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Positive China-US Trade Talks Ease Investor Sentiment - EMEA Brief 2 Nov

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  • Trade tensions between the US and China have finally shown signs of easing as Donald Trump described the conversation he had with Xi on Thursday as "long and very good" and later tweeted that trade discussions were "moving along nicely".
  • Chinese stocks rally in afternoon trading following Trump's tweet, as the Shanghai Composite rose 2% along with a 3.5% increase in Hong Kong's Seng index.
  • US stocks also reacted positively to the potential progress of US-China trade relations. The Dow gained 264.98 points, the Nasdaq rose 1.8% ahead of Apple's quarterly earnings whilst the S&P climbed 1.1%.
  • Investors reacted negatively to Apple's earnings for its fiscal Q4 as the tech giant missed shipment estimates on iPhone's and announced major changes to its reporting, shares tumbled more than 7% and fell below the historic $1 trillion market cap.
  • Good news for Brexit? The EU has floated a compromise on a plan for the Northern Ireland boarder that would give the UK stronger guarantees that a customs border would not be needed along the Irish Sea, the UK is expected to respond to the compromise next week.
  • The dollar has appreciated 0.3% against the yen, mending the previous day's losses. Aussie dollar extended its rally following the positive news regarding China and the US, as AUD increased 0.5% against USD.
  • Oil continues to decline as US crude prices fall 2.5% to $63.69, it lowest level in seven months due to US sanctions on Iran coming into full force next week and continued global tensions with Saudi Arabia.

Asian overnight: Sharp gains across the board overnight have reflected improving optimism over a potential trade deal between the US and China, with Chinese and Hong Kong markets rising over 3% in the session. News of the positive talks between Trump and Xi Jinping have helped reverse some of the Yuan losses, with the Chinese currency hitting the highest level in three-weeks. Data-wise, the Australian retail sales figure came in below estimates, falling to 0.2% from 0.3%.

UK, US and Europe: The news of Trump's phone call with President Xi has eased investors fears of a prolonged trade war between the two nations, as equity markets begin November with a broad rally after a rough October. There have been reports that the US president has gone as far as asking officials to draft a preliminary proposal for a potential trade deal with China. Interesting day ahead for the markets, have we seen an end of the October sell-offs or is the market overreacting to tweet from Trump? Watch out for volatility today as the eagerly watched US Non-farm payrolls announcement is due at 12:30 UK time.

Looking ahead, we have the second UK PMI reading of the week, with the construction sector coming under scrutiny in the wake of yesterday’s disappointing manufacturing PMI survey. This is released alongside a host of other PMI surveys throughout Europe, yet for the most part, it is the UK release which is an initial figure rather than a revision. Looking at the afternoon, the US and Canadian jobs reports are expected to bring about a sharp rise in volatility for the dollar and Canadian dollar. On the corporate front, watch out for earnings data from Berkshire Hathaway, Exxon Mobil, and Chevron. 

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

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Source: Daily FX Economic Calendar

9.30am – UK construction PMI (October): forecast to rise to 52.5 from 52.1. Markets to watch: GBP crosses

12.30pm – US non-farm payrolls (October), trade balance (September): payrolls expected to be 189K from 134K a month earlier,, unemployment rate to hold at 3.7%, and average hourly earnings to rise 0.3%. Trade balance to see deficit narrow to $52.4 billion from $53.2 billion. Markets to watch: US indices, USD crosses

12.30pm – Canada employment report (October): 25K jobs forecast to have been created, from 63,300 a month earlier, and unemployment rate to hold at 5.9%. Markets to watch: CAD crosses

Corporate News, Upgrades and Downgrades

  • The CEO of DNA sequencing firm Illumina Francis deSouza has announced plans to purchase Pacific Biosciences for $1.2 billion.
  • Macquaire Group has increased its expected earnings, it reported annual profits will be up 10% compared to last year as the investment bank eyes a record profit.
  • ING underlying profit up in Q3 to 776 million euros, beating expectations in spite of the firms 775 million euro money laundering penalty.
  • Starbucks shares have rallied as the company reported better than expected earnings and same store sales growth in its fiscal Q4.
  • Barclays has confirmed that their chairman, John McFarlane, will retire as chairman in May next year and will be replaced by Nigel Higgings, current deputy chairman of Rothschild & Co.
  • Paddy Power Betfair has upgraded annual guidance thanks to a good period for its new US business. Underlying earnings are now expected to be between £465 and £480 million, from a previous £460 to £480 million. 
  • IAG said that it now expects earnings to hit €7.2 billion per year for the 2018-2022 period, up from the previous estimate of €6.5 billion. It also raised its targets on capital expenditure and its target for average seat per kilometre growth. 

Axel Springer upgraded to buy at HSBC
BAE upgraded to outperform at Credit Suisse
Big Yellow Group upgraded to buy at Kempen & Co
DS Smith upgraded to buy at Vertical Research

Bilia cut to hold at Kepler Cheuvreux
Deutsche Post downgraded to hold at HSBC
Panalpina downgraded to reduce at HSBC
Wirecard downgraded to underperform at BofAML

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