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Another blow to economic growth - EMEA Brief 15 Feb

DanielaIG

  • Weak retail figures in the US have spilled over to most major stock markets, with European stocks set to open lower this morning. The 1.2% decline in retail sales for the month of December, the biggest drop in almost ten years,  have brought new fears that we are facing a global economic slowdown. The DJIA closed 104 points lower at 25,439.39, the S&P 500 closed 7 points lower at 2,745.73, whilst the Nasdaq managed to close in the positive with a gain of 6.6 points at 7,426.96.
  • China's lower than expected inflation figures for the month of January have only added to ongoing concerns of a global slowdown in growth. China's consumer price index came in at a rise of 1.7%, lower than the expected figure of 1.9% polled by Reuters. These lingering concerns about the future of growth had most of China's stocks trading slightly lower on Friday, with he Shanghai composite down 0.62%, the Hang Seng index down 1.64% and the Shenzhen composite largely flat. Following the Chinese stocks, the Nikkei 225 was down 1.23% and the Topix was 0.88% lower.
  • Donald Trump has reportedly agreed to sign a spending bill to avoid a second US government shutdown but it comes hand in hand with declaring a national emergency to receive funding for his Mexican wall in order to stop the "national security and humanitarian crisis at the border".
  • Oil is continuing its three month rally as Brent crude oil prices have hit a high for 2019, above $65 per barrel. The West Texas Intermediate (WTI) crude futures were trading at around $55 a barrel, 0.6% higher than its previous settlement. This price rally is mostly due to OPEC cutting production in a bid to tighten market conditions and increase oil prices.

Asian overnight: An overwhelmingly negative end to the week in Asia has seen sharp losses across Japan, China, and Hong Kong. Australia provided the one flash of green on an otherwise red session. Part of this pessimism comes as the US-China trade talks draw to an end once more, with a major breakthrough seemingly likely today. On the data front, Chinese inflation fell sharply to 1.7%, from 1.9%. Meanwhile, Japanese industrial production remained in negative growth for December.

UK, US and Europe: Looking ahead, the UK focus remains in play, with the latest retail sales figures hoping to escape the downturn seen in yesterday’s US figures. In the US session, markets will be closely watching out for any announcements as the US-China trade talks draw to a close. Also make sure to keep an eye out for the latest Empire state manufacturing survey, Baker Hughes rig count, and Michigan consumer confidence data. We are also expecting to see Donald Trump call a national state of emergency in a bid to build his wall. On the UK side, we saw Theresa May lose yet another vote in parliament, making it even more difficult to gain any concessions from the EU.

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

15feb.PNG

Source: Daily FX Economic Calendar

9.30am – UK retail sales (January): expected to rise 0.6% MoM. Market to watch: GBP crosses
1.30pm – US Empire State mfg index (February): index to rise to 6 from 3.9. Markets to watch: US indices, USD crosses
3pm – US Michigan consumer confidence (February, preliminary): confidence to rise, with the index rising to 94.5 from 91.2. Market to watch: USD crosses

Corporate News, Upgrades and Downgrades

  • Royal Bank of Scotland reported pre-tax profit of £1.62 billion for 2018, up from £752 million last year. A special dividend of 7.5p per share and a final dividend of 3.5p per share will b paid. However, the bank expects 2019 to be full of challenges.
  • Segro will launch a £450 million share issue to fund its development pipeline. New shares will be issued at 10p each.
  • Mondi expects to report stronger earnings thanks to stronger demand. Underlying ebitda for 2018 is expected to be above 2017’s €1.48 bilion.
  • Patisserie Holdings has sold its Baker & Spice chain to the Department of Coffee & Social Affairs for £2.5 million.

Capita upgraded to overweight at Barclays
Restaurant Group upgraded to buy at Berenberg
DFS Furniture upgraded to buy at Berenberg

Domino’s Pizza Group downgraded to sell at Berenberg
Drax downgraded to sell at Citi
Oriflame downgraded to hold at SEB Equities
Proximus downgraded to underweight at Barclays

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