax cuts and other stimulus from the Chinese helped boost confidence, while the bullish theme from US and European markets also helped. Rumours of a deal between the UK and EU that would see services firms throughout the UK retain access to European markets has helped provide a boost for the pound. Meanwhile, data-wise we have seen a massive jump in the Australian trade balance, which posted the largest surplus in 18-months. A sharp rise in commodity prices also helped boost Australian stocks and the Australian dollar.  UK, US and Europe: There are a few key UK monetary and economic releases to watch out for today. The BOE inflation report is set to provide an insight into the bank’s view of economic conditions and inflation, an outlook for the country’s economic growth which will shape future monetary policy. Mark Carney is due to speak at a press conference at 1:30pm GMT regarding the report – expect volatility around this time. The BOE interest rate will also be released, with a forecast of 0.75%, unchanged from last month’s figure. In the afternoon, keep an eye out for the manufacturing PMI readings from both the US and Canada. On the corporate front, keep an eye out for earnings from Apple as the tech sector comes into focus once again. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK mfg PMI (October): activity expected to increase in the sector, with the inde rising to 54.6 from 53.8. Markets to watch: GBP crosses 12pm – BoE meeting & inflation report: no change on policy expected, but the inflation report may provide some clues and thus result in some GBP volatility. Markets to watch: GBP crosses 2pm – US ISM mfg PMI (October): index to fall to 59.6 from 59.8. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades Just Eat has issued a profit warning, saying that earnings will be towards the bottom end of the £165 - £185 million range, due to investments in Latin America, although revenues will be towards the top end of the £740 – 770 million range.  Carpetright reported ‘negative’ like-for-like sales for the half year to 31 October, hit by store closures and disruption arising from restructuring.  Credit Suisse’s net income for Q3 comes in at 424 million CHF, vs. 449 million expected. Royal Dutch Shell reported an almost 40% rise in Q3 profits, making four-year highs but still short of forecasts. Japanese electronics giant Panasonic saw its share prices drop more than 8% after a report of a 4% fall in half yearly profit. HSBC upgraded to hold at DZ Bank
Paradox Interactive raised to buy at SEB Equities
Sanofi upgraded to equal-weight at Barclays
Securitas upgraded to add at AlphaValue BNP Paribas cut to hold at Independent Research;
GBL downgraded to hold at SocGen
IMA downgraded to hold at Kepler Cheuvreux
Outokumpu downgraded to neutral at Citi IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

JoeIG

JoeIG

Recovery in sight? - APAC brief 1 Nov

Written by Kyle Rodda - IG Australia More information, greater confidence: Markets have been awash with data over the last 24 hours – and traders love it. It’s a behavioural quirk in financial markets: whether good, bad, or otherwise, an inundation of information paints a full and colourful picture of the world and satisfies that innate human desire for (an illusion) of control and certainty. The phenomenon echoes lessons that were reinforced upon the world all the way back in 2008 by one of that years’ seminal cultural events. No, not the zenith of the Global Financial Crisis, but Christopher Nolan’s The Dark Knight and Heath Ledger’s inimitable portrayal of The Joker. In a scene that epitomizes the philosophy of the uber-anarchist Joker, the character ruminates during a monologue: “Nobody panics when things go according to plan. Even when the plan is horrifying… nobody panics. Because it’s all part of the plan.” Fundamentals unchanged: Why bring this up? Outside taking pause to remember a time before the ills of the GFC ailed the global economy, it sums-up quite well the attitude of market participants in times of turmoil. Yesterday saw the release of a swathe of economic and financial data, which assessed on balance, delivered unremarkable and mixed results. None of it fundamentally changed the outlook for the financial world, but the fact that it filled in some blanks and confirmed a few existing biases meant that everything, overall was judged to be ok. Herein lies the problem for now: the issues that ignited October’s sell-off have yet to disappear, meaning that markets remain just as liable to the extreme bouts of panic and volatility that last month delivered us. Adjustments still underway: The biggest problem here is that when assessing the balance of buyers and sellers, and their overall behaviour, not much has changed. The market was led higher yesterday by a drive into tech-stocks and other growth/momentum sectors – apparently based on a so-so earnings update from Facebook, and an anticipation for upcoming Apple results. If there is one thing that can be taken away from the market commentary in the last 2 weeks, the financial market pros out there – the big money managers, the institutional players, the stock brokers, and the like – believe it’s time to shift away from growth investing into value investing. Assuming they are to be trusted, the players controlling the ultimate fortunes of the market are shifting funds away from areas that have propped markets up this week. Same behaviour driving week’s recovery: Thus: here comes the fissure at the centre of it all: if traders are still chasing momentum flow in growth sectors, and the fundamental outlook for broader financial markets hasn’t changed yet, then October’s shake-out probably has further to run. Now, several factors will surely insulate punters from such extreme bouts of volatility. Oft-cited share buy backs will kick-off in a significant way now, plus seasonality suggests markets are entering a fruitful time of year. Moreover, earnings are still strong even if the medium-term outlook has changed, and economic growth (in the US, but to a lesser extent other geographies) is powering along. However, these factors paper over the cracks – and the truly structural factors – which means while financial calamity isn’t expected any time soon, greater adjustments (that is: more corrective action) in financial markets may well loom. Risk one: higher rates: The two biggest factors remain the prospect of higher global interest rates, and the possibility that markets have already reached peak growth. Regarding the former, it is conspicuous and questionable that traders have reduced their bets of a rate hike from the US Federal Reserve in December and lowered their expectations of the number of hikes in 2019. It appears a classic conflation by market participants that weakness on Wall Street necessitates weakness on main street. Though fortunes can quickly change, economic data continues to affirm that the US economy is in a strong position and price pressures are building – which will require a firmer hand and tighter policy from the US Federal reserve. US bond yields have fallen, and the USD has rallied of late, inviting investors back into equity markets. Last night’s trading session saw bond yields tick higher again, implying that the risks of rising rates haven’t been fully discounted, and sustained volatility on this basis persists. Risk two: slower growth: Secondary to tightening global monetary conditions, the other factor that precipitated October’s market rout remains – and was, in fact, reinforced yesterday. The prospect of weaker growth ex-US economy, due to the trade-war as much as any other cyclical causes, looms large on the horizon. Chinese PMI data yesterday undershot forecasts once more, with the Manufacturing component to that release inching closer to a sub-50 “contractionary” print, pushing the off-shore Yuan ever closer to 7.00; while the BOJ during its meeting yesterday downgraded it growth and inflation forecasts. The fears across Asia added to the nervousness catalysed by this week’s soft European growth numbers – although it must be said that the perception of European growth did receive a boost last night when it was reported that a Brexit deal may arrive as soon as November 21. Nevertheless, if the market correction October was in a big way foundered upon shakier global growth prospects, little revealed this week so far should be interpreted as diminishing that risk in the short-term. Today for the ASX200: SPI futures are indicating that, to start the new month, the ASX200 will participate in the relief rally sweeping markets and add 26 points at the open. Despite sluggishness throughout the day, the Australian market jumped just before the end of yesterday's session, courtesy of a buy-up in bank stocks following ANZ's better than expected results. A full turn around isn't yet underway for the ASX200, but the seeds are there to potentially break the corrective pattern hobbling the index -- with a break and hold above 5930 a definitive sign of this. Just like the rest of global equities, the risks and challenges remain, but yesterday's weak CPI print at least affirms that RBA policy will probably remain supportive of asset markets. The next two days of trade will be significant for the Australian market's nascent recovery, as NAB reports today, and macro watchers eye local retail sales figures tomorrow, and the more significant US Non-Farm Payrolls release on Friday night.  

MaxIG

MaxIG

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