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Government Found in Contempt as Theresa May Suffers Further Defeats in the House - EMEA Brief 05 Dec

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  • UK government found in contempt of parliament for the first time due to not releasing the full legal advice regarding Brexit. The government has now agreed that it will be published which may cause more instability in the markets
  • Markets have retreated following their rally attributed to agreements made between the US and China at the G20. The fall comes amidst increasing sentiment of an economic slowdown as well as reduced faith in trade war negotiations following officials of the Trump administration admitting it was too early to say if a longer-term deal could be reached.
  • The Dow was down over 2.5% whereas the Hang Seng was down over 1.5%. Meanwhile, the EU volatility index was up over 7% over the course of yesterday.
  • Australian GDP missed growth QoQ by 0.3% and YoY by 0.5%. The growth targets were 0.6% and 3.3% respectively.
  • Oil prices have fallen again as the Chinese government has warned of a falling demand due to a slowing down of the economy whilst the US oil inventories have continued to grow according to a report by the American petroleum institute. Official US oil inventories will be released today at 15:30 GMT.
  • Gold has fallen from its recent 5 week high and the dollar has strengthened. The dollar basket gained 0.4% yesterday.
  • This market sell off comes as bond yields have dropped, showing a flight from equities into the less risky assets. The current US yield curve and what it means for investors is discussed here.

Asian overnight: Asian markets fell sharply after a dismal day for US equities, with 3%+ losses for the Dow, S&P 500 and Nasdaq. Recession fears are rising as investors watch the yield curve warily, while growth fears hit oil prices too, reversing some of the gains from earlier in the week.

UK, US and Europe: US markets are closed today for the funeral of President George H W Bush, which should result in lower volumes across the board. The pound remains in focus, after the prime minister suffered a series of reverses in Parliament, which may however mean that a no-deal Brexit is much less likely, and a possible ‘Norway option’ becomes a possibility if the current deal fails to pass Parliament.

The contempt vote was another blow to British Prime Minister Theresa May as she battles to gain support for her withdrawal agreement. The vote was won by 311 votes to 293 and saw a substantial drop it the pound which briefly hit its lowest level since April 2017. The vote also saw 26 conservative MP’s vote for their leader to release the full details of the legal advice. The vote was also notably backed by the DUP who have a parliamentary pact with the conservatives, however they have been outspoken with their displeasure with how the withdrawal agreement approaches the Irish boarder issue. Jeremy Corbyn has demanded that the advice is published before the parliamentary vote on the withdrawal agreement next week, so MP’s can make an informed decision. Andrea Leadsom has only indicated that she plans to “respond” today as MP’s meet again as part of the 5-day debate. Speaker of the House John Bercow has stated it would be unimaginable that the advice is not provided before the vote. Continued division between and within the parties suggests the PM may need to increase her efforts if she wishes to get this agreement passed when the MP’s make their decision on it on Tuesday the 11th.

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

Economic Calendar 5.12 .PNG

Source: Daily FX Economic Calendar

9.30am – UK services PMI (November): activity expected to increase, with the index rising to 54.1 from 52.2. Markets to watch: FTSE 100/250, GBP crosses
1.15pm – US ADP employment report (November): 189K jobs expected to have been created, from 227K jobs a month ago. Markets to watch: US indices, USD crosses
3pm – Bank of Canada rate decision: no change in policy expected. Market to watch: CAD crosses
3pm – US ISM non-mfg PMI (November): expected to drop to 59.5 from 59.7. Markets to watch: US indices, USD crosses
3.30pm – US EIA crude inventories (w/e 30 November):stockpiles to rise by 2 million barrels, from a 3 million increase a week earlier. Markets to watch: Brent, WTI

Corporate News, Upgrades and Downgrades

  • Stagecoach suffered a pre-tax loss of £22.6 million, compared to a profit of £96.7 million a year earlier, with a writedown in the value of the US business the main culprit. Adjusted pre-tax profit was down 10% to £87 million.  
  • Wood Group has won a $43 million contract to construct 80 miles of steel pipeline in west Texas. 
  • Patisserie Valerie have appointed an interim finance chief following issues with their accounting reported in October
  • The Civil Aviation Authority has announced it is taking legal action against RyanAir. The airline are claiming that they do not have to compensate customers for delays during strikes from their staff as they believe this constitutes "extraordinary circumstances". The EU mandate that passengers must be compensated for delays does not apply if the situation is deemed to be extraordinary. 
  • Takeda have gained shareholder approval for their £46 billion takeover of Shire, the largest corporate takeover Japan has ever had
  • Alpine shareholders have approved their merger with Alps Electric

Aker Solutions upgraded to buy at Kepler Cheuvreux
Bayer upgraded to buy at DZ Bank
HeidelbergCement upgraded to overweight at JPMorgan
Salzgitter upgraded to neutral at Macquarie

Electrolux cut to underweight at Morgan Stanley
Ted Baker downgraded to hold at HSBC
Glaxo downgraded to equal-weight at Barclays
Hargreaves Lansdown cut to underweight at Morgan Stanley

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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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