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Fed raise rates, USD steady - EMEA brief 27 Sep

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JamesIG

  • Yesterday the US Federal Reserve raises interest rates for the 3rd time this year.
  • Asian stocks post negative sessions following the Fed announcement being led by the technology and energy sectors.
  • Major currency pairs hold steady whilst the USD basket, despite initial volatility, traded largely flat. Minor gains have been made this morning putting the dollar about a quarter of a percent up.
  • Oil continues to climb as investors continue to be cautiously optimistic that the Iranian sanction void can’t be easily filled.
  • Upbeat comments by Mario Draghi on rising pay and inflation expectations helps boost the euro.
  • Gold continues to trade in a tight range. This is a perfect time for traders to start following the precious metal as volatile movements are likely to follow as traders jump on a break out.
  • German CPI data for September and US GDP Q2 / August Trade Balance figures are the ones to look out for today.

Asian overnight: The US Federal Reserve increased the benchmark lending rate by 0.25% last night (as was expected). The central bank has suggested that another rate hike in 2018 may be on the cards, as the US economy shows signs of further strength. A bearish session overnight has seen losses across the board, with Japanese stocks suffering the most. Yesterday’s expected rate rise came alongside a rise in expectations for a December hike, sparking dollar strength. With all the talk of the ‘neutral rate’, it is clear we are not quite there yet. We also saw the RBNZ rate decision, where the New Zealand central bank decided to retain the current rate of 1.75%.

UK, US and Europe: Looking ahead, a somewhat quiet European session drives the focus straight back onto the US, with core durable goods, trade balance, and the Final GDP figure all released at once. We also have a series of appearances from central bankers, with Draghi, Powell, and Poloz all appearing throughout the afternoon and evening.

South Africa: US Index Futures and Asian markets are trading flat to marginally lower this morning suggestive of a similar start for our local bourse (The Jse AllShare Index). The rand remains firm at around R14.15/$. Tencent Holdings is down 1.9% in Asia suggestive of a weaker start for major holding company Naspers. BHP Billiton is 0.1% lower in Australia, suggestive of a flat to slightly lower start for local resource counters. 

Commodity prices are trading slightly firmer after marginal losses yesterday. When it comes to spot gold the percentage of traders net-long is now its highest since Aug 09 when it traded near 1211.76. Paul Robinson of DFX noted that “If the monthly high (1212) or low (1187) [of golds range bound movement] aren’t broken by the close on Friday, this month’s range will rank as the smallest in over 22 years. That almost certainly won’t last another month.” 

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

2018-09-27 07_16_21-Forex Economic Calendar.png

Source: Daily FX Economic Calendar

10am – eurozone business confidence (September): forecast to drop to 1.15 from 1.22. . Market to watch: EUR crosses

1pm – German CPI (September, preliminary): forecast to fall to 1.9% YoY from 2%. Market to watch: EUR crosses

1.30pm – US GDP (Q2, final reading), durable goods order (August), Personal consumption expenditure prices (Q2, final): GDP to rise 4.2% QoQ, durable goods orders to rise 1.7% from -1.7% MoM, and increase 0.5% from 0.2% MoM excluding transportation orders. PCE prices to rise 2.6% QoQ from 2.5%, and core PCE prices to increase by 2% from 2.2% MoM. Markets to watch: US indices, USD crosses

3pm – US pending home sales (August): forecast to fall 1.9% YoY from a 2.3% drop in July. Market to watch: USD crosses

Corporate News, Upgrades and Downgrades

  • Saga reported a 4% fall in first-half profits, to £107 million, although it said its retail broking policy count was back to levels seen in the first half of 2017. Expenses fell to £120 million from £126 million a year earlier. 
  • TUI said that trading was in line with expectations despite the hot summer, and it maintained its guidance for underlying earnings to rise 10% this year. Trading for the future season was in line with forecasts at this early stage. 
  • Entertainment One said it remains on track to hit forecasts after its family and brands segment performed well in the first half.  
  • Adcorp Holdings released a trading statement, guiding that Total basic earnings per share of between 82 cents and 100 cents is expected, which compares to a total basic loss per share of 120.7 cents in the prior years comparative period (ending 30 August 2017).

Wood Upgraded to Hold at Jefferies
RWE Upgraded to Buy at DZ Bank

Investec upgrade Anglo Platinum with a target price of 48000c
BMW Downgraded to Hold at SocGen
DEFAMA Downgraded to Accumulate at SRC Research

Investec downgrade Pick n Pay to sell with a target price of 6900c

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