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Conservative Conference, Cable in Spotlight - EMEA Brief 02 Oct

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  • Hong Kong’s Hang Seng index pulled back last night with gambling shares having a bad time after falling revenues in Macau's casino region. US-Sino tensions rise as a US ship enters Chinese territory. Stay on top of currency markets as trade war tensions rise with #IGForexChat.
  • The financial and healthcare sectors pushed the ASX lower whilst China remained closed for another public holiday. Bank of Australia holds cash rate at 1.5%.
  • Japan’s Nikkei was the lone star in the Asian overnight session with a positive reading.
  • USD/JPY climbs to 11 month high as speculators increase their short position on the yen.
  • Euro looks to rebound following the Italian budget movement. Analysts suggest it may return to its previous trend, albeit a bearish one.
  • Continued speculation for the conservative conference today with Theresa May expected to announce some concessions in her Brexit deal. Boris Johnson to speak later today. Yesterday saw a volatility spike in GBP/USD which we could see again today on the right type of news.
  • Aston Martin has cut its maximum share price for its IPO from £22.50 down to £20 flat. The valuation toward the higher end of this downgrade should see the car manufacturer still slip into the FTSE 100 at £5bn, with the lowest constituent currently £4.7 in the existing index. Niche demand for high end luxury manufacturing by fund managers was the culprit. Expectations are still there for an IPO this week.

Asian overnight: Japanese markets remained the one area of strength yet again overnight, as the ASX 200 and Hang Seng traded in the red once more. China remains on holiday and will be so for the rest of the week. The big overnight data point came in the form of the RBA rate decision, with the bank retaining rates at 1.5% as expected. The bank continues to see issues in the form of low household income growth, risks to consumption, and inflationary pressure from rising oil prices, pointing towards continued low rates for some time yet.

As public sentiment on pollution changes in China many are speculating on a repeat of last years movements in the liquefied natural gas market going into the colder months. Last year LNG imports were nearly 50% higher than the previous year. The key uncertainties for the market will be weather conditions (the colder the better for bullish traders), and whether or not the Chinese government has managed to maintain and hold onto its inventories and reserves (in which case the lower the better). LNG could be an interesting market to follow over winter as public sentiment on pollution hasn’t changed much from 12 months previous, and strong demand in Europe continues to buoy the price. You can blame that on an increase in carbon emission credit cost (boosting demand for cleaner fuels) and a colder start to the year.

UK, US and Europe: Looking ahead, the UK construction PMI provides the centre point of European trade, with markets likely to continue looking towards any statements or rumours around Brexit for further GBP volatility. Keep an eye out for appearances from Fed member Quarles and Powell in the afternoon.

South Africa: Equity markets are under pressure once again this morning, led by declines in European Futures. Markets are drawing concern from Italy's budget proposal, which the EU have said could invoke a Greek styled financial crisis. US Futures are trading mixed. In turn, we expect the Jse AllShare index to open up marginally lower this morning. Metal prices are trading slightly firmer this morning while oil prices continue to post significant gains in the wake of looming Iran sanctions and OPEC's suggested capacity constraints. Tencent Holdings is down 2.2% in Asia, suggestive of a weaker start for major holding company Naspers. BHP Billiton is trading 0.25% higher in Australia, suggestive of a marginally positive start for local diversified resource counters.

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

Economic Calendar 2.10.PNG

Source: Daily FX Economic Calendar

9.30am – UK construction PMI (September): expected to rise to 55 from 52.9. Market to watch: GBP crosses

Corporate News, Upgrades and Downgrades

  • Ferguson reported pre-tax profit for the year rose 16.6% to $1.19 billion, while revenue was up 7.6% to $20.75 billion. The dividend was raised by 21% to 189.3 cents per share.  
  • Ryanair said that volume rose 11% in September, though strike action caused the cancellation of 400 flights in the month. 
  • Revolution Bars said that pre-tax losses were £3.6 million, from a profit of £5.2 million a year earlier. 
  • Datatec has released a trading statement for 1H19 guiding that headline earnings per share is expected to be between 0.5 and 1 US cents (1H18 Reported: loss per share of 5.8 US cents).
  • Group Five Ltd  FY18 results showed a loss per share of 1334c which compares with a loss per share of 829c in the previous year.

Credit Agricole raised to overweight at Morgan Stanley
Metso upgraded to overweight at JPMorgan

Atlas Mara downgraded to hold at Renaissance Capital
Danske Bank cut to equal-weight at Morgan Stanley
Royal Mail downgraded to underweight at JPMorgan
Learning Technologies Group downgraded to add at Peel Hunt

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