Smooth Sailing for Brexit? - EMEA Brief 04 Oct
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- Theresa May declares to end austerity in the much anticipated Conservative party conference yesterday. Bloomberg has also reported this morning that the prime minister plans to rush her Brexit deal through parliament in a bid to stop the opposition voting down the treaty.
- The DOW hits record highs of 26,951.81 but stocks close with minimal change on the day as rising interest rates have made investors wary.
- The tension between the U.S. and China continues as China plans to sell $3bn worth of dollar bonds.
- In EM the Brazilian stock market is having it's strongest rally over the past two years, up more than 3%, as far-right candidate Jair Bolsonaro has extended his lead in the Brazilian election, according to opinion polls.
- European market regulators, ESMA, are drafting a number of bilateral agreements with the FCA in an effort to reduce market instability going into Brexit. A lack of political agreement is the main worry, which the second tier financial regulation helps to mitigate.
- The 10-year US treasury rose to a seven year high in response to yesterday’s impressive US data which also drove the likes of the Dow and S&P 500 to record highs.
- AUD has fallen steadily against the US dollar, coming in at the lowest since mid-September, initially fueled by the release of weaker than anticipated local building approvals data in Australia.
Asian overnight: Yet another day of losses for Asian markets has seen Japanese and Hong Kong indices trading in the red, with Australia representing the one outlier to that story. China remains on holiday and will do so for the duration of the week. Data-wise, the Australian trade data saw an improvement to the overall balance following a rise in exports (1% from -1%) and flat imports (0%).
UK, US and Europe: Looking ahead, we have precious few notable economic events to look out for, with US unemployment claims, factory orders, and the Canadian Ivey PMI numbers providing the only releases worth watching out for. This leaves markets to ponder ongoing themes, with Brexit (post-Conservative conference), Italian deficit (as coalition aim to produce budget) and the US-China trade war remaining key drivers of uncertainty.
Theresa May has called for party unity over her plan to divorce the UK from the EU or risk having "no Brexit at all". The cry for support comes after Boris Johnson's explosive speech on Tuesday, which the prime minister admits made her "cross". RBS Boss, Ross McEwan, is someone who is hoping that Brexit does not get to the stage of a no-deal, as he warns a bad Brexit could see the UK go into a recession.
The recent rallying of oil prices seems to have come to an end as prices fell from four-year highs. This is the result of rising U.S. oil inventories and multiple sources reporting that Saudi Arabia and Russia struck a private deal in September to raise output without consulting other producers, including OPEC.
South Africa: US Index Futures and Asian equity markets are suggesting a softer start for our local bourse (Jse All Share Index). A stronger than expected US private sector jobs report yesterday, has resulted in a strengthening dollar and higher treasury yields. In turn precious metal prices have come under pressure while the rand has softened against the greenback. Tencent Holdings is trading 2.5% lower in Asia, suggestive of a similar start for major holding company Naspers. BHP Billiton is up 0.9% in Australia, suggestive of a positive start for local diversified resource counters. Today's economic calendar is light in terms of scheduled news events, with perhaps FOMC member Quarles' public address at 3:15pm the most relevant to watch out for.
Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar
1.30pm – US initial jobless claims (w/e 29 September): claims forecast to fall to 206K from 214K. Markets to watch: US indices, USD crosses
3pm – Canada Ivey PMI (September, seasonally adjusted): expected to decline to 61.4 from 61.9. Market to watch: CAD crosses
Corporate News, Upgrades and Downgrades
- Ted Baker said that revenue rose 3.5% to £306 million for the first half, but pre-tax profit dropped 3.2% to £24.5 million.
- Electrocomponents reported a 10% rise in like-for-like sales for the first half, and half-year adjusted pre-tax profit is expected to be around £100 million, up from £79 million.
- Aston Martin shares fell on it's first full day of trading, having opened at £19 the shares fell as low as £17.75 before closing for the day at £18.10.
- Another recent company that had an IPO in the UK, the Funding Circle, also saw their stock price dive as much as 24%. With both of the recent high-profile IPO's in the UK failing to live up to initial expectations, it will be interesting to see trader sentiment for upcoming IPO's. The disappointing debuts have put the spotlight on some of the biggest investment banks in the world who were involved in the IPO's, such as BoAML, JPM, Morgan Stanley and Goldman, as analysts suggest the newly-listed companies were not priced correctly.
- Barnes and Noble is up 20% as the board has initiated a review process which aims to evaluate strategic alternatives, which includes the sale of the company.
- Cannabis stock Tilray has fallen 12% in the extended session after the firm announced plans to offer $400 million in convertible notes to institutional Canadian investors, which can be converted into shares.
- Watch out for Constellation, Corona beer owner, who are reporting earnings later today at 15:30 UK time. The company made headlines earlier this year as they poured $4bn into Canopy Growth, Canada's top cannabis producer.
- Software companies Horton and Cloudera have announced a merger which saw both shares raise 19% and 18% respectively.
Swisscom Raised to Equal-weight at Morgan Stanley
Gecina Rated New Overweight at Barclays
Shaftesbury Upgraded to Neutral at Kempen & Co
Swedbank Downgraded to Neutral at JPMorgan
Sunrise Cut to Underweight at Morgan Stanley
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