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Chinese Markets Rebound on Government Support - EMEA Brief 22 Oct

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  • Chinese stock have rallied with the Shanghai Composite Index gaining more than 4% as officials attempt to support the market as GDP figures last week fell short of the 6.6% growth target by 0.1%
  • The rest of the APAC region followed suit with all major indices apart from Australia's ASX 200 making gains. 
  • Dominic Raab has stated there may be some flexibility on the Irish border issue. The Brexit Secretary made the comment in an interview which may allow negotiations continue for a soft Brexit. 
  • Uncertainty over oil remains as the investigation over the Saudi journalist Jamal Khashoggi continues.  Turkey have stated they will announce their findings tomorrow which could cause further volatility with oil if the announcements result in further international condemnation for Saudi Arabia.
  • Italian bond yields have lowered as ratings agency Moody's has kept their outlook 'Stable'
  • RyanAir profits fall 7% as their Chief Exec blames air traffic control disruptions. 

Asian overnight:  This rally is likely to calm investor fears that China was heading towards an economic disaster with stock-backed loans as China’s Shanghai index was down 30% this year. Chinese markets have drawn attention recently with missed GDP estimates and the ever-present trade war uncertainty. Confidence is also weak in the yuan as it looms ever closer to the $7 level. Major concerns are beginning to emerge that this fall in Chinese share prices is causing a further sell off due to stock-backed loans. Many Chinese corporations have these loans secured on their shares which they must liquidate as part of the agreement to ensure they can fulfill their obligations. Following the major market sell off seen earlier this month which mainly hit tech, an important sector for China, it’s likely that further market drops could cause more firms to have to sell their shares which would cause their price to drop further. This recent rally is likely to placate investors temporarily but as 11% of the country’s market capitalisation is being held as collateral for loans investors will still fear that another market downturn could cause a landslide for Chinese share prices.

UK, US and Europe:  The comment from Secretary Raab comes just a day after London saw a protest of approximately 700,000 people who were voicing their concerns over the final deal that the UK will ultimately make with the EU. Markets are likely to react positively to any news that furthers the negotiations between the UK and Brussels as it potentially avoids the possibility of a hard Brexit. 

The west has remained sceptical as Saudia Arabia have changed their story regarding the reported death of journalist Jamal Khashoggi. As a growing number of leaders from some of the worlds largest corporations are pulling out of the investment conference 'Davos in the Desert', Saudia Arabia appear to be in damage control mode. The investment conference is an important part of the Saudi Prince Bin Salman's vision for the future of Saudi Arabia in which they intend to reduce their economic dependence on oil. The conference was set to garner investment support to develop other areas of the economy, something the Gulf state also intends to finance through the IPO of the state owned oil corporation Saudi Aramco. 

South Africa: The dollar has softened to assist gains in commodity prices which has an effect on the South African bourse. The rand is firmer this morning as well. Tencent Holdings is trading 2.91% higher in Asia, suggestive of a positive start for major holding company Naspers. BHP Billiton is up 0.2% in Australia, suggestive of a flat to marginally higher start for local resource counters. Today's economic calendar is light with no high impact data scheduled for today. 

 

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

Economic Calendar 22.10.PNG

Source: Daily FX Economic Calendar

1.30pm – US Chicago Fed index (September): expected to fall to 0.15 from 0.18. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • NMC Health has upgraded its annual revenue and earnings guidance. A stronger second half means that revenue is expected to rise 24%, from a previous 22% guidance, and EBITDA will now be $480 million instead of $465 million.
  • Ryanair has suffered a 9% fall in pre-tax profit for the first half, while average fares were down 3%. Ryanair will close or downsize three bases and shrink its winter capacity, and it does not rule out further capacity cuts. 
  • Fiat Chrysler are set to announce the sale of their component maker to rival Calsonic Kansei for $7.1 billion
  • Debenhams has announced it will continue with its store closures as well as unveiling a £100m savings plan

Bankia upgraded to neutral at BPI
Hunting upgraded to outperform at Macquarie
Ophir Energy upgraded to buy at Jefferies
Tullow upgraded to buy at Jefferies

Cairn Energy cut to underperform at Jefferies
Intu downgraded to hold at Berenberg
Novartis downgraded to hold at Baader Helvea
Publicis downgraded to hold at Liberum

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