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ECB rates and euro crosses - EMEA brief 14th June

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JamesIG

  • Fed raised rates as expected last night, and sees more hikes likely this year.
  • Trade war tensions between US and China continue. Trump to meet top trade advisors today.
  • Surprisingly weak data out from China regarding retail sales.
  • South African rand hits a 6 month low whilst the Mexican peso continues to fall to a 16 month low.
  • Oil largely unchanged, but larger than expected decline in US inventories, and an unexpected drawdown in gasoline.
  • ECB rate decision later today. Keep an eye on euro crosses from midday. Related video below.

UK, US and Europe: A hawkish Fed meeting yesterday has led to a downbeat session overnight, with much of Asia and Australasia trading in the red as a result. The 25 basis point hike was widely expected, yet it was the shift in the dot plot which signalled that we are now looking at a likely four rate rises in 2018, rather than three. Trade war tensions have however weighed on the dollar overnight, despite the hawkish guidance from the Fed. On the macroeconomic data front, Australian jobs data saw a sharp drop in unemployment (5.4% from 5.6%), although the employment change figure fell to 12,000 from 18,300. In China, the fixed asset investment, industrial production, and retail sales figures all disappointed, with a rise in foreign direct investment providing the only bright element of this data deluge.

Looking ahead, European markets will no doubt be looking towards the ECB for guidance, with market expectations shifting towards an increased likeliness that the committee will lay out a pathway to the end of QE. Also watch for UK retail sales in the morning, and US retail sales in the afternoon.

South Africa: The weaker US dollar has aided some gains in precious metal prices while the rand is clawing back some of its recent losses against the greenback. The stronger rand is expected help financial counters stem their recent currency related losses. BHP Billiton is up 0.4% in Australia, while Tencent Holdings is trading 1.2% lower in Asia. Naspers, a major holding company of Tencent, is expected to trade weaker in line with its Asian counterpart perhaps extending losses with the stronger rand. 

 

Economic calendar - key events and forecast (times in BST)
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Source: Daily FX Economic Calendar

Featured video: Is the ECB near the end of easy money?

Corporate News, Upgrades and Downgrades

  • Rolls Royce has confirmed that it will undertake ‘fundamental restructuring’, cutting 4600 jobs and aiming to save £400 million a year. Further details will come at tomorrow’s capital markets event.  
  • Rathbones has completed the acquisition of Speirs & Jeffrey, Scotland’s largest independent wealth manager, and it will raise £60 million to help finance the deal. 
  • PZ Cussons said that trading in the first half of the year had been constrained by weakness in the UK and Nigeria, and that conditions in Nigeria and Indonesia will mean the second half will remain challenging as well.  
  • Volkswagen have been hit by a 1 billion euro fine over the emissions cheating scandal. 
  • Comcast have topped Disney with a $65bn bid for 21st Century Fox which is an offer of $35 a share in a full cash bid. This represents an increase of 19% over Disney's share bid.

Banco Santander upgraded to buy at HSBC
Verbund upgraded to hold at HSBC
Oxford Instruments upgraded to buy at Berenberg
Tele2 upgraded to overweight at Morgan Stanley
(SA) Investec upgrades Sibanye to buy with a target price of 1600c
(SA) Investec maintain buy recommendation on BHP Billiton with a target price of 26900c

Acciona downgraded to neutral at Goldman
Grifols cut to neutral at JPMorgan
Orion downgraded to underperform at Jefferies
Pearson downgraded to underweight at Barclays

Please note: This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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