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Stock Markets Retreat over Rising Geopolitical Tensions - EMEA Brief 23 Oct

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JoeIG

  • Asian stock market retreats as China rally fades a day after Chinese stocks posted their biggest one-day advance in over 2 years. The Hang Seng is down 3.3% whilst the CSI 300 is currently down 3.5%.
  • The Dow Jones and the S&P closed lower on Monday, currently both down around 1% amidst worries over corporate earnings reports due in the coming week and rising geopolitical tensions.
  • The Saudi All-Share Index is down 4.4% this month, almost its worse month since October last year, all amidst a dumping of Saudi stocks from foreign investors which coincide with the Khashoggi scandal.
  • A key figure of Euro-Zone Consumer Confidence is set to release today at 3pm BST and should reflect the consumer sentiment across Europe. The figure is forecast at -3.2, indicating low levels of confidence and suggests decreased spending.
  • Bank of England’s Mark Carney is schedule to speak at a press conference today at 4:20pm BST. The Sterling is likely to show increased volatility during the speech.
  • GBP falls below $1.30 on the back of reports that Northern Ireland’s DUP are seeking to undermine May’s leadership by backing a plan to narrow her negotiating options.
  • Brent Crude currently sits at $79 a barrel, down 0.5%
  • Gold is continuing its steady gain, up 0.34%, as it retains its status as a safe haven asset in times of uncertainty.

Asian overnight: Monday’s bounce is a distant memory as equities turn south once again. Losses were seen across the region as a weaker session in the US knocked back sentiment. Weaker opens are expected across the board in Europe, and a retest of the lows for the S&P 500 now look very likely, even as other indices push to new lows for the month.

UK, US and Europe: Another quiet economic day sees only Eurozone consumer confidence as a key event for traders, but earnings season in the US rolls on, with Caterpillar, AMD and McDonald’s on the list. 

In a meeting with US business leaders, Chinese officials gave a strong warning to Trump’s administration, stating that they’re not afraid of a trade war with the United States. This comes just after a month after the US imposed $200 billion worth of tariffs on Chinese imports on top of a $50 billion levy earlier this year. The ongoing struggle between the two superpowers may not see an end just yet, and China are looking to take a more tempered approach.

In Europe, Italy’s big spending plans could be derailed as Brussels are set to reject the populist government’s 2019 draft budget. The European Commission has already indicated that the draft is in serious breach of EU spending rules as Italy’s plan to cut taxes and roll back on pension reforms is expected to raise the budget deficit to 2.4% - a steep climb over the original 0.8% promised by the previous government. The country’s bond yields continue to rise further as uncertainties loom and contagion risk is feared in the financial markets – ratings agency Moody’s has already downgraded Italian debt to one notch above “junk” status.

South Africa: Libya and Nigeria are heading into high-stakes elections that could cause a period of instability and disrupt oil supplies. Coming changes in leadership could settle conflicts which have wreaked havoc on both countries’ oil output in recent years, this could play a big role in determining the price of oil, currently trading near four-year highs.

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

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Source: Daily FX Economic Calendar

3pm – Eurozone consumer confidence (October, flash): expected to rise to -2.6 from -2.9. Market to watch: EUR crosses

Corporate News, Upgrades and Downgrades

  • Whitbread reported a 0.2% rise in first-half profit, to £257 million, while revenue was up 2.6% to £1.08 billion. It saw some weakness in consumer demand, but it remained on track for the full year. 
  • St James’s Place said that funds under management rose 11% for the first nine months of the year, to £100.6 billion. Net inflows rose 15% to £7.68 billion. 
  • Travis Perkins saw a 3.9% rise in Q3 revenue, while like-for-like sales were up 4.1%. 
  • Ryanair predicts a slow winter after summer profits fell 7%.
  • Renault saw revenue drop by 6% in the third quarter, hit by a fall in emerging markets.
  • Netflix announces plans to issue $2bn in junk bonds to help finance its heavy spending on original productions.

Ascential upgraded to buy at Peel Hunt
Dialog Semi upgraded to buy at AlphaValue
Hermes International upgraded to hold at Berenberg
Drax upgraded to add at AlphaValue

BASF downgraded to sell at Baader Helvea
HSBC downgraded to neutral at Citi
Pernod Ricard cut to hold at Kepler Cheuvreux
Radisson Hospitality cut to hold at DNB Markets

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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.  

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