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Brexit Amendments and Apple Earnings - EMEA Brief 30 Jan

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  • MP’s have voted to remove the Irish backstop and remove the possibility of a No-Deal Brexit in the latest round of Commons voting.
  •  Venezuela’s Maduro is reported to have said he is ready to talk to the opposition. This could hopefully stop the escalation of unrest in Venezuela which yesterday saw defectors calling on the Trump administration to arm them against Maduro, labelling him a dictator.
  • The FTSE gained 1.75% yesterday whilst the Dow gained 0.8%
  • Meanwhile the Hang Seng was up 0.97% yesterday but as at the time of writing it has shown a retracement of those gains. A similar pattern is shown by the Nikkei with yesterday’s gain at 0.83%
  • Gold is continuing to trade at its 8-month high with a 0.89% gain so far this week. Part of this gain is attributed to the expected US Fed announcement to pause rate changes. The announcement is tonight 7pm GMT.
  • Oil edged higher yesterday after the US announced sanctions on Venezuelan oil firms on Monday however it remains relatively flat overall due to wider concerns of slowing global growth.
  • Apple earnings marginally beat expectations with $4.18 EPS compared to $4.17 expected. Their share price gained over 4.5% as a result.
  • Pfizer also beat earnings by 1 cent with expectations being 63c per share compared to 64 achieved. Whilst also making a loss in their 4th quarter their shares gained almost 6% as their CEO stated their products in development are the best in their history.

Asian overnight: Asian markets have experienced a largely downbeat session, as minimal gains in Australia and the Hang Seng did little to make up for wider losses throughout China and Japan. This tells us a lot about the tone and expectations for the US-China trade talks which get underway later today. The tragic dam accident in Brazil has driven iron ore prices higher overnight, as markets attempt to quantify the impact on supply. This spike helped boost the mining sector, driving the ASX 200 into the green. Meanwhile, the pound has been gaining ground in the wake of yesterday’s Parliamentary votes, with two amendments managing to garner enough votes to gain approval. However, while Parliament voted to avoid a no-deal Brexit and possibly seek an alternative to the backstop, it is unlikely that Theresa May is going to get any concessions when she returns to EU (as happenend after her last humiliating defeat in parliament).

UK, US and Europe: Today looks set to be a busy one, with the mainstay of hard-hitting economic data points coming out of the US in the afternoon. German CPI is speculated to bring a sharp decline in inflation for Europe’s largest economy. However, all eyes will be on the likes of the ADP payrolls figure, alongside the first FOMC meeting of 2019. Given the recent slowdown, all eyes will be on Powell to see quite exactly how dovish a shift we are going to see as we shift more onto a data-dependent policy for rates. Also keep an eye out for US crude inventories, with a second build expected after last week’s sharp rise. On the corporate front, earnings releases from the likes of Facebook, Microsoft, Visa, Boeing, and McDonald’s should ensure that sentiment is at least in part driven by individual equities.

Following a largely negative night of voting on amendments to the Brexit deal, one of the few things MP’s have agreed on in that they want to replace the backstop arrangement. The amendment was passed with 317 to 301 votes, other votes came close to passing but ultimately failed to gain a majority in the House of Commons. MP’s also voted to reject the possibility of a no deal Brexit (although non-binding) which passed with a majority of 8 votes. As a result, Jeremy Corbyn has said he will begin discussions with Theresa May which were originally delayed until the possibility of ‘no deal’ was removed.

South Africa: After UK parliament has rejected the proposed Brexit deal presented by Theresa may, the British Prime Minister will now go back to the European Union to renegotiate a deal. Parliament has however backed amendments to avoid a no-deal Brexit scenario. The Nasdaq is leading the US market higher this morning after Apple reported better than expected results after the bell last night. Today will see the resumption of talks between the US and China regarding trade. Metal prices are trading mostly higher this morning as is Brent crude following US imposed sanctions on a major oil producer in Venezuela. The rand remains firm as the dollar remains weak ahead of this evenings US rates meeting. Tencent Holdings is down 0.3% in Asia suggestive of a slightly lower start for major holding company Naspers. BHP Group is trading 2.5% higher in Australia suggestive of a positive start for local resource counters.

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

Economic Calendar 30.01.PNG

Source: Daily FX Economic Calendar

10am – eurozone business confidence (January): previous reading 0.82. Market to watch: EUR crosses
1pm – German CPI (January, preliminary): previous reading saw a rise of 1.7%. Market to watch: EUR crosses
1.15pm – US ADP employment report (January): 175K jobs expected to have been created, from 271K a month earlier. Markets to watch: US indices, USD crosses
3pm – US pending home sales (December): expected to fall by 8% YoY. Market to watch: USD crosses
3.30pm – US EIA crude inventories (w/e 25 January): previous reading saw a rise of 8 million barrels. Markets to watch: Brent, WTI
7pm – FOMC meeting: no change in rates expected, but watch for any comments on the current situation and policy path. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Wizz Air saw an 87% drop in Q3 net profit, to €1.7 million, despite a 21% rise in revenue from higher passenger volumes. Fuel costs weighed on performance, but the firm kept full-year profit guidance unchanged at €270-300 million.
  • 3i said that it remained on track to meet full-year guidance, thanks to a good level of income in Q3.
  • Gamestop shares fell 22% as they cancelled the sale of the company.
  • Medco have agreed to buy Ophir Energy for 55p per share in a cash deal
  • Shoprite shares fell over 10% following a profit warning

Fraport upgraded to buy at HSBC
Gjensidige upgraded to outperform at KBW
Siemens Healthineers upgraded to buy at DZ Bank
Uniper upgraded to neutral at JPMorgan

CVS Group downgraded to sector perform at RBC
Suez downgraded to underweight at Morgan Stanley
Tryg downgraded to underperform at KBW
Voestalpine downgraded to hold at Baader Helvea

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