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Markets prepare for the Lunar New Year - EMEA Brief 04 Feb

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  • Asian equities are modestly up as investors price in strong US job report and president Trump’s optimism on trade talks. The top performer was Japan’s Topix index which was up 1% at 3:32 GMT, following a weaker Yen. Major markets across Asia will close for part or all of the week as the region heads into Lunar New Year holidays.
  • India NSE Nifty 50 is down 0.5% as of 5:15 GMT as investors evaluate the populist push in the government’s last federal budget. India is set to cut taxes to middle-class citizens and distribute cash to farmers in an attempt to restore confidence in the middle-class.
  • The dollar held Friday gains against the Yen, which followed a better-than-expected US job report. However, caution towards subdued holiday trade in Asia and Federal Reserve policy might hold back further gains. The greenback is up 0.21% at 109.75 as of 5:30 GMT on the IG Web platform.
  • Gold prices edged lower as the greenback held steady. The April contracts hit $1317 at 5:00 am GMT, after dropping consistently since opening, as can be seen on the IG Web Platform. Will fewer expectations of Fed rate cuts this year push the gold bullion much lower? 
  • Oil maintained gains from the previous session as markets participants weigh in OPEC production cuts vows and US sanctions against Venezuela. International Brent Crude oil futures were up 1% from their last close, trading at $62.76 per barrel. Vivek Dhar, commodities analyst for Commonwealth Bank of Australia commended that US sanctions on Venezuela “could see 0.5 to 1 percent of global supply curtailed”.

Asian overnight: Asian markets are trading firmer this morning following on from gains in US markets on Friday, as optimism around trade talks between the US and China grows. Japanese markets were the outperformer overnight, as a bullish start to the week took hold despite the absence of Chinese trade (Spring festival). Today's economic calender is light and market moves are relatively subdued. China is currently getting ready for its Lunar New Year's celebrations. Data-wise, the Chinese Caixin services PMI fell less than expected, maintaining a healthy 53.6. Tencent Holdings is down 0.1% in Asia suggesting a flat start for major holding company Naspers. BHP Group is flat in Australia.

UK, US and Europe: As May will launch today a new working group intended to look for a Plan B on Brexit, Nissan Europe Chariman Gianluca De Ficchy ditched commitments to Britain after the divorce with EU. According to the Times newspaper, British ministers are now considering whether to withdraw a 60 million pounds package to the Japanese car manufacturer. Despite the fact that the Brexit storm seems far from over, cable volatility traders appear bullish on a positive divorce scenario as pound volatility keeps dropping. According to SEB AB, given the risk of a no deal scenario, investors may have to reconsider their optimistic positions.

Looking ahead, a relatively interesting day on the economic calendar sees the UK construction PMI take the lead in Europe. Th rest of the focus is on the US, with factory orders, trade balance, durable goods, and retail sales figures all released. Also keep an eye out for the Q4 earnings figures from Alphabet.

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

Econ Cal 04 Feb.PNG

Source: Daily FX Economic Calendar

9.30am – UK construction PMI (January): previous reading 52.8. Market to watch: GBP crosses

1.30pm – US retail sales, housing starts & building permits, durable goods orders (December): retail sales to rise 0.2% month-on-month (MoM), and durable goods orders to rise 1.8% MoM and rise 0.3% MoM, excluding transportation. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Serco said that it had won a £560 million contract with Bupa to provide services to Australia’s defence forces. The contract is for six years, plus up to four one-year extensions. 
  • Indivior has entered into an agreement to sell its rights to a psychotropic drug in China for up to $122.5 million. 
  • Ryanair reported a 9% rise in revenue for the final three months of 2018, to €1.53 billion, but suffered a pre-tax loss of €22 million for the period, compared to a €113 million profit a year earlier. The number of passengers rose 8% to 33 million. Michael O’Leary will move to become group CEO, while a new CEO of Ryanair will be appointed later in the year. 
  • Wizz Air flew 10% more passengers during January, while passnger volumes rose to around 2.3 million. 
  • Impala Platinum headline earnings and headline earnings per share for the interim period are expected to increase to at least R2.1 billion or 292 cents per share. Headline lossand headline loss per share for the comparative period were R150 million and 21 cents per share,respectively.
  • AngloGold Ashanti The basic earnings for FY18 are expected to be between $120 million and $137 million, resulting in basic earnings per share of between 29 cents and 33 cents. Basic loss and loss per share for the comparative period were $191 million and 46 cents, respectively.

Hapag-Lloyd upgraded to buy at Berenberg
HeidelbergCement upgraded to buy at HSBC
Royal Mail upgraded to buy at HSBC
Morrison upgraded to neutral at Cit

BHP Group PLC downgraded to underweight at JPMorgan
Electrolux cut to accumulate at Handelsbanken
KAZ Minerals downgraded to hold at HSBC
Novo Nordisk cut to accumulate at Handelsbanke

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