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Gloomy Days Ahead as IMF Cuts Global Forecasts - EMEA Brief 22 Jan

Guest JoeIG


  • The IMF has cut its forecasts for growth as it says the global economic expansion is losing its momentum, projecting a 3.5% growth rate worldwide for 2019, 0.2 percentage points less than its forecasts in October. This comes just hours after China announced its slowest economic growth in almost three decades.
  • Meanwhile, over at the World Economic Forum in Davos, there are ongoing talks over an array of current or potential crises, from the US-China trade war to the uncertainty surrounding Brexit.
  • US markets were closed on Monday for the Martin Luther King holiday.
  • In Asia, the Hang Seng was down more than 1%, with the CSI 300 down 0.9% and Japan's Nikkei slid 0.7%.
  • Australia's ASX 200 was also down 0.5%, as the share price of BHP Billiton faltered 1.2% after the world's largest miner reported iron ore production fell in the fourth quarter of 2018.
  • In FX, the pound was 0.1% weaker at $1.2872 after Theresa May laid out her plan B and refused to rule out a no-deal Brexit. Demand for the safe-haven yen maintains its stead as the Japanese currency stands at $109.41.
  • Worries over global growth pulls oil prices lower as Brent was down 0.8% to $62.24 and US Crude was down 0.7% at $53.43 a barrel. 

Asian overnight: Asian markets have traded in the red overnight as fears over the global growth picture continue to dent investor confidence. Yesterday’s Chinese GDP figure for Q4 came in at 6.4%; the lowest since 2009. Meanwhile, the IMF revised down their global growth forecast thanks to fears over both the Chinese slowdown and Brexit. Hopes of improved relations between the US and China were dealt a blow, with the US planning to proceed with the extradition proceed to take Huawei executive Meng Wanzou from Canada to the US. Data-wise, Japanese inflation once again floundered, with the BoJ core CPI falling from 0.5% to 0.4%.

UK, US and Europe: A busy day ahead sees the UK remain in the spotlight, with the latest jobs report accompanied by the public sector net borrowing figure. Eurozone interests will be particularly concerned with the latest ZEW economic sentiment, where the German figure is expected to fall once more. The US markets are back after yesterday’s MLK national holiday, yet with just existing home sales to watch out for, the calendar looks thin from that side of the Atlantic.

South Africa:  Global equity markets are trading lower this morning after the International Monetary Fund (IMF) lowered is forecast for global economic growth. US Index Futures trade around 1% lower this morning and the Shanghai Composite Index roughly 1.3% lower. Precious metals are trading lower this morning while base metal prices are mixed in trade today. Oil has temporarily halted its short term gains with Brent trading marginally softer in early trade. The rand has subsequently weakened along with its emerging market currency peers. Tencent HOldings is down 2.4% in Aisa, suggestive of a similar start for Naspers. BHP is down 1.3% in Australia following the release of its H1 operating update.

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


Source: Daily FX Economic Calendar

9.30am – UK employment data: December claimant count to rise by 10,000, from 21,900 a month earlier, while the November unemployment rate to hold at 4.1%, and average earnings for November to rise by 3% (inc bonus) from 3.3% a month earlier. Market to watch: GBP crosses

10am – German ZEW index (January): economic sentiment index to fall to -21 from -17.5. Market to watch: EUR crosses

3pm – US existing home sales (December): expected to fall 0.8% MoM from a 1.9% gain in November. Market to watch: USD crosses

11.50pm – Japan trade balance (December): forecast to see the deficit narrow to Y600 billion from Y737 billion. Market to watch: JPY crosses

Corporate News, Upgrades and Downgrades

  • Google has been fined €50m by France, under the EU's new data and privacy laws. 
  • Dixons Carphone saw a 1% rise in group like-for-like revenue for the ten weeks to 5 January, but left guidance for overall pre-tax profit unchanged at £300 million. 
  • easyJet said it had a good quarter with revenue in line with forecasts. Total revenue rose 13.7% to £1.29 billion, while passenger numbers were up 15.1% to 21.6 million. However, the airline announced a £15m loss from the drone activity at Gatwick Airport over the Christmas holiday period.
  • Sirius Minerals has agreed to revive the terms of a $3 billion funding round for its Yorkshire potash project. Progress has been made on securing commitments from lenders but the plan has been altered to modify credit risk. 
  • Ricardo expects to report a small rise in first-half revenue, which remains broadly in line with forecasts. Order intake was ‘good’ at just over £200 million. 

Air France-KLM raised to overweight at Morgan Stanley
Babcock upgraded to add at Peel Hunt
Lufthansa upgraded to overweight at Morgan Stanley

Aggreko downgraded to reduce at Peel Hunt
BASF downgraded to neutral at MainFirst
Shell cut to underweight at Morgan Stanley
IAG downgraded to underweight at Morgan Stanley

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