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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

ASX200 yesterday - APAC brief 31 Oct

Written by Kyle Rodda - IG Australia ASX200 yesterday: It was a tale of two halves for the ASX200 yesterday, dipping at the open before roaring back to close the day’s trade 1.3 per cent higher. The dour beginnings came on the back of reports from Bloomberg – now well known – that the Trump Administration would be seeking to slap tariffs on (in effect) all Chinese imports into the US, if a deal couldn’t be achieved between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 Summit. In a testament to the jumpiness of financial markets the world over currently, the tone changed in global markets upon the release of news that, in an interview with Fox News, US President Trump believed there was a “great deal” in the works between the US and China. Sentiment in Asian trade: A highly ambiguous statement. Nevertheless, market participants – clinging onto every shred of hope – took the comments, bound them to their sense of optimism, and ran Asian equity indices generally higher. Breadth on the ASX200 was at a noteworthy 75 per cent, though on volumes slightly below last week’s average, with the major momentum/growth sectors topping the sectoral map. The financials, as is always required, did most of the heavy lifting, adding 30 points to the index, in part in preparation for upcoming company reports from the Big 4. The Australian market has now pulled itself out of oversold levels, to break-trend on the RSI, and in doing so, establishing the foundations for a challenge of a cluster of resistance levels between 5780 and 5880. Corrective bias remains: No doubt, it was a praise-worthy performance from the ASX200, but Australian investors are far from out of the woods yet. Putting aside the major global drivers dictating the fate of equity markets the world over, the simple price action on the ASX200 index doesn’t yet indicate an end to the recent bearish streak. If anything, at least as it currently presents, the technical indicators play into it. The push into oversold levels necessitates a recovery in the ASX, as bargain hunting buyers galvanize a bounce higher. There’s some way to go before a reversal in the recent short-term trend lower can be definitively considered finished. A clean break through 5930 and a solid hold above 5780 would be the categorical sign required before this can be stated. Until then, abandoning a bearish perception of the ASX may well be premature. ASX200 drivers: As if often stated, the overall activity in the ASX200 is determined by an oligopoly of banks, a slew of mining companies, a couple of supermarkets and a much-loved biotechnology firm. The banks have received a leg-up thus far this week, as investors ignore regulatory risk and a property to slowdown to buy in ahead of a series of bank earning’s reports. The miners are being slayed by increased concerns about the impacts of tariffs on global growth, though increased fiscal stimulus from the Chinese and its knock-on effects to iron ore prices could be their salvation. Woolworths and Wesfarmers are performing solidly, though not well enough to carry the entire market higher. While a diminishing appetite for growth/momentum stocks has led to losses of over 5 per cent for market darling CSL over the past 3 months. Global macro and share market trends: Reviewing the fundamental macro forces required to stimulate the market perhaps reinforces the notion that the ASX200 still has some correcting to do. Although equity markets have experienced a relatively strong start to the week, the risks that catalysed the recent correction in segments of the market have not disappeared. Much of the reversal can be attributed to a belief amongst investors that the recent share market volatility will force the US Federal Reserve to soften its hawkishness and increase US interest rates at a slower pace. US Treasury markets reflect this, with the yield on the rate-sensitive US Treasury note falling from +2.90 per cent to as low as 2.81 per cent this week, as traders decrease their bets on December Fed-hike to 70 per cent. Indeed, it remains a possibility that a “Powell-put” under the US (and therefore global) share market may emerge, but the remarkably strong fundamentals in the US economy still imply a need for the Fed to hike interest rates – a dynamic that, if it materialized, will sustain volatility and further equity market adjustment. Overnight in Europe and America: To lower the eyes and turn focus to the day ahead, SPI futures are presently indicating a 9-point drop at the open for the ASX200. Futures markets have pared losses late in US trade, following a late session run on Wall Street that has seen the Dow Jones climb an impressive 1.86 per cent, the S&P500 rally 1.26 per cent, and the NASDAQ jump 1.56 per cent – though the latter may find itself legged in afterhours trade as investors digest Facebook results. The rally in the North American session followed-on from a soft day in European shares, which were mired by news of a potential ratings downgrade of UK debt by S&P, along with mixed economic data releases across the Eurozone. The USD climbed because of this imbalance between European and American sentiment, pushing the EUR below 1.1350, the Pound into the 1.27 handle, and gold prices to US$1223 per ounce. Australian CPI data: The trading week hots-up from today onwards, in preparation for several important fundamental data releases. Domestically, none will come more significant than today’s Australian CPI print, from which market participants are forecasting a quarterly price growth figure of 0.5 per cent. That number, if realized, won’t be enough to crack the bottom of the RBA’s inflation target band of 2-3 per cent, and will, in effect, affirm the central bank’s soft inflation outlook and dovish rate bias. As always, a figure of extreme variance to either side of market consensus could shift the Australian Dollar and interest rate markets. Traders remained wedded to the idea that the RBA won’t hike interest rates until early 2020: an extreme upside surprise in today’s CPI could see this adjust and spark a run higher in the AUD/USD towards trend channels resistance at 0.7200 – though this outcome is highly unlikely.

MaxIG

MaxIG

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

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

IGAaronC

IGAaronC

Apple Announcement to take place in Brooklyn today - EMEA Brief 30 Oct

Apple hosting event in Brooklyn today, starting at 2pm UK time. New iPad announcements expected UK Chancellor Philip Hammond announced plans to implement Digital Services Tax from April 2020 UK government’s “Cryptoasset Taskforce" published its final report yesterday outlining a range of regulatory steps around crypto assets  Bitcoin dropped $200 after two weeks stagnating around $6,400. Having achieved earlier this month a 17-month low volatility rate the perception that it could be a reliable store of wealth had increased Angela Merkel to Step down as leader of the Christian Democratic Union of Germany in 2021 BNP announced net income for quarter 3 as €2.1 billion compared to an expected €1.97 billion  Dow Jones dropped 352 points yesterday, it’s biggest same day reversal since February  China reverses  25 year ban on tiger and rhino products, allowing use under special circumstances Chinese Yuan drops to Decade low of 6.9724 per dollar  Oil prices, dragged down by weakness in global stock and concerns over rising supply, are quickly recovering losses. Saudi’s pledge to produce as much oil as possible has erased concerns over the November 4th implementation of US sanctions against Iran Gold hoovers down as dollar gains amidst US-China trade war fears Asian overnight: Asian markets were broadly higher overnight, with the Hang Seng providing the one outlier to the bullish session. The Chinese securities regulator encouraged share buybacks and investment from insurance companies, yet this bullish sentiment on the stock front did little to boost the Chinese Yuan, with the currency falling to the lowest level in 10-years. Data-wise, the Japanese unemployment rate fell to 2.3% from 2.4% overnight. Should trade talks between Donald Trump and Xi Jinping continue to fail regarding ongoing trade disputes, the US is preparing new tariffs against all remaining Chinese imports. This follows the 10% tariff imposed in September by the White House on $200 billion Chinese products.  UK, US and Europe: Looking ahead, markets will be looking out for the eurozone Q3 GDP figure, following on from the French figure (0.4% from 0.2%) this morning. In the US session, keep an eye out for the US consumer confidence figure, while equity traders will be keen to see the latest earnings from eBay, General Electric, and Pfizer. The UK Finance Minister Philip Hammond gave the UK governments budget announcement yesterday. Output growth forecasts have increased to 1.6% compared to 1.3% estimated in March. Notably the plan to enforce a Digital Services Tax from April 2020 was announced, this tax will be paid by companies generating £500 million a year in global revenue such companies which may be effected include Google, Amazon and Facebook. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 8.55am – German unemployment (October): rate to rise to 5.2% from 5.1%. Market to watch: EUR crosses 10am – Eurozone GDP (Q3, flash), business confidence (October): GDP to rise 2.5% YoY and 0.5% QoQ, and business confidence index to fall to 1.19 from 1.21. Markets to watch: eurozone indices, EUR crosses 1pm – German inflation (October, preliminary): CPI to rise 2% YoY from 2.3%. Market to watch: EUR crosses 2pm – US consumer confidence (October): confidence to fall to 137 from 138.4. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades BP said that Q3 profit rose to $3.8 billion, from $1.87 billion a year earlier. Upstream production rose 6.8% to 2,460 million barrels a day Reckitt Benckiser reported a 2% drop in Q3 sales due to disruptions at its UK formula plant. Revenue fell to $3.12 billion, but was up 2% on a like-for-like basis Restaurant Group will acquire Mabel Topico, owner of Wagamamas, for £357 million, and will issue new shares to fund the deal. Volkswagen also reported better than expected 3rd quarter results of €2.7 billion Amazon shares fell a further  $103.93 to $1,538.88 yesterday. This 6.3% drop resulting in a total 23% slide in the past three weeks. Boeing shares closed yesterday 6.6% down, their worst daily performance since February 2016 Rambus announces interim CEO Luc Seraphin will become permanent Leader Nintendo Co's quarterly results lower than 37.9 billion yen expected coming in at 30.9 billion yen Asos upgraded to add at AlphaValue
Electrocomponents raised to neutral at Credit Suisse
PostNL upgraded to hold at Berenberg
Travis Perkins raised to equal-weight at Barclays Ahlsell downgraded to neutral at JPMorgan
Drax downgraded to hold at Jefferies
Kuka downgraded to add at AlphaValue IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

MichaelaIG

MichaelaIG

Asia and Europe Monday - APAC brief 30 Oct

Written by Kyle Rodda - IG Australia Asia and Europe’ Monday: Markets were generally experiencing a much-desired bounce for the better part of Monday, enabled by a day light on market moving information and data. The confirmed election of populist Brazilian leader Jair Bolsonaro boosted emerging market indices. News that German Chancellor Angela Merkel would be stepping down as leader of the governing CDU party, combined with a ratings downgrade of by Italian debt S&P, sent minor ripples throughout Europe, pricking some nerves about the state of the European Union and its economy. But the lack of event risk, dearth of corporate reports, and limited external news managed to keep negative sentiment in Asian and European trade relatively mooted, leading to a mixed day for Asian shares, and a generally solid-one for Europe’s. Trade War escalation in US trade: True to form however, the cautious optimism of market bulls has been kicked-down again late in Wall Street trade, as news filtered through the wires that the Trump Administration intends to slap additional tariffs on Chinese imports if talks between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 fall by the wayside. Early price reactions to the news were of course negative, proving enough to wipe the session’s early gains from the Dow Jones, NASDAQ and the S&P500, while turning the tide of positivity in futures markets into a state of vigilance. Upon their close, US stocks have dropped in the realms of one-percent, setting a tone to the week’s trade very much in line with last week’s. The Trumpian approach: It’s hard to pick the rationale of the Trump Administration and its hard-headed approach to China. In the hysteria to point-out President Trump’s characteristic buffoonery, it is often lost that several legitimate concerns exist regarding China and its behaviour as a global economic citizen. Some sort of response to anti-competitive trade practices and the like from China is perhaps overdue, but the question is whether the Trump Administration’s approach is one designed to really achieve results. The Chinese despise backing down to a foreign power, wishing – as is widely stated about Chinese culture – “to keep face”. Waving a big stick at the Chinese is sure to only make them more stubborn and delay any material change. US mid-terms: Perhaps the approach can be viewed cynically as a populist-play ahead of US mid-terms to fire-up the American public – and more specifically, Trump’s core constituency. Votes are cast for Congress in slightly over a week, and it is shaping up as a test of Trump’s legitimacy. Talks of a Democratic “blue wave” washing over the US Senate and House of Representatives would surely have the White House concerned -- an outcome that, if witnessed, would surely shift Trump’s power-base and policy platform. It’s something the Chinese will be monitoring closely: a Republican thumping in the mid-terms could be seen as a vote of no-confidence in the White House, and potentially by extension, a vote of no-confidence in President Trump’s belligerent approach to foreign policy. Risk-off on a protracted trade-war: Nevertheless, a protracted trade-war, based on the balance of evidence, seems likely – a fact last night’s developments dutifully reminded market participants.  Backing-up some stark guidance from US industrial giants last week about the profit-eroding impacts of the trade war, the effects on equity markets of the possible introduction of new and bigger tariffs will be lingering. Haven assets furthered their bid higher on this basis, adding to their short-term spike: the yield on benchmark US 10 Year Treasuries fell again to 3.07 per cent, pushing the US Dollar higher across the board. Naturally, the stronger greenback and heightened risks to global growth has pushed the AUD/USD lower, to trade back towards the recently penetrated support level of 0.7040. China can’t take a trick: Last night’s new trade-war salvo can’t be good news for Chinese equity indices today, especially after China’s stocks were the great underperformers during yesterday’s Asian session. Though there was no overt news to precipitate it, Chinese indices took another bath in trade yesterday, tumbling 3.05 per cent (if using the CSI300 as the benchmark). Despite quite attractive valuations and policy makers full bore attempts to support stock markets, the power of sellers has proven too overwhelming for China’s equities. While the fundamentals are surely not as bad as price action suggests, very little impetus apparently exists for investors to jump-back into Chinese stocks right now. Adding to the bear base, the technicals suggest that (on the daily charts) that the market isn’t yet entirely oversold, meaning a plunge below recent lows at 2980, down toward support at 2900, is a possibility. ASX today: SPI futures are indicating that the ASX200 is in for a considerable dump at market open of around 78 points. There was an element of hope amongst investors yesterday that the strong activity in Australian shares was the turning point bulls had been waiting for: the momentum/growth plays in the health care space lead the ASX higher, while the sectoral map showed gains in every sector on market-breadth of 69 per cent. To the assumed vexation of the bulls, last night’s trade war developments are poised to erase yesterday’s bounce, reaffirming the bearish tone to trade on the Australian share market. And (arguably) justifiably too: the ASX200 remains oversold, implying bounces are necessary on the path of this trend lower – the dynamic of which is being perpetuated by a set of bearish fundamentals, that have not yet changed.

MaxIG

MaxIG

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

Philip Hammond to announce the last UK annual budget plan before Brexit on Monday HSBC announces a rise in profit before tax of around 28% year-on-year to $5.922billion IBM to acquire Red Hat for $34billion, buying all shares at $190 each Jair Bolsonaro wins Brazilians Presidential election with just over 55% of votes Merkel’s Christian Democratic Union votes falls to 28% from 38.3% from the last election Economic growth for China fell short of expectations, including an economic slowdown in recent shipping data Investcorp to increase investment in the US, as well as looking to expand into the Asian markets, particularly China and India Michael Higgins wins 56% of votes and re-elected as Irish president Italian government to step in if a crisis in the banking sector occurred Crude oil continues to drop, declining around 12% and working on its worst month since 2016 Shanghai composite and Shenzhen composite falling by 0.95% and 0.83% in this mornings trade, whereas, the Nikkei 225 increases by over 1% and ASX 200 by 0.98% SIT Investment Associate’s warns that the bond market could surge on spiking interest rates Asian overnight: Another bearish session overnight saw losses across the majority of markets, with Chinese stocks hit hardest after the Shenzhen composite dropped 3%. The technology sector was once again targeted by sellers, with Japanese markets being impacted by a significant selloff. We also saw Japanese retail trade data fall from 2.7% to 2.1% UK, US and Europe: Looking ahead, a somewhat quiet economic calendar sees a focus on US data, where personal spending and the core PCE price index data should provide some form of volatility for dollar volatility. The government is to reconsider a new budget plan if a Brexit deal with the EU does not come into plan. Mr Hammond explains that the original budget forecast was based on an “average-type free trade deal”, therefore if the UK leaves without an agreement, this could change. The forecasted budget is pressured to add extra funds for the universal credit rollout, after claims that millions of households could potentially lose money under the new system. It also has plans to release expected budgets of around £30billion for roads in England, £900million in business rates and £650million to rejuvenate high streets, as well as an increase of £2billion on mental health services and another freeze in fuel duty. South Africa: Commodity prices are trading mostly lower this morning, while the dollar remains firm. The rand is weaker against the majors. Tencent Holdings is down 1% in Asia, suggestive of a softer start for major holding company Naspers. BHP Billiton is trading 1.4% higher in Australia this morning, suggestive of a higher start for local resource counters.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 12.30pm – US personal income & spending (September): income to rise 0.3% MoM and spending to rise 0.4% MoM. Market to watch: USD crosses 11.30pm – Japan unemployment (September): rate to rise to 2.5% from 2.4%. Market to watch: JPY crosses Corporate News, Upgrades and Downgrades HSBC posted better than expected profits in Q3, following a reduction in costs, with adjusted pre-tax profits coming in at $6.19 billion (up 16%). The ability to rein in costs is positive going forward, with operating expenses falling 6.9% to $7.97 billion over the period.   Ford’s production line in Bridgend to close from the 29th October to 2nd November Asda to potentially cut up to 25,000 jobs as they begin consultations with staff in regards to job roles and working hours Hitachi shares decline around 8% as its Chemical Co enters its second falsification scandal this year Barclays to not face trial over its emergency fundraising from Qatar in 2008 financial crisis MTN Group For the quarter ending 30 September 2018, group service revenue increased by 10,0% y/y  and group data revenue increased by 23,9% y/y.  Raubex Group Ltd for the interim period, revenue decreased by 4% and headline earnings per share decreased by 72.8%  Famous Brands for the interim period, revenue increased by 5.4% and headline earnings per share by 10.6% Royal Gold Downgraded by Zacks Investment Research to Strong Sell IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 

KatherineIG

KatherineIG

Global price action - APAC brief 29 Oct

Written by Kyle Rodda, IG Australia Global price action: The global equity sell-off continued during Wall Street's final trading session for the week, putting an end to a horrid 5 days for markets. True to form, it was the NASDAQ that led the losses in US trade, clocking a loss of 2.07 per cent, while the S&P500 shed 1.73 per cent itself. Volatility remained elevated and underscored the intense selling, maintaining a 24 reading throughout the session, prompting a flight to safety from investors. The dynamic pushed the yield on US 10 Year Treasuries to 3.07 per cent – their lowest rate in close to a month – driving the DXY temporarily above 96.80, the risk-off USD/JPY below trend line support, and gold prices briefly beyond resistance at $US1240. The action followed on from a European and Asian session in which equity markets fared little better. Chinese equities wallowed once more, exacerbated by fears of financial instability in the face of a depreciating Yuan, after the PBOC’s currency fix pushed the USD/CNH above 6.97 for the first time in several years. The AUD/USD fell in sympathy with the Yuan, breaking through support at 0.7040, only to drift higher into the European session. The Pound and Euro came under pressure due to the US Dollar's strength, but stayed within the 1.28 and 1.13 handle, while European stocks crept towards their worst month in three years. Bearish sentiment: The bears appear to well and truly have control of this market, spooked by the prospect of higher US rates and "peak earnings" amongst American corporates. Concerns around the latter were driven home on Friday, shortly before the beginning of the Asian session, when earnings updates from (Google parent-company) Alphabet and Amazon disappointed market participants. The reasons behind each company's relatively poor performance were unique but hammered home the view that despite most of earnings reports beating expectations this reporting season, the market is reaching, or has already reached, peak earnings in this cycle. Wall Street versus US economy: This question throws up interesting and contentious debates: one, whether share market performance is a leading or lagging indicator of economic health; another, to what extent a share market's fortunes are tied to the "real" economy. Friday's North American session cast an interesting light on the issue, perhaps providing evidence for the view that that the overall share market is a weak, lagging indicator of the economy's health: the US's GDP release beat forecasts (3.5 per cent vs. 3.2 per cent) and reaffirmed the view that the US economy is still roaring. The data suggests that while many investors are certainly suffering, the activity in US equity markets could be possibly better explained as a necessary correction in asset prices, which have been artificially inflated for many years by cheap money. Market correction, not economic recession: A common fear in times in which the market is experiencing (an apparent) correction is to assume that it reflects the state of the underlying economy. While that is sometimes true, history suggests that this need not always be the case. It's understandable as to why conventional wisdom suggests this is so: the monumental disaster that was the GFC has suffused the zeitgeist, conceiving the erroneous idea that every period of stock market disquiet portends a potential financial or economic calamity. It's always impossible to predict whether market volatility is indeed something indicative of underlying problems attached to the real economy, but the balance of evidence – supported by US GDP figures – suggests that this time around, the likelihood is very low.

Stronger US economy, weaker share market? In fact, the more likely scenario is that the fundamental strength in the US economy is indirectly bringing about their share market’s sell-off. As is well known and widely discussed, the major structural factor behind Wall Street's tumble is the US Federal Reserve's insistence it will continue to raise interest rates to lean on a booming US economy. Of course, the effects of the trade war on global growth and corporate earnings, coupled with regional concerns as diverse as Chinese growth, Brexit, and Italy's fiscal crisis play a part; however, the primary driver in financial market activity, as it almost always is, is the decision making of the US Federal Reserve. Ironically, the stronger than expected growth figures out of the US supports the need for higher interest rates, probably enervating the strength in US shares. Here's the rub: Given this, herein lies the problem going forward: a flight safety into bond markets the past week has pushed US Treasury yields down, allaying some of the pressure on equity markets. By necessity though, in the long-run, bond yields must increase as interest rates climb: a situation that will need to occur as strong growth, like that conveyed in Friday's US GDP numbers, leads to upward pressure on prices. Hence, the bad news and fundamental conundrum is this: the better the US economy, the higher US interest will go, and the greater the downside risk and volatility in share markets. Ultimately, this all means that there is a strong possibility that, at worst, this sell-off has further to run, or at best, perhaps periods of snap-and-sharp market down turns will become the new norm. ASX today: Bringing it closer to home, SPI futures are pointing to a 17-point drop for the ASX200, following a Friday in which the index managed to close flat. It was a see-sawing day for Australian shares, which gained in early trade, tumbled for the lion's share of the day, and then inexplicably recovered in the final 15 minutes of the session to end the day a dead-rubber. The bounce came courtesy of strong buying for the index's major large caps in the financial, mining and healthcare sectors, keeping the market out of technical correction. Despite late run, the ASX still appears exposed to and poised for further downside, ahead of a week high on local and international event risk.

MaxIG

MaxIG

Risk aversion intensifies; Euro and Pound fundamentals, FX measures - DFX Key Themes

Risk Trends – Monitor Liquidity Closely  Sentiment is turning increasingly septic across the financial markets. This past week certainly wasn’t the first week that signs of trouble were starting to show. However, a clear capitulation by one of the favorite benchmarks of hold-out bulls – US indices – has undermined one of the few reliable backstops left. The S&P 500 and Dow have been in retreat through much of October after hitting their respective record highs. Up until this past week, the slip still fit the mold of a measured retreat for which the ‘buyers of the dip’ have flourished. Yet, the past five-day stretch added a troubling gut punch to the opportunists’ gut. The major American indices, paced by the S&P 500, crashed through their respective multi-year bull market trendlines. While Wednesday’s 3.0 percent tumble was particularly acute, it was Friday’s more restrained drop that was perhaps more remarkable technically and a record setter. The gap lower on the open was the biggest in almost exactly 10 years (2 days off during the height of the Great Financial Crisis) and the largest on record. Furthermore, it the move that would treat a former critical level of support as new resistance. With this symbolic risk leader removing its support, we may find one of the most critical contributors to keeping the peace allowing progress as we slide into deeper retreat.  As we keep track of this small sliver of the financial system, comparison to deeper and more productive retreat for global equities (VEU), emerging markets (EEM), junk bonds (HYG) and so many other important assets will act as a sort of speculative gravity. One of my favorite measures of genuine sentiment is to gauge correlation for these various risk assets as they commit to a clear and consistent trend. Yet, where that may indicate that sentiment is in control with a viable direction, the measures of intensity are different. Two crucial elements of a market that is tipping from controlled descent into relentless deleveraging are market positioning and liquidity. For market positioning, exposure can be assessed through open interest via derivatives like futures and ETFs. The net speculative futures position monitored by the CFTC (COT) is a significant medium-term evaluation – in contrast to the short-term readings from the DailyFX-IG sentiment data. That said, there are longer duration measures that we can utilize for trends. Total open interest in futures (for speculation and hedging signals), capital moving into and out of ETFs and leverage readings for different economic participants (investor, consumer, corporate and government) can all register the state of the financial system. As these readings start to reverse course and funds begin to prioritize safety over return, we begin to solidify a self-sustaining course. However, tipping the market into a true panic with all its important implications, we must monitor the liquidity behind the market.  An abundance of selling overwhelming bullish interests is one thing. Attempting to unload exposure but finding no market forcing a rapid drop in price to satisfy the offload is something completely different. There are many ways to measure the strain on the system, but not all are made the same. I find many of the government (Cleveland Fed) and bank (BofAML, Goldman) measures are lagging. Spreads between market and sovereign (TED spread) or risk premium (high yield fixed income over blue chip) is more timely. Given how exposed investors are up the risk curve, the natural rolling out of the tide from higher risk and thinner markets can trigger a cascading problem in the opposite direction towards the core of the market. It is worth noting that late this past week, Japan’s central bank, Finance Ministry and financial authority (FSA) held an unscheduled meeting to discuss the tumble in equity markets (15 percent down in October). We should keep a close eye on whether more such concerns are confirmed on other points across the globe.  Themes Versus Event Risk for Euro and Pound  There are already significant fundamental winds blowing for the European currencies, but the storm will start to foster confusing cross winds in in the coming week. In particular, traders will have to untangle the influence between scheduled event risk and more systemic themes. We have seen this many times before in different asset types and different regions. How many times have we seen a high profile event draw the market’s attention in its approach only to find its ultimately impact waylaid by an unresolved and overriding theme? For this week, least severely conflicted currencies (hardly an inspiring designation) is the Euro. On the docket, we have a range of economic releases including inflation to region-wide sentient surveys. As important as those figures are, there is far more fundamental charge from the likes of the Euro-area 3Q GDP figures and Italy’s specific data. Italy will report its own GDP update, its monthly budget and other various indicators. We care about this specific country for its systemic, thematic influence. The standoff between the European Union and one of its most indebted members has hit a critical stage.  Italy has made clear it has no intention of backing off of commitments to increase public spending to help spur growth through pensions, support for the poor and more. Yet the Union and other member countries’ leaders have demanded change to meet the previous government’s commitments and not run afoul of the Union’s restrictions. We were here before with Greece approximately 9 years ago. If this moves forward, the situation could prove far more severe as Italy is a core member rather than a small, fringe component to the healthy system. From the Pound, the fundamental conflict will be far more substantial. The ongoing drumbeat for the Sterling is the unresolved Brexit. This has been the general state of the market backdrop for over a year and a half. However, we are fast approaching a critical deadline which looms like a cliff. They have to start decelerating now to ensure they do not pitch over the ledge. Where it seemed last weekend a breakthrough was reached when it was suggested Prime Minister May was ready to compromise on the boarder, we saw late in the subsequent week that talks within her government had stalled over strong infighting yet again. We have few definitive dates to monitor for progress through the immediate future, so we have to rely on erratic headlines instead.  In the meantime, the Bank of England (BOE) rate decision on Thursday carries more weight than normal. While speculation of another hike by the MPC (Monetary Policy Committee) before the end of the year has dropped off sharply, focus on policy standings has ramped up considerably thanks to the Bank of Canada’s rate hike. What’s more, this is one of the nuanced meetings for the BOE as we are also expected the Quarterly Inflation Report and Governor Carney’s press conference – which is collectively referred to as Super Thursday. Expect volatility but question trend.  The Unique Signal on Risk from the Dollar, USDJPY and Aussie Dollar As we attempt to untangle the commitment in risk trends – a worthwhile pursuit given how much potential lays underneath this evaluation – there are a few measures in the FX market that deserve closer attention for their unique readings. First in that is the US Dollar. The most liquid currency in the world, this asset is often considered a binary safe haven. It is true that the currency represents a good harbor to stormy financial markets, but there are shades of grey to sentiment and to this indicator’s signaling. In the event that we see a full-tilt deleveraging of risky exposure, there is no question that the Greenback will climb. This has less to do with the depth of the currency’s own market, and relies far more on the international appetite for US Treasuries and money markets when the walls are falling down around us. When capital is fleeing to such safety, it first must cross the exchange rate barrier. However, short of the extreme measures capital shift, the Dollar’s status comes with significant caveats. This is a currency that has also drawn significant interest as a carry currency over the past few years owing to the Fed’s unmatched path of policy normalization. That hasn’t always afforded the USD lift, but it has factored in nonetheless.  If we are in risk aversion that sees the Dollar drop, it is less likely to be the type that is systemic and associated to ‘panic’; while a USD surge would indicate something very different. This ambiguous picture of the Dollar can be extended to a specific currency pair as well: USDJPY. Both the Dollar and Japanese Yen respond to market sentiment as safe havens. The Yen is more appropriately ‘safe haven adjacent’ however as it is a funding currency that facilitates carry trade appetite. As confidence gives way to fear, a deleveraging of carry nevertheless sees the Yen appreciate and signals a change in course. Yet, what if the intensity picks up? The Dollar’s carry status would facilitate a drop in the exchange rate, but an extreme tempo would likely designate a more appropriate harbor from extreme fear. If it is difficult to evaluate confidence from the USD alone or via the correlation between assets, use the USDJPY as a barometer. We have done a lot of ‘preparing for the worst’. What if sentiment stabilizes and there is a rebound in risk appetite? First, it is important for me to qualify that I would not consider a bounce in risk appetite to signal a lasting trend. There are still deep, unresolved inequities between risk assets prices and their values.  I would look instead for short-term opportunities. One such opportunity may come with the Australian Dollar and/or New Zealand Dollar. Both are carry currencies that have lost all appeal for their carry. They further have exposure to China which is troubling and host their own domestic issues (such as housing tension). Yet, if risk trends stabilize, there is deeper discount here than more confused outlets such as the Dollar or the Yen crosses. Further, these currencies have not dropped in recent weeks’ sentiment slump, which denotes a bias that can reduce risk and leverage potential under favorable conditions. There is still key event risk to monitor ahead such as Australia’s 3Q GDP and CPI, but we shouldn’t underestimate the opportunity should the course be set. 

JohnDFX

JohnDFX

Dividend Adjustments 29 Oct - 02 Nov

Expected index adjustments  Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 29 Oct 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 You can see the special dividends listed below. Unfortunately we do not have granular insight on the effect on the index for the index in question, however the below maybe helpful for some.  Index Bloomberg Code Effective Date Summary Dividend Amount AS51 IAG AU 31/10/2018 Special Div 7.8571 IBEX ITX SM 31/10/2018 Special Div 21 SX5E ITX SM 31/10/2018 Special Div 21 RTY COLB US 06/11/2018 Special Div 14 RTY HFWA US 06/11/2018 Special Div 10 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.

JamesIG

JamesIG

Japan and China to repair ties- EMEA Brief 26 Oct

Japan and China sign a bilateral currency swap to improve financial stability Asia predicted to be more vulnerable than the US in regards to the sell-off in global stock markets, according to managing director of FX strategy for BK Asset Management US Futures direct more than a 200-point drop for Dow Jones, after seeing a slight recovery on Thursday Amazon shares drop nearly 9% in after-hours trading, regardless of hitting record profits of nearly $2.9billion in the last quarter in comparison to $256million last year, and sales increasing 29% in the third-quarter to $56.6billion. Revenue for its cloud services business also rises by 46% year-on-year and its advertising business by 122%. Alphabet shares fall 3.9% in after-hours trading as third-quarter sales doesn’t reach expectations Cryptocurrencies remaining stable regardless of global stock market sell-off, with Bitcoin, XRP and Ethereum falling 0.23%, 2.09% and 1.38% in comparison to 4% for Bitcoin and more than 11% for XRP and Ethereum on October 11th UBS’s net profit 32% higher than expected as it increases in third quarter to 1.2billion Swiss Francs As predicted, Turkey’s Central Bank left its benchmark interest rate unchanged, causing the Turkish Lira to initially weaken to 5.71 against the Dollar Net-long positions for EUR/USD reach its second month high, at an estimate of 61.3% Asian overnight: Asian markets are back in the red today, with the Australian ASX 200 providing the only market that kept its head above water. The Chinese Yuan hit the lowest level since the financial crisis overnight, with US-China trade dispute showing no signs of improvement. Data-wise, the Tokyo core CPI figure came in steady at 1%.

Japanese Prime Minister met Chinese President in Beijing, signing a bilateral currency swap arrangement, effective until 25th October 2021. According to the Bank of Japan, this agreement will allow the exchange of local currencies of up to 200billion Yuan/3.4trillion Yen between the two central banks. UK, US and Europe: A somewhat quiet economic calendar sees markets focus in on the US GDP reading as the one top tier piece of data worth keeping an eye out for. Market predictions point towards a sharp fall to 2.6% from 4.2% last quarter. Elsewhere, keep an eye out for the latest earnings from Exxon Mobil. US stocks recover on Thursday from its previous lows, with the Dow Jones Industrial Average rising 400 points, S&P 500 gaining nearly 2% and the Nasdaq increasing by 3.2%, in comparison to a fall on Wednesday of 608.01 points, 3.1 and 4.4% retrospectively. However, US stocks decline after Thursday’s close with the Dow Jones and S&P 500 dropping at 5.6% and 7.2% for October, and the Nasdaq falling 9.1%. The on-going concerns of longer border checks at Calais continue as the Brexit Secretary, Dominic Raab, warns The House of Commons of a worst-case scenario, which could lead to the French authorities potentially introducing a “go-slow” policy, if the UK leaves without a deal. Raab suggested to MPs to “prepare for the worst case scenario where the authorities at Calais are deliberately directing a go-slow approach by supporting a diversion of the flow to more amenable ports in other countries”. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US GDP (Q3, preliminary): growth to be 2.6% QoQ from 4.2%. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades RBS reported an operating profit before tax of £961 million for Q3 2018, up from £871 million in Q3 2017. The bank is reducing its costs through transformation and digitisation, with expenses for the year falling 3.3% compared with 2017. In preparation for Brexit, the bank has gained approval from the Dutch regulators for a banking license.   IAG posted an operating profit of €1,460 million in the nine months to September 30, 2018, up from €1,450 million last year. Rising fuel price and foreign exchange factors provided headwinds for the firm over the period, yet the firm still proposed an interim dividend of 14.5 euro cents per share. Glencore saw improved Copper, Cobalt, Nickel and coal production in the third quarter, with zinc the one disappointing segment of the business. Own sourced copper production was 12% higher than the comparable 2017 period, while cobalt production was up 44%after the firm restarted Katanga's processing operations. Nickel production was 13% higher, reflecting the progressive ramp-up of Koniambo, with its second production line. However, Zinc output fell 5% after African assets were sold to Trevali Mining. Adjusting for that disposal, zinc production was up 7%.  Tesla Model 3 to come to the UK and Australia by mid-2019, according to the CEO Nokia to cut thousands of jobs as part of a cost reduction program, after third-quarter profit falls 27% to 487million Euros, in comparison to the previous year at 668million Euros Volvo buys a stake in FreeWire Technoligies Debenhams to close around 50 stores as it hits a record low of a £491.5 loss due to charges on leases and goodwill, the biggest fall in its 240-year history. BT Group CEO Gavin Patterson to be replaced by Philip Jansen from February 1st British Airways face second hack attack which may affect over 185,000 individuals in relation to payment card details being stolen CEO of Google admits the company had sexual harassment issues, causing 48 employees to be fired Burberry upgraded to hold at HSBC
Kion upgraded to overweight at JPMorgan
Lloyds upgraded to neutral at Macquarie
LVMH upgraded to buy at HSBC
  AB InBev downgraded to hold at Independent Research
Covestro downgraded to hold at Berenberg
Hexpol downgraded to hold at SEB Equities
Valeo downgraded to inline at Evercore
  IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 

KatherineIG

KatherineIG

The ECB to announce its monetary policy amid growing tensions within the Eurozone - EMEA brief 25 Oct

The European Central Bank is announcing its monetary policy today, with expectations that Mario Draghi will confirm that the ECB stands by its plan to end its quantitative easing program by the end of the year. The euro plunges on Wednesday as concerns over the Eurozone growth continue. Italian government bonds remain at year-highs as the EU has rejected the country's deficit plan. Yields are expected to remain high over the next few weeks as the Italian government says that the budget plan is designed for Italy and not Brussels, suggesting future disagreements between the two. The Canadian dollar gained on Wednesday after the Bank of Canada increased key interest rates by 25 basis points to 1.75%, keeping to expectations. The S&P500 goes into negative territory for the year as it ended 3.1% lower at 2656.10, down 0.65% year to date, and the Nasdaq had its worst one-day drop in 7 years as it fell 4.4% at 7108.4. The Dow Jones has erased all of its gains for 2018 as it dropped 600 points on Wednesday's trading session Markets in Asia fell overnight as they follow the US major stock indices sell-offs. Oil prices have also suffered from the global stock market slumps as prices have fallen by 1% due to selloff pressure. Asian overnight: Asian markets followed their US counterparts lower overnight, with a massive 3% decline in Japanese stocks closely followed by their Australian counterpart (-2.8%). The tech-focus continued into Asian markets, after the Nasdaq had its worst day in seven-years. Oil prices slide sharply overnight too, after the Saudi Arabians raised production to 11-million bpd. Could we see the Saudi Arabians begin to drive down oil prices as a gesture to Donald Trump amid the current Saudi crisis in Turkey? UK, US and Europe:  The European Government announced earlier this year that it was planning on phasing out of its quantitative easing policy, a crisis-era stimulus with a plan to produce stable inflation and solid growth, signalling that gradual increases in interest rates were to come. But as economic events of the past few weeks have unfolded, the ECBs expected economic health of the Eurozone may not have held up, as there have been signs of weakening growth in some of the countries in the Eurozone and inflation levels have remained below the ECB’s 2% target.  In the recent months, the risk of external shocks has risen, led mainly by continuing trade tensions between the US and China, the high prices of oil due to geopolitical risks, and the prospect of a hard Brexit outcome. Adding to that, damage from inside the Eurozone has also led to hurting the sentiment surrounding the Eurozone's ability to grow. The ongoing disagreements between the Italian government and the ECB regarding budget deficit are a reminder that the European Commission's stimulus to overcome the sovereign debt crisis has not removed the problem of economic divergence between economies of the single currency. This could pressure the ECB to take a more cautious stance on monetary policy compared to the plans it had set previously this year. That said, there are beliefs that the ECB is set to reduce quantitative easing and the concerns over Italy and Brexit are not enough to alter the ECB's message to the markets. As the Euro is starting to see the effects of the tensions within the Eurozone, the US Dollar is managing to regain some consumer confidence as it is seen as a safe haven amid the Italian and Brexit uncertainties. The Canadian Dollar, on the other hand, continues to rise as consumer confidence is backed by the Bank of Canada's decision to increase interest rates as expected, which boosts the perception of a strong economy. Looking ahead, the day is likely to be dominated by the latest rate decision from the ECB, with Draghi and co expected to keep rates unchanged. With fears remaining over how the current standoff between the EU and Italy will resolve, markets will be expecting a cautious approach from the bank. Markets will also be looking out for the German IFO business climate figure. In the US session, the release of core durable goods and the latest trade balance figures will provide some volatility for the greenback. However, many of the US traders will instead look towards the release of earnings data from the likes of Amazon and General Electric as a core driver of sentiment. South Africa: Precious metal prices have gained overnight on some safe haven demand. Base metals trade slightly lower this morning. The rand has weakened following yesterdays Mid-Term Budget speech, underperforming its emerging market currency peers. Tencent is down 2.8% in Asia suggestive of a weak start for major holding company Naspers. BHP Billiton is down 4% in Australia suggestive of a negative start for local resource counters. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9am – German IFO (October): business climate index to fall to 103.6 from 103.7. Market to watch: EUR crosses
12.45pm – ECB rate decision (press conference @ 1.30pm): no change in policy expected. Market to watch: EUR crosses
1.30pm – US durable goods orders (September): forecast to fall 2.3% MoM overall, and rise 0.3% MoM excluding transportation orders. Markets to watch: US indices, USD crosses
3pm – US pending home sales (September): sales to fall 1.4% MoM. Market to watch: USD crosses Corporate News, Upgrades and Downgrades Lloyds saw a fall of 0.5% in underlying pre-tax profit for Q3, to £2.07 billion. Net income was up 2% to £13.4 billion. BT has appointed Philip Jansen from Worldpay as CEO, taking over on 1 February 2019. WPP suffered a 0.8% fall in revenue for Q3, to £3.758 billion, while nine-month reported revenue was down 1.6% to £11.25 billion. Steinhoff International The Company announced on 5 October 2018 (the “5 October Announcement”) that its subsidiary Mattress Firm, Inc. (together with its U.S. subsidiaries, “Mattress Firm”) was taking steps to implement a pre-packaged plan of reorganization through the voluntary filing of cases under Chapter 11 of the US Bankruptcy Code (the “Mattress Firm Filing”). In conjunction with the Mattress Firm Filing, Mattress Firm also secured certain financing arrangements that come into effect upon completion of the implementation of the plan of reorganization and Mattress Firm’s exit from the Chapter 11 proceedings that are intended to support its business going forward. Air Liquide upgraded to add at AlphaValue
Segro upgraded to add at AlphaValue
Anglo American upgraded to buy at SocGen
Rolls-Royce upgraded to buy at Oddo BHF Orion downgraded to reduce at Inderes
Rio Tinto downgraded to hold at SocGen
Telia downgraded to underweight at Barclays
Valeo downgraded to neutral at MainFirst 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

Elevated volatility and choppy trade - APAC brief 25 Oct

Elevated volatility and choppy trade: Volatility is still elevated. It's one moment up and one moment down. Price action and sentiment is shifting all in the space of a single session. The extreme vacillations in price and sentiment are wrung by the twisting fortunes of the global economy's two major forces: the Chinese and US economies. Day-to-day, markets are playing out like a game of pong, with one side rising only to strike the ball in the opposite direction to send the other diving lower. Once again, a sharp rally in China's equities just prior to its lunch break yesterday fizzled throughout the day, to the chagrin of nonplussed European and North American equity traders. The remainder of Thursday's session since has seen a sea of red, as the bears one again have-their-way with the market.

Risk-off (again): Several causes have been used to rationalise last night's drop in US equities, ranging from fears regarding poor earnings and soft US housing data last night. Nothing major has thus far leapt out as a catalyst however, seeming more like a continuation of the very choppy trend we've watched play out for weeks. Havens maintained their trend higher amidst the risk-off sentiment, pushing US Treasuries (and bond markets in general) higher. The USD has rallied on this basis, diving into the 1.13 handle against the EUR and the 1.28 handle versus the GBP. While Gold prices have remained steady, as traders maintain their hedge against fiat currency risk. Currency markets: The Australian Dollar has naturally suffered from the stronger greenback, to be squashed toward the 0.7050-mark. The Kiwi has endured a similar fortune, though the other of the Big 3 commodity bloc currency, the CAD, rallied after he Bank of Canada hiked interest rates overnight. The ultimate growth-versus-risky proxy, the AUD/JPY, has plunged to around 79.30, epitomising the prevailing fears regarding global growth and equity market bearishness. And of greatest global significance, the USD/CNH continued its apparently inexorable run toward the 7.00 handle, breaking through 6.95 to trade close to year-to-date highs.
ECB meeting: Rates and currency markets will remain in focus over the next 24 hours, in preparation for the ECB's monetary policy meeting. The ECB won't materially change policy at this meeting: stimulus will stay on, and rate settings will remain negative. What will be watched for however, is comments on the unfolding political-economic issues regarding Brexit and the Italian fiscal problem, and more importantly, the central bank's plans to implement its Quantitative Tightening (QT) program. The expectation is currently that the ECB will flag the beginning of the end to this program in December this year, all the while reassuring markets that interest rates will stay where they are -- effectively at 0 per cent -- until well into 2019. The slow-end of easy money: The deepest cause of the volatility experienced in global financial markets is the tighter liquidity conditions, aided just as much by the ECB as the US Federal Reserve. A profound reaction to any mention by the ECB of its QT intentions isn't greatly expect tonight, however it's practical implications in the medium-to-long term sow the seeds of the sort of volatility heaped upon markets over the last several weeks. Tonight's ECB meeting is being treated as potentially another reading of the last rites to the easy money era. The realisation amongst markets participants is that (finally, after a decade) the ability to gorge on free money is over, tipping the risk/reward ledger out of the favour of long booming global equity markets. North American wipes 2018 gains: The problem is, with the necessity to tighten global monetary policy in the face of better global growth and higher inflation risks, the global economy is being threatened on several fronts from a breakdown in international geopolitical and economic ties. The day-to-day commentary on Wall Street is centred on this dynamic, and it played out again in last night's major equity sell-off. Growth/momentum stocks in US tech caused the NASDAQ to sustain the greatest losses across US indices overnight, but fears about slower earnings growth from weaker economic fundamentals also pushed the S&P500 and the Dow Jones in the realms of 2 and 3 per cent lower. The next 48 hours become increasingly significant as the losses in North America mount: tech giants -- those who have pushed this market higher-and-higher -- Microsoft (who this morning reported record profits in the first quarter) Amazon and Alphabet are report earnings, with the reaction to them potentially deciding the view on what the futures holds for US equity markets. Bearishness for ASX200: SPI futures portend a very challenging day for the ASX200, with markets pricing in a 94-point drop at today's open. Zooming out to the bigger picture as it currently stands, there are few glimmers of hope for Aussie equity bulls now. The major drivers of upside are all struggling: the banks are battling potential regulatory crack downs and a slowing local property market; major healthcare stocks, with their stretched valuations and low yields, have lost the bid of momentum investors; and the miners are battling fluctuating commodity prices amid concerns regarding the trade-war and global growth. Opportunities always exist for the savvy reader and investor, of course, but extending the rationale enunciated and looking at the technicals as they gradually unfold, signs of a bearish trend in the ASX200 are progressively emerging.

Written by Kyle Rodda - IG Australia

MaxIG

MaxIG

Deutsche Bank kicks-off European Banking Season - EMEA Brief 24 Oct

Deutsche Bank has kicked off the banking season in Europe today as the bank announced a net profit of €229 million, with analysts expecting a profit of €149 million, as the investment bank branch loses ground. Barclays has followed by beating expectations as net income came in at £1 billion vs. £723 million expected, Jes Staley announced he is "very pleased" with the Q3 results. The EU continues to mount pressure on the Italian government as Valdis Domborvskis, vice-president of the European Commission, has told Italy that it’s budget is “not sufficient” highlighting issues with further increasing debt in Italy. The Dow ended 126 points lower but recovered from the earlier 500-point loss during the day, as corporate results from Caterpillar and 3M disappointed. Nasdaq closed 0.4% lower whilst the S&P 500 slipped 0.6% Japanese manufacturing expanded to its fastest rate in six months In October a preliminary survey indicates PMI rising to 53.1, up from 52.5 in September. China's Shanghai Composite slipped 2.3% on Tuesday, counteracting the surge seen on Monday. China is in a state of doing  "whatever it takes" to put an end to its stock market falling, as President Xi Jinping pledges to provide unwavering support for the Chinese private sector. Oil prices plunged more than 4% yesterday amid concerns amongst investors about increasing global tensions with Saudi Arabia and slowing global economic growth. Saudi Arabia's minister of energy has attempted to assure the markets that the Khashoggi scandal will not impact the supply of crude oil, with little success so far. Asian overnight: Asian stocks managed to arrest their recent slide, with markets throughout China, Japan and Hong Kong gaining ground overnight. The one outlier to this recovery came from the Australian ASX 200, which lost ground thanks to a sharp decline in the energy sector. With Saudi Arabia promising to keep the oil market well supplied, we saw a sharp decline in crude prices throughout the night despite an attempted rebound. Recent fears over the trade war impact on the Chinese economy have clearly shook stocks in Asia, and with the Italy-EU standoff looking set to rumble on, a risk-off sentiment is likely to stick around for some time yet.  UK, US and Europe: The US stock market is still in a sell-off state as the S&P 500 recorded its fifth straight decline, with all other major indices down at least 4.8% for the month of October. The driving force for the sell-off is the on-going trade tensions with China, which do not seem to be easing as Chinese government leaders indicate that they are not scared of a trade war with the US. Adding to this, Donald Trump continues his assault on the American central bank, when speaking to the Wall Street Journal he claimed that the Fed is the "biggest threat to the US economy", adding further scepticism around the US stock market. Trump's relationship with the Fed and China-US relations will be intriguing to follow over the coming days and how both factors impact trader sentiment in the US market. Looking ahead, we have a host of PMI releases from both Europe and the US. Preliminary eurozone PMI for France, Germany and the eurozone cover both services and manufacturing sectors, while the afternoon sees those same sectors covered by Markit for the US. The big release of the day comes from Canada, where the BoC is expected to raise rates once more. Keep an eye out for CAD volatility.  Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 8.15am – 9am – French, German, eurozone mfg & services PMI (October, flash): eurozone mfg reading to rise to 54.4 and services to rise to 55.1. Market to watch: EUR crosses 2.45pm – US mfg services & mfg PMI (October, flash): mfg index to hold at 55.6, while services rises to 53.9. Markets to watch: US indices, USD crosses 3pm – Bank of Canada decision: rates expected to rise to 1.75% from 1.5%. Market to watch: CAD crosses 3pm – US new home sales (September): expected to rise 0.5% MoM. Market to watch: USD crosses 3.30pm – US EIA crude inventories (w/e 19 October): stockpiles to rise by 1.9 million barrels from 6.49 million a week earlier. Markets to watch: Brent, WTI Corporate News, Upgrades and Downgrades Barclays said Q3 profit fell to £3.12 billion from £3.45 billion, although excluding litigation and conduct charges group pre-tax profit was up 23% to £5.3 billion.   Wells Fargo has been hit with a $65 million fine related into an investigation into statements made to investors regarding alleged fraudulent claims to "cross-sell" its business model. Caterpillar's disappointing results saw the stock closed 7.6% lower as the company highlights issues with increasing costs due to global trade conditions. Deutsche Bank report net profit of €229 million, a 65% fall in profits, in the third quarter amid the restructuring of the companies leadership. Analysts expected a sharper decrease than reported, a Reuters poll expected a net profit of €149 million.  Another bank that has reported earnings today is Metro Bank, the company announced pre-tax profits of £39.2 million which is three times than the amount recorded in the same period of the previous year. Stobart saw a net loss of £17.5 million for the first half, compared to a profit of £111.9 million a year earlier. Revenue was up 21% to £151.3 million, while the dividend was raised 20% to 9p per share.  Beer company Heineken has revealed impressive sales as volume grew by 9.2% and net profit increased to €1.606 million, fueled by warm weather in Europe. Shares in 3M slipped as much as 8.4% before recovering and trading at about 3.3% lower than its open, due to quarterly revenue missing expectations and adjusting its earnings perspective for 2018. Banco BPM upgraded to hold at Kepler Cheuvreux
Datagroup upgraded to hold at Baader Helvea
Salvatore Ferragamo raised to neutral at MainFirst
Wartsila upgraded to buy at ABG Baader Bank downgraded to hold at HSBC
Bayer downgraded to add at AlphaValue
Cineworld downgraded to equal-weight at Barclays
GAM Holding downgraded to neutral at MainFirst 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

Flight to safety - APAC brief 24 Oct

Flight to safety: There's been a general flight to safety in global markets over the past 24 hours, adding to the bearish sentiment that's been mounting for several weeks. The risks remain the same and there wasn't an event to precipitate yesterday's sell-off. It apparently began in the Asian session, after Chinese equities pared the gains it had added over the previous two trading sessions, then swept through European and North American markets as the day unfolded. Haven assets have caught a bid, the most pertinent of which are US Treasuries and gold (which tested $US1232 resistance once more), while the Yen has experience a broad-based boost from the unwinding of the carry trade, to test the support of a significant medium-term trend line.

  US Treasuries: Arguably, the most illuminating asset during overnight trade were US Treasuries, and the activity of its yield. Of course, that should come as no surprises, given the dominant theme in markets is the US Federal Reserve's rate hiking ambitions. The tussle in markets regarding heightened global growth risks and the impacts of higher global rates is manifesting on the hour across the US yield curve. The yields on interest rate sensitive 2 Year Treasury Note jumped to near-decade-long highs during Asian trade yesterday, seemingly inciting a minor panic amongst investors. The shift subsequently looks to have hastened the liquidating of equity positions, driving funds back into bonds, pushing yields down first at the back end of the curve, before driving the front end down with it, as havens have been sought. Asian equities: The edginess amongst investors played out most acutely in Chinese equity indices, which let go of much of the optimism engendered by policy makers' recent assurances of State-backed support for financial markets. The relatively blue-chip CSI300 dropped 2.66 per cent for the day, capping off an Asian session in which the Nikkei shed a comparable amount, the Hang Seng lost over 3 per cent, and the ASX200 dropped over 1 per cent. The downward trend continues for China's markets, which despite exhibiting stronger fundamentals (on paper) than what markets are conveying, can't managed to hold onto a sustained rally. It points to a market that may well believe that the worst impacts of the trade-war are still to play out – that is, that the trade war will transform China's mild economic slowdown into something graver. ASX200: The action on China's markets accelerated the momentum of selling on the ASX200 in yesterday's trading session, however it must be said bearish sentiment had already been pervading the local share market by the time China’s markets opened. SPI Futures have undergone a noteworthy reversal early this morning, indicating currently a 13-point jump at the open today. The shift in price can be attributed to a late run on Wall Street, which has seen US indices bounce off the day's lows to contain the session's losses to about half-a-per-cent. What Wall Street’s lead reveals about what lies ahead for the ASX today is opaque; but considering that yesterday’s activity saw losses across every sector, perhaps simply a general retracement is in store today. Europe: Europe took the weak Asian lead yesterday and added to it the continent's own idiosyncratic risks. The result was a 1.24 per cent fall in the FTSE 100 and a 2.17 per cent fall in the DAX. Combined with fears about global growth, higher global interest rates, and stalling Brexit negotiations, was another deterioration in the relationship between the Italian Government and European Union bureaucrats, after Brussels threatened Italy with hefty fines if it did not revise its controversial budget in the next 3 weeks. The spread between German Bunds and Italian BTPs expanded to around 320 basis-points once again, as markets priced in a greater chance of an Italian credit default. Despite this, the Pound and the Euro kept flat for the day, by virtue of a slightly weaker USD, which lost some of its haven bid to gold on the back of investors cutting exposure to fiat currencies. Wall Street: At Wall Street's close, the major US indices have all closed effectively 0.5 per cent lower for the day. Another poor session undoubtedly, making this the twelfth time in fourteen days that the S&P500 has registered a loss – however it must be remarked that the result comes after US equites fell by as much as 2 per cent intraday. The overriding theme again for US markets was the building angst regarding the various risks that posed to earnings growth in 2019, especially after Caterpillar flagged a suggested a crimp to its profits from the expected impacts of the US-China trade war. How this narrative holds will hold increasing weight in the final days of this week, as markets anticipate earnings release from the likes of Microsoft, Amazon, and Alphabet. Saudis and Oil: Oil prices experienced some of the highest levels of volatility overnight, as the sinister politics of the black stuff played out in price action. Brent Crude prices dropped by over 4 per cent, breaking its dance with the $US80 per barrel level. A degree of the tumble in prices comes as fears mount about the sustainability of global economic growth. However, the major catalyst for the very acute fall came as Saudi Arabia pledged yesterday to boost oil production, in the face of growing pressure from the global community regarding its (all but proven) murder of dissident journalist Jamal Khashoggi. If last night's move is indeed a turn of trend, time will tell; though it isn't a stretch now to suggest that the Saudi's may look to push oil prices down as an act of recompense to the global community for their heinous behaviour.  

MaxIG

MaxIG

Stock Markets Retreat over Rising Geopolitical Tensions - EMEA Brief 23 Oct

Asian stock market retreats as China rally fades a day after Chinese stocks posted their biggest one-day advance in over 2 years. The Hang Seng is down 3.3% whilst the CSI 300 is currently down 3.5%. The Dow Jones and the S&P closed lower on Monday, currently both down around 1% amidst worries over corporate earnings reports due in the coming week and rising geopolitical tensions. The Saudi All-Share Index is down 4.4% this month, almost its worse month since October last year, all amidst a dumping of Saudi stocks from foreign investors which coincide with the Khashoggi scandal. A key figure of Euro-Zone Consumer Confidence is set to release today at 3pm BST and should reflect the consumer sentiment across Europe. The figure is forecast at -3.2, indicating low levels of confidence and suggests decreased spending. Bank of England’s Mark Carney is schedule to speak at a press conference today at 4:20pm BST. The Sterling is likely to show increased volatility during the speech. GBP falls below $1.30 on the back of reports that Northern Ireland’s DUP are seeking to undermine May’s leadership by backing a plan to narrow her negotiating options. Brent Crude currently sits at $79 a barrel, down 0.5% Gold is continuing its steady gain, up 0.34%, as it retains its status as a safe haven asset in times of uncertainty. Asian overnight: Monday’s bounce is a distant memory as equities turn south once again. Losses were seen across the region as a weaker session in the US knocked back sentiment. Weaker opens are expected across the board in Europe, and a retest of the lows for the S&P 500 now look very likely, even as other indices push to new lows for the month. UK, US and Europe: Another quiet economic day sees only Eurozone consumer confidence as a key event for traders, but earnings season in the US rolls on, with Caterpillar, AMD and McDonald’s on the list.  In a meeting with US business leaders, Chinese officials gave a strong warning to Trump’s administration, stating that they’re not afraid of a trade war with the United States. This comes just after a month after the US imposed $200 billion worth of tariffs on Chinese imports on top of a $50 billion levy earlier this year. The ongoing struggle between the two superpowers may not see an end just yet, and China are looking to take a more tempered approach. In Europe, Italy’s big spending plans could be derailed as Brussels are set to reject the populist government’s 2019 draft budget. The European Commission has already indicated that the draft is in serious breach of EU spending rules as Italy’s plan to cut taxes and roll back on pension reforms is expected to raise the budget deficit to 2.4% - a steep climb over the original 0.8% promised by the previous government. The country’s bond yields continue to rise further as uncertainties loom and contagion risk is feared in the financial markets – ratings agency Moody’s has already downgraded Italian debt to one notch above “junk” status. South Africa: Libya and Nigeria are heading into high-stakes elections that could cause a period of instability and disrupt oil supplies. Coming changes in leadership could settle conflicts which have wreaked havoc on both countries’ oil output in recent years, this could play a big role in determining the price of oil, currently trading near four-year highs. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 3pm – Eurozone consumer confidence (October, flash): expected to rise to -2.6 from -2.9. Market to watch: EUR crosses Corporate News, Upgrades and Downgrades Whitbread reported a 0.2% rise in first-half profit, to £257 million, while revenue was up 2.6% to £1.08 billion. It saw some weakness in consumer demand, but it remained on track for the full year.  St James’s Place said that funds under management rose 11% for the first nine months of the year, to £100.6 billion. Net inflows rose 15% to £7.68 billion.  Travis Perkins saw a 3.9% rise in Q3 revenue, while like-for-like sales were up 4.1%.  Ryanair predicts a slow winter after summer profits fell 7%. Renault saw revenue drop by 6% in the third quarter, hit by a fall in emerging markets. Netflix announces plans to issue $2bn in junk bonds to help finance its heavy spending on original productions. Ascential upgraded to buy at Peel Hunt
Dialog Semi upgraded to buy at AlphaValue
Hermes International upgraded to hold at Berenberg
Drax upgraded to add at AlphaValue BASF downgraded to sell at Baader Helvea
HSBC downgraded to neutral at Citi
Pernod Ricard cut to hold at Kepler Cheuvreux
Radisson Hospitality cut to hold at DNB Markets 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

Morning report - APAC brief 23 Oct

ASX: SPI futures are indicating an 11-point drop at the open, on the back of a day that saw the ASX200 close just shy of 0.6 per cent. The local session could be characterised as being somewhat lacklustre: the lion's share of the day's losses came shortly after the open, volume was below average, and market breadth finished at 26 per cent. Most sectors finished the day in the red, but naturally it was a pullback in bank stocks that contributed greatest to the markets falls. The materials space made a very humble play higher in afternoon trade it must be said, courtesy of a tick higher in iron ore prices, to sit near the top sectoral map by close. But at just shy 0.1 per cent, the day's recovery wasn't anywhere near sufficient to salvage the day for the ASX200. Financial sector: As it presently stands: where goes bank stocks so goes the ASX200. Not a revolutionary idea of course, given financials' weighting in the Australian index. However, with buying impetus missing across the ASX currently, combined with overall bearish sentiment, the effects of the bank-trade are much more pronounced. Having popped higher from oversold levels last week, the financial sector pulled back in this week's opening stanza by 0.76 per cent, accounting for about 14 points of the ASX200's total losses. The down trend appears still intact for the financial sector, auguring poorly, as one ought to infer, for the Australian stock market. Domestic risks: The fortunes of the big banks mirror many of the issues afflicting the Australian economy now. The weekend's Wentworth by-election outcome, which has delivered Australia another hung-parliament, is one; another is the possible regulatory crack following the Financial Services Royal Commission, coupled with the likely election of a hard-line Labor opposition come the next election. The most compelling explanation for the banks' weakness (at least yesterday) was another poor auction-clearance figure on Saturday. The local property market looks in a very shabby state as it stands, exacerbating concerns regarding the feeble position of Australian households and consumption in the broader economy. House prices and households: Granted cooling house prices have predominantly afflicted the Sydney and Melbourne markets, and prices remain elevated relative to historical standards. Amid higher global borrowing costs and by some measures unprecedented indebtedness, soft credit conditions in the Australian economy is a risk to the property market and households alike. Ultimately, the concern is whether with income growth slowing, savings dwindling and interest rates bottoming, the loss of the "wealth effect" will stifle demand in the economy even more. On balance, prevailing wisdom suggests that gradually improving economic fundamentals will cushion the ill effects of a property slowdown. However, the fragile state of the Australian consumer means the broader economy is increasingly vulnerable to external shocks. China: Of course, the biggest and most pertinent of possible external shocks to the Australian economy is the health of the Chinese economy. Trade on China's financial markets yesterday proved the power and willingness of its policy makers do whatever it takes to stabilise its markets and economy, particularly in the face of the escalating US-China trade war. Though it's never easy to say, volumes at 136 per cent of CSI300's Average-Volume-At-Time suggest that possible and massive intervention by Chinese policy makers was at play. This isn't to say that the entire flow of funds into equity markets came from (effectively) the state's pockets, more that whatever liquidity injected into them certainly stoked investors animal spirits. Overnight: China's powerful stance yesterday may in time be considered much akin to ECB President Mario Draghi's "whatever it takes" moment. The follow through in Chinese equities will be closely observed today, to witness what lasting impact the actions have. Overnight though, the carry over effect into the European and North American session diminished throughout the day, muted by other, more regional concerns. The Italian fiscal crisis took a temporary back seat and supported the narrowing of European sovereign bond spreads. However whipsawing sentiment regarding the likely outcome of Brexit led to another dip in the Pound below 1.30 and in the Euro below 1.15. The macro-fears weighed on European stock indices, dragging the majors by up to as much as -0.5 per cent. US session: The US Dollar caught a bid on last night’s macro-dynamic as traders modestly increased buying of US Treasuries. Gold dipped as a result, while in other commodities, oil climbed on supply concerns amid heightened tensions between Saudi Arabia and the West, and Dr. Copper was flat. Fundamental data was very light, with positioning underway leading into the massive ECB meeting and US GDP prints in coming days. North American equities saw an inversion of Friday’s theme: growth/momentum stocks, such as the FANGs, were generally higher, while the industrials-laden Dow Jones pulled back 0.50 per cent. The meaty part of earnings season is about to get underway in the next 24-48 hours – and may well dictate the theme in US equity markets adopt for the next several weeks.

MaxIG

MaxIG

Copper - A worrying outlook for the Global Economy?

Recent global sell-offs and the ongoing US-China trade war have caused copper prices to decline to their weakest levels since July 2017. The price of the metal currently sits at around $6300 a tonne after recovering from its slump below $6000 in August this year. The relationship between prices of base metals and future growth has proved to be evident in the past, so much so that this specific commodity is often referred to as ‘Dr Copper’. Copper is prominently used across electrical applications, communications equipment, construction, transportation, and industrial machinery. Its wide use means that shifts in the demand and supply of the metal across industries has served as a key economic barometer and as such, a weak price over the past few months is discerning for the outlook of global economic health. Emerging economies dominate the world’s largest copper producers, therefore any key events affecting EM countries are likely to influence copper prices. Another factor is the dollar. The Turkish Lira and emerging markets sell-off in August propelled the USD to 12-month highs, making the commodity more expensive for consumers outside of the US. Additionally, Trump’s tariff impositions on Chinese imports has fuelled risk aversion across the stock market. Commodities in particular have taken a hit as traders and speculators grow increasingly concerned about the global economic impact of the deepening trade war. China is still heavily reliant on its manufacturing and industrial sector for the country’s growth and consumes around 40% of the world’s copper, therefore the ongoing rhetoric is the extent of how the trade dispute will impact real copper demand in China. Despite all this, a supply squeeze resulting from falling inventories may keep copper on track for gains in the long-term. Announcements of new projects and mining operations from global corporations such as BHP Billiton and Glencore in the near future are likely to have an effect on both copper prices and company share prices. Going forward, rising copper prices could indicate gradual positive sentiment returning to the stock market after significant declines and volatility in the US market over the past few days panicked investors. Indices such as the CSI 300, DJI, S&P 500 and the ASX 200 could experience noteworthy movements on the back of copper prices. Any economic data releases suggesting a slowing Chinese economy may indicate a falling global demand for copper. Conversely, a fatiguing US-China trade war could lead to an improvement in concerns for the global economy and in turn see a rallying of copper levels. Keep on top of important updates and possible trading opportunities using the chart analysis options and ‘News’ feature on our online platform (as highlighted in the image below).

JoeIG

JoeIG

Chinese Markets Rebound on Government Support - EMEA Brief 22 Oct

Chinese stock have rallied with the Shanghai Composite Index gaining more than 4% as officials attempt to support the market as GDP figures last week fell short of the 6.6% growth target by 0.1% The rest of the APAC region followed suit with all major indices apart from Australia's ASX 200 making gains.  Dominic Raab has stated there may be some flexibility on the Irish border issue. The Brexit Secretary made the comment in an interview which may allow negotiations continue for a soft Brexit.  Uncertainty over oil remains as the investigation over the Saudi journalist Jamal Khashoggi continues.  Turkey have stated they will announce their findings tomorrow which could cause further volatility with oil if the announcements result in further international condemnation for Saudi Arabia. Italian bond yields have lowered as ratings agency Moody's has kept their outlook 'Stable' RyanAir profits fall 7% as their Chief Exec blames air traffic control disruptions.  Asian overnight:  This rally is likely to calm investor fears that China was heading towards an economic disaster with stock-backed loans as China’s Shanghai index was down 30% this year. Chinese markets have drawn attention recently with missed GDP estimates and the ever-present trade war uncertainty. Confidence is also weak in the yuan as it looms ever closer to the $7 level. Major concerns are beginning to emerge that this fall in Chinese share prices is causing a further sell off due to stock-backed loans. Many Chinese corporations have these loans secured on their shares which they must liquidate as part of the agreement to ensure they can fulfill their obligations. Following the major market sell off seen earlier this month which mainly hit tech, an important sector for China, it’s likely that further market drops could cause more firms to have to sell their shares which would cause their price to drop further. This recent rally is likely to placate investors temporarily but as 11% of the country’s market capitalisation is being held as collateral for loans investors will still fear that another market downturn could cause a landslide for Chinese share prices. UK, US and Europe:  The comment from Secretary Raab comes just a day after London saw a protest of approximately 700,000 people who were voicing their concerns over the final deal that the UK will ultimately make with the EU. Markets are likely to react positively to any news that furthers the negotiations between the UK and Brussels as it potentially avoids the possibility of a hard Brexit.  The west has remained sceptical as Saudia Arabia have changed their story regarding the reported death of journalist Jamal Khashoggi. As a growing number of leaders from some of the worlds largest corporations are pulling out of the investment conference 'Davos in the Desert', Saudia Arabia appear to be in damage control mode. The investment conference is an important part of the Saudi Prince Bin Salman's vision for the future of Saudi Arabia in which they intend to reduce their economic dependence on oil. The conference was set to garner investment support to develop other areas of the economy, something the Gulf state also intends to finance through the IPO of the state owned oil corporation Saudi Aramco.  South Africa: The dollar has softened to assist gains in commodity prices which has an effect on the South African bourse. The rand is firmer this morning as well. Tencent Holdings is trading 2.91% higher in Asia, suggestive of a positive start for major holding company Naspers. BHP Billiton is up 0.2% in Australia, suggestive of a flat to marginally higher start for local resource counters. Today's economic calendar is light with no high impact data scheduled for today.    Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US Chicago Fed index (September): expected to fall to 0.15 from 0.18. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades NMC Health has upgraded its annual revenue and earnings guidance. A stronger second half means that revenue is expected to rise 24%, from a previous 22% guidance, and EBITDA will now be $480 million instead of $465 million. Ryanair has suffered a 9% fall in pre-tax profit for the first half, while average fares were down 3%. Ryanair will close or downsize three bases and shrink its winter capacity, and it does not rule out further capacity cuts.  Fiat Chrysler are set to announce the sale of their component maker to rival Calsonic Kansei for $7.1 billion Debenhams has announced it will continue with its store closures as well as unveiling a £100m savings plan Bankia upgraded to neutral at BPI
Hunting upgraded to outperform at Macquarie
Ophir Energy upgraded to buy at Jefferies
Tullow upgraded to buy at Jefferies Cairn Energy cut to underperform at Jefferies
Intu downgraded to hold at Berenberg
Novartis downgraded to hold at Baader Helvea
Publicis downgraded to hold at Liberum IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary. 

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