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Trump and Rouhani exchange words - EMEA brief 26 Sep

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JamesIG

  • Asian stocks are broadly higher ahead of the Fed rate decision later today, whilst the NZ dollar is buoyed by higher business confidence. 
  • Trump and Iranian President Hassan Rouhani came to a head at the UN General Assembly on Tuesday with the US President vowing more sanctions against Tehran, whilst President Rouhani suggested that Trump suffers from a "weakness of intellect." Trump is really trying to bring the price of oil into play before the midterms as high oil prices could hit the Republican vote.
  • Oil pulls back after Trump's comments on OPEC whilst bonds and currencies are broadly steady.
  • When it comes to trade wars it may be worth keeping an eye on the USDCNY pair. BCA research and the head of economic research at UBS both speculate that the Chinese renminbi could weaken to 7Rmb against the dollar before the end of the year.
  • According to an internal document reported by reuters, EU negotiators are ready to offer Theresa May a free-trade area in Brexit, however they are adamant that there must be a customs border that will trade less than frictionless.
  • The Argentinian peso, an EM currency which has seen news inches this quarter, slide as much as 5% as the central bank chief quits just three months into the job.
  • Globally IPO’s have slide by nearly 1/5th this year amid geopolitical tensions, whilst money brought into via the process has increased by 10% according to accountancy firm EY.

Asian overnight: Asian markets enjoyed a largely positive session, as trade concerns faded despite Trump’s UN speech which heralded an America first approach rather than rampant globalisation. The New Zealand dollar came into favour overnight, gaining ground in the wake of a strong business confidence figure. This despite a deterioration in their trade balance figure, with imports rising and exports shrinking.

UK, US and Europe: Today sees all eyes turn to the Fed, with the FOMC due to announce their latest monetary policy decision. The simultaneous release of the latest FOMC economic projections should ensure volatility for the dollar and US stocks markets. Apart from the Fed, the European session sees little of note, with new home sales and crude inventories the other numbers to watch out of the US.

Record breaking divergence between the US equity market and the rest of the world could see a significant movement of money out of Wall Street and into other markets in Europe and Asia. The S&P has gained 9% this year alone and has created the biggest difference between its continued all time highs and the rest of the world putting it at its most extreme levels since 1970. US consumer confidence is at a 17 year high whilst manufacturing activity reached a 14 year high. According to BoA ML analysts, investors have built up a significant level of US equity exposure over the last three years. A mass exodus could see significant movements. This could potentially provides an interesting trade opportunity if the flow into Asia and European markets tips as investors, traders and speculators search for greater returns - the players to keep an eye on however are the institutional investors and money managers. 

Economic calendar - key events and forecast (times in BST)

2018-09-26 07_47_05-Forex Economic Calendar.png

Source: Daily FX Economic Calendar

3pm – US new home sales (August): expected to rise 2.2% MoM. Market to watch: US crosses

3.30pm – US EIA crude inventories (w/c 21 September): stockpiles forecast to fall by 480,000 barrels from a 2 million barrel drop a week earlier. Markets to watch: Brent, WTI

7pm – FOMC decision (7.30pm press conference): the central bank is expected to raise rates to 2.25% from 2%, but this is all but a foregone conclusion, so the market impact will be in their projections for future rate rises, their assessment of the US economy and the impact (if any) from the US-China trade conflict. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • SSP said that it expected like-for-like sales in its financial year to grow by 2-3%. Growth in Q4 was similar to Q3, driven by increased passenger numbers.  
  • PZ Cussons expects overall results for the quarter to the end of August were in line with forecasts, as growth in Europe and Asia offset a poorer performance in Nigeria. 
  • AA said that higher callouts due to bad weather and potholes hit pre-tax profit for the first half, which fell to £23 million from £64 million a year earlier.  
  • Boohoo reported a 50% rise in first half revenue, to £395 million, with international revenues now 40% of the total. Sales growth for the full year is now expected to be 38-43%, from a previous guidance of 35-40%. 

Bouygues upgraded to overweight at JPMorgan
Next upgraded to neutral at Goldman
Randgold upgraded to sector perform at RBC
Scandic raised to equal-weight at Morgan Stanley

Deutsche Boerse downgraded to sell at Bankhaus Lampe
Grammer downgraded to sell at Quirin Privatbank AG
Kier downgraded to neutral at JPMorgan
Telenet downgraded to equal-weight at Barclays

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