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Brexit is a hell of a ride - EMEA Brief 07 Feb

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DanielaIG

  • Theresa May is set to meet with European leaders today to have crucial talks about amending her Brexit proposal with all of the focus on the Irish backstop. She flies to Brussels a day after European Council president Donald Tusk faced backlash after he claimed there is 'a special place in hell for Brexiteers'.
  • The Bank of England is set to announce its rate decision today at noon, with forecasts expecting rates to be unchanged until some of the Brexit uncertainty has passed.
  • US indices closed lower as the DJIA closed 21 points lower at 25390.30, losing a 5-day rally, the NASDAQ closed 27 points lower at 7375.28 and the S&P 500 closed 6 points lower at 2731.61.
  • European stocks closed slightly higher on Wednesday but the markets are still weary about earnings results still to come and the top European indices (FTSE, CAC and DAX) are expected to open lower today.
  • Stocks in Asia were trading mixed today, with the Nikkei 225 closing 0.6% down at 20,751.28 despite Softbank shares rising more than 17% after announcing a share buy-back of up to 600 billion yen in the next year. The Topix also declined 0.83% and the Kospi was trading largely flat. On the other hand, the ASX 200 was trading 1.1% higher closing at 6,092.50.
  • As the dollar index is keeping close to its two week high, gold has slipped to $1,303.64, nearing its lowest point for the year at $1,302.84 on Jan 29. Continuing concerns about a global economic slowdown coming from dovish central bank rate decisions is keeping the precious metal above the $1,300 level.
  • Both Brent and Crude Oil prices have fallen as US crude inventories held production at record highs.

Asian overnight: The rally is looking tired, with a mixed session on Wall Street last night, and with little in the way of news for the day ahead equities may continue to struggle. Asian markets were broadly positive, although the Nikkei lost ground.  While China and Hong Kong remain closed on account of Lunar New Year's festivities, US index Futures are trading modestly lower this morning. Metal prices are trading mixed with gold back testing the $1300/oz mark, and platinum testing the $800/oz mark while silver and palladium prices are slightly firmer on the day. Crude oil prices are marginally lower although still trade near multi-week highs. After a broad global bounce in equities, the question is what can now drive stocks higher.

UK, US and Europe: As Theresa May is set to fight for a Brexit deal amendment in Brussels today, the Bank of England will announce its rate decision and inflation report at noon. A hard Brexit could see a forced reaction from the policy makers to reduce rates to cope with the immediate disruption to trade and the economy, which would resemble the BoE's reaction to the shocking Brexit results where it introduced a quantitative easing program and cut rates by a quarter of a point. Nevertheless, it is expected that the BoE will hold any rate changes until some uncertainty clears. But leaving the politics aside, the monetary policy committee may be confident that growth and inflationary pressure are strong, which could signal that there will be gradual rate hikes post Brexit.

The cable is the currency pair to watch after the announcement, as the greenback remains as the safest currency, a dovish approach from the BoE signalling to further economic concerns due to the uncertainty of Brexit 50 days out from the leaving date, could mean the GBP/USD may be testing the $1.28 line.

South Africa:  The rand has weakened against a rebound in the dollar. South Africans will look to this evenings State of the Nation address for news relating to an Eskom bailout and possible effects on the rand.

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

7feb.PNG

Source: Daily FX Economic Calendar

  • 12pm – BoE rate decision & inflation report: no change in policy is expected, though with no progress on Brexit it will be interesting to watch the MPC’s views on the UK economy. Market to watch: GBP crosses
  • 1.30pm – US initial jobless claims (w/e 2 February): previous week’s reading 253K. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Bellway said that it expects a 12% rise in total revenues for the first half, helped by higher average selling prices. Completions rose 5.6% while the average selling price was up 6.5%.
  • Compass upgraded its outlook for the full year, expecting organic growth to come in slightly above the mid-point of guidance. Organic revenue for the final quarter of 2018 was up 6.9%.
  • Thomas Cook is exploring the sale of its airline business in a bid to raise cash. Q1 underlying losses rose to £60 million, from £46 million a year earlier

Alstom upgraded to buy at Berenberg
BT upgraded to buy at DZ Bank
Daimler upgraded to hold at Commerzbank
Volvo upgraded to neutral at Baird

Infineon downgraded to hold at DZ Bank
Lundin Petroleum cut to hold at Kepler Cheuvreux
Munich Re downgraded to hold at DZ Bank
Repsol cut to equal-weight at Barclays

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Hi all - we have a Brexit round table today (Friday 8th Feb) which unfortunately won't be live, but we will be able to publish the video afterwards. This will be with Simon French from Panmure Gordon, and Robert Oulds from Bruges Group. It should be a great discussion, and if you have any questions you wanted to put to the panel please add a comment and make sure to tag me with the @ symbol. 

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