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Brexit EU Summit - EMEA Brief 17 Oct

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KatherineIG

  • Trump announces that the Fed is his biggest threat as they are increasing rates ‘too quickly’
  • Theresa May is to visit Brussels for an EU summit today to agree on the terms of the UK-EU agreement, in order for a final decision to be made in November
  • Netflix quarterly results show yet another rise in new subscribers, signing up 6.96 million customers in this quarter, totaling a global amount of 137.1 million
  • Canada becomes the second country to legalise the use of Cannabis and Marijuana
  • Spot Gold market trend starts to incline, breaking out of its previous month’s bearish position above $1210 to $1219.
  • IMF had arranged to attend a conference in the Middle East for October 23rd to 25th, however has now postponed the trip with no further explanation given
  • China’s holdings of US Treasury securities declined yet again for a third month, plummeting its holdings by around $6billion to $1.165trillion in comparison to last years at $1.2trillion
  • US stocks rise rapidly as some of the largest US companies announced strong quarterly results, helping regain the downward fall shown last week. This includes the Dow Jones, which surged around 550 points/2.2% and the S&P increasing by over 1.9%

Asian overnight: Asia Pacific markets managed to follow the US and European lead overnight, with Japanese and Australian markets in particular leading the way higher. Interestingly, Chinese and Hong Kong markets were relatively muted, highlighting the continued fears surrounding growth in the region after Trump threatened yet another round of tariffs on Sunday.

The level of debt to GDP in China has hit ‘alarming levels’, as a great difference is seen between reported investments and actual off-balance sheet debt. It is reported at estimates of highs of 30 trillion to 40 trillion Yuan ($4.34trillion to $5.78 trillion). According to analysts, this is mainly caused due to local Chinese governments investing deeply in infrastructure and funding in order to encourage economic growth

UK, US and Europe: The UK is back in focus today, with inflation data likely to build upon yesterday’s jobs numbers to build a picture of the pressures on the BoE. With average earnings on the rise, the predicted fall in inflation could actually provide a positive differential between wages and the cost of living, thus raising real wages. UK wages grow at their quickest pace in nearly 10 years. The level of pay rose by 3.1% from the three months prior to August and a fall of 47,000 to 1.36million in unemployment levels.The EU summit will shift the market mindset back to Brexit, with the EU having allowed Theresa May the opportunity to find a solution to break the deadlock.

In the US, keep an eye out for housing data, with building permits and housing starts being released. However, the big release comes later on, with the Fed due to release their latest monetary policy minutes. Crude traders will also be keeping a keen eye on the Crude inventories data following substantial build-ups over the past two weeks.

Results from further investigation, in regards to the Saudi journalist Jamal Khashoggi, may show greater strain on how the US and Saudi Arabian relationship will be effected. This has caused three large banks including HSBC, Credit Suisse and Standard Chartered to pull out of Saudi’s Future Investment Initiative event in Riyadh. Among these, Google’s cloud division, Mastercard, JP Morgan and many others have also decided that they are not attending the event.

South Africa: Upbeat US corporate earnings is seeing the tech sector leading gains in the worlds largest economy (the US). The dollar has however firmed up a bit, putting some pressure on commodity prices and the rand. BHP Billiton is down 0.7% in Australia, suggestive of a softer start for local diversified resource counters. Naspers, which has roughly a 20% weighting in the Top40 Index, is expected to open higher this morning in lieu of the improved sentiment surrounding tech sector stocks. Our local market will look to Retail Sales data at 1pm today for for guidance as to the health of South Africa's retail sector. 

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

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Source: Daily FX Economic Calendar

9.30am - UK CPI (September): CPI to rise 2.4% YoY and 0.5% MoM, from 2.7% and 0.7%, while core CPI rises 1.8% YoY and 2.1%. Market to watch: GBP crosses

10am – eurozone CPI (September): forecast to rise 0.2% MoM. Market to watch: EUR crosses

1.30pm – US housing starts & building permits (September): starts expected to fall by 3.5% YoY, and permits to rise 1.2%. Market to watch: USD crosses

3.30pm – US EIA crude inventories (w/e 12 October): forecast to see a 1 million barrel rise in inventories. Markets to watch: Brent, WTI

7pm – US FOMC minutes: the committee’s decision to raise rates will be revealed in more detail, providing volatility for the US dollar and equities. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Afrimat expects earnings per share and headline earnings per share, for the interim period to be between 92 cents and 97 cents per share (2017: EPS of 102.4 cents per share and HEPS of 102.2 cents per share), reflecting a decrease of between 5% and 11% on the previous period.
  • Pearson said revenue was flat for the first nine months of the year, and the firm has reiterated its annual profit guidance. 
  • Barratt Developments has made a strong start to the year, with a 12.4% rise in forward sales, to £3.15 billion compared to £2.8 billion a year earlier. 
  • Mediclinic said that first-half revenue fell 1% to £1.4 billion, while adjusted EBITDA was down 8% to £21 million. 
  • Lyft has hired JP Morgan to lead its IPO for 2019, potentially increasing its value to over $15billion
  • BlackRock’s stock falls by over 5% due to their third-quarter revenue results falling below expected results, totalling at $3.576billion in comparison to $3.648billion. Nevertheless, BlackRock published earnings per share at $7.52, in comparison to an expectation of $6.84
  • Audi to be fined £700million/$800million as an investigation occurred in relation to a diesel emission scandal
  • Morgan Stanley increased more than 5% after the announcement of improved results in earnings. This led to earnings per share at $1.17 rather than the forecasted results of $1.01
  • Goldman Sachs had reached a higher level than estimates in profitability levels, resulting in $8.65billion of revenue from an estimated $8.4billion. This results in levels of $6.28 per share in earnings, from its estimates of $5.38.
  • Volvo shares decline by 5% due to an announcement explaining potential emissions failure, with vehicles emitting illegal levels of nitrogen oxide
  • Dollar Tree’s stock increased to highs of 7.1% after investor Carl Icahn had taken a stake in the company
  • Uber targeting $120billion valuation for next year, as Wall Street banks advise that its worth more than three times the automaker Ford
  • IBM revenue decline to $18.8billion in the third quarter, falling by 2.1% against expected results
  • Shares of Tencent faces an extreme decline of 40% from January, eliminating more than $230billion in market value

BillerudKorsnas upgraded to buy at SEB Equities
Coca-Cola HBC raised to hold at Wood & Company
Hellenic Petroleum raised to overweight at Pantelakis
KPN upgraded to overweight at Barclays

ConvaTec cut to underperform at Credit Suisse
Handelsbanken downgraded to sell at DNB Markets
Michelin downgraded to neutral at Goldman
Safran downgraded to underperform at Jefferies

 

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