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Is the UK running out of time to reach a Brexit agreement? - EMEA Brief 13 Nov

DanielaIG

  • Theresa May´s cabinet is set to meet today in order to try and find a solution to the Irish border crisis, the main headache for Brexit talks in the last few months.
  • As a result of the uncertainty regarding a Brexit deal, the GBP weakened against its major pairs, falling by almost 1% against the US dollar and 0.2%against the Euro.
  • The Dow Jones lost 2.32% on Monday falling by 602 points to close at 25,387.18, after Apple suffer another hit and worries over global trade continue.
  • The Nasdaq re-enters correction territory as it lost 2.8% to close at 7,200.87.
  • Goldman Sachs shares suffered their biggest loss in 7 years, leading the S&P 500 to drop 2% to close at 2,726.22. The fall comes after the Malaysian finance minister demands a full refund of the $600million fees they paid To GS in order to help set up the fraudulent state investment fund 1MDB. 
  • Cigarette shares dip on Monday as the US Food and Drug Administration (FDA) consider banning menthol cigarettes. The fall was led by British American Tobacco that lost almost 11% closing at 2.962,50 as investors fear over the future of the newly acquired US menthol brand Newport. A smaller than expected demand for vaping products has also led to the company´s revenues to miss targets for the year so far.
  • Italy has reached its deadline to submit a revised budget draft to the EU but, despite pressure from Brussels, Italy shows little signs of altering its budget as it targets to boost government spending. Because of this, Italian bond years rose again on Monday, increasing between 1.3% and 3.5% across the curve.
  • Asian markets start the day in the negative territory but seem to recover into the afternoon. The Hang Seng dipped to 25,092 at the open but has recovered in the afternoon trading above Monday's closing price. The Nikkei 225 has been trading at a 2% loss from the previous close whilst the ASX 200 is ending the day 1.8% lower.
  •  Airline stocks have been hurt after the OPEC cartel announce they are looking to stabilise oil prices by reducing supply after prices have fallen around 20% in the last month. International Consolidated Airlines (IAG) closed 0,9% lower on Monday at 637,60.

Asian overnight: Asian markets followed their US counterparts lower overnight, with a sharp deterioration in Apple shares sending tech stocks lower in markets such as the Topix, ASX 200, and South Korean Kospi composite. This came after two of Apple’s suppliers cut their earnings forecasts, causing markets to worry whether iPhone sales had peaked

UK, US and Europe: The Pound has had a tough start to the week as the markets start to factor in the possibility of a “no deal” Brexit. As it is becoming increasingly possible that Theresa May is not going to be able to pass a deal in Parliament before the deadline on March 29th, the pound is starting to come under pressure against major currencies such as the Euro and the US Dollar.

The Brexit negotiations have come under heat as Theresa May has tried to create a UK customs union in order to avoid a hard border on the Island of Ireland. But the EU has rejected this idea by enforcing the backstop plans which lock in the UK in a relationship with the EU which cannot be ended without the EU´s permission. We can expect the Pound to trade with increased volatility this week as key meetings will shape whether there is a possibility of a Brexit deal to fit all.

After the recovery from the 2008 financial crisis, the stock markets have been performing seemingly well keeping a consistent uptrend throughout the years but the trading activity of the last month have left investors worried over the health of the financial systems. As earnings have been consistently increasing and companies are performing well, there have been talks about how long this sustained growth can last, questioning if the markets have reached their boiling point. After October became one of the worst trading months in years, the month of November had seemed to bring some relief to stock markets, but after Monday's sharp decline it shows that the markets remain volatile. All it took was bad production figure for Apple and possible regulatory action against Goldman Sachs to send the stock market into a downfall. As the potential for a slow down in economic growth and earnings is starting to take place amid ongoing trade wars and  rising interest rates, investors are advising clients to remain cautious and reduce the amount of risk by diversifying their portfolios in order to be prepared for the months to come.

Looking ahead, UK jobs data provides a focus on the pound, with average earnings expected to rise sharply to a three-year high of 3%. Also keep an eye out for the German ZEW economic sentiment survey, coming in a week that is expected to see the German Q3 GDP reading hit negative territory.

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

13Nov.PNG

Source: Daily FX Economic Calendar

9.30am – UK employment data: claimant count to rise by 3200 from 18,500 in October, while unemployment rate holds at 4%, and average hourly earnings rise 2.6% in September. Market to watch: GBP crosses
10am – German ZEW (November): economic sentiment to rise to -12 from -24.7. Market to watch: EUR crosses
11.30pm – Australia Westpac consumer confidence (November): index to rise to 103 from 101.5. Market to watch: AUD crosses
11.50pm – Japan GDP (Q3, preliminary): forecast to be -0.3% QoQ from 0.7%. Market to watch: JPY crosses

Corporate News, Upgrades and Downgrades

  • Taylor Wimpey said that sales rates grew in the second half, up to 0.77 from 0.71 a year earlier. The current order book was up 9% over the year, to £2.4 billion. 
  • Vodafone suffered a loss of €7.83 billion for the first half, arising from the disposal of Vodafone India, higher financing costs and de-recognition of a deferred tax asset in Spain. 
  • Experian suffered a 5% drop in pre-tax profit to $470 million for the first half, while revenue rose 7% to $2.36 billion. 

Allied Minds upgraded to buy at Jefferies
Anglo American raised to hold at Global Mining Research
Zurich Airport upgraded to hold at Santander
Total upgraded to buy at AlphaValue

IP Group downgraded to hold at Jefferies
ThyssenKrupp downgraded to hold at Bankhaus Lampe
Orpea downgraded to neutral at Credit Suisse
Sophos downgraded to hold at Shore Capital

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