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Concerns over Rate Hikes and Economic Slowdown - EMEA Brief 18 Dec

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JoeIG

  • The FOMC will begin its 2 day meeting today, with the markets expecting a 25 basis points interest rate increase upon its announcement on Wednesday, which would make this its fourth hike this year. 
  • Homebuilder sentiment in the US declined in December to its lowest point in over 3 years, and could be an early indication of an economic softening.
  • Theresa May has announced that the "meaningful vote" for her Brexit Withdrawal Agreement is due to be held in the third week of January, after it was postponed last week amid fears of a defeat. 
  • US stocks closed at the lowest level in over 14 months yesterday, with the S&P dropping 2% to 2545.94 and the Dow diving 500 points to 23592.98. This comes as investors fear for the health of the global economy ahead of the Federal Reserve’s final policy meeting of the year.
  • Asia-Pacific stocks also went into retreat on Tuesday as the Hang Seng was down 0.9% in afternoon trading, whilst the CSI 300 and the Topix shed 1.2% and 1.7%, respectively.
  • The Dollar lost 0.2% against the Japanese Yen, falling to 112.53 yen.
  • The Euro was mostly steady at $1.1342, maintaining the 0.4% gain it made on Monday. 
  • Oil prices extended losses on the back of signs of oversupply in the United States: US Crude drops 2.6% to a 14-month low, settling at $49.88.
  • Bitcoin has recovered from its sharp fall at the beginning of the month, rising more than 10% yesterday as the digital currency benefited from a strong support near the $3,000 level. 

Asian overnight: A sea of red has been evident in overnight markets, as sentiment continues to sour ahead of tomorrow's FOMC meeting. Particularly notable losses in Japan came amid a strengthening yen in play through the beginning of the week. In China, a speech from President Xi Jinping offered up little in the way of new policies, instead spending much of the speech extolling the virtues of the communist party. Meanwhile, the RBA minutes signalled that the next rate move is likely to be up rather than down, although this was largely priced in given the subsequent fall in AUDUSD.

UK, US and Europe: Looking ahead, the bearish sentiment evident in Europe could easily continue today given the overnight losses, while the major release of the session comes from the German Ifo business climate figure. In the afternoon keep an eye out for the latest building permits and housing starts figures.

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

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Source: Daily FX Economic Calendar

9am – German IFO (December): business climate index to rise to 102.7 from 102. Markets to watch: EUR crosses
1.30pm – US housing starts & building permits (November): watch for a rebound from last month’s decline in activity, as the US housing market continues to worry investors. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • ASOS shares plummeted over 40% yesterday on the back of a profit warning, adding to fears of a struggling retail sector and triggering a sell-off in fashion retail stocks across Europe. 
  • Huawei says it has secured over 25 commercial contracts for its 5G technology.
  • Petrofac said it was trading in line with forecasts, with $5 billion of orders won in the year so far.  
  • Wood Group has won a $66 million contract to supply control technologies to Sellafield nuclear plant. 
  • Malaysia have filed criminal charges against Goldman Sachs and 2 bankers over they're alleged role in the 1MDB scandal. 

Cineworld upgraded to top pick at RBC
JCDecaux raised to equal-weight at Morgan Stanley
Zalando upgraded to buy at DZ Bank
Remy Cointreau raised to market perform at Bernstein

Asos downgraded to hold at Santander
Coface downgraded to hold at Kepler Cheuvreux
Nemetschek downgraded to reduce at Kepler Cheuvreux
Pfeiffer Vacuum downgraded to hold at HSBC

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