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ASX Rallies on Weak Australian Dollar - EMEA Brief 22 Feb

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  •  The AUD continues to trade lower following the Chinese ban of Australian coal to its Dalian port. The ASX has benefited for the weaker exchange rate as it is trading at its highest level since October.
  • Trump yesterday tweeted about not inhibiting technology from coming to the US with specific references to 5G networks implemented by the Chinese firm Huawei. This suggests a softer stance towards the Chinese firm which recently saw governments stating they would no longer allow the company to be involved with their infrastructure upgrades.
  • Brexit woes have continued as more conservative members have warned they may rebel against the party in order to stop a no-deal Brexit. Amendments for Wednesday the 27th include a vote on preventing a no-deal Brexit and a vote to delay the deadline at the end of March.
  • The Dow fell 100 points yesterday on the back of poor economic data. USD durable goods orders missed forecasts by 0.5% whilst existing homes sales fell by 1.2% when they were expected to rise 0.2%
  • The FTSE followed suit with a loss of 0.85% over the main session. UK Net public sector borrowing was up over 4.5 billion.
  • Brent and WTI oil both softened yesterday on US data. US inventories rose to over 450 million barrels and production has reached 12 million barrels per day, the highest production rate any country has ever achieved.
  • Cotton is trading 3.7% higher following trade talk discussions with the US that stated they have committed to buying $30 billion of US agricultural goods.
  • Kraft Heinz has fallen over 20% as they have disclosed they are cutting their dividend and announcing they have been served a subpoena by the SEC in relation to their procurement accounting policies.
  • The search engine Baidu gained over 4% yesterday as they beat earnings estimates by 18c per share  

Asian overnight: A mixed affair in Asia saw Chinese and Australian gains despite losses throughout Japan and Hong Kong. The US-China trade war remains the hot topic, with Donald Trump now scheduled to meet with the top Chinese negotiator, Liu He. Fears over the rejection of Australian coal in China has not been allayed, with coal miners understandably losing ground over the course of the session.

UK, US and Europe: Looking ahead, the focus remains on the eurozone, with the and final CPI and German Ifo business climate figures expected to bring euro volatility. Meanwhile, the afternoon sees Canadian retail sales followed by appearances from a host of Fed members. Crude traders will be keen to watch for the Baker Hughes rig count figure too

South Africa: After a soft close for US markets overnight, Index futures out of the region are starting to rebound this morning as are Chinese equity markets. US China trade talks continue today, while the UK is expected to ask the EU for an extension on the Brexit deadline. It is an otherwise light calendar, in terms of scheduled economic data. The dollar has softened slightly to aid gains in commodity prices. The rand has managed to claw back further strength and trade back below the R14/$ mark. Tencent Holdings is down 0.6% in Asia, suggestive of a similar start for major holding company Naspers. BHP Group is 0.4% lower in Australia suggestive of a flat to lower start for local miners.

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

Economic Calendar 22.02.PNG

Source: Daily FX Economic Calendar

9am – German IFO index (February): business climate index to fall to 98.5 from 99.1. Markets to watch: EUR crosses
10am – eurozone CPI (January, final): CPI to fall to 1.4% from 1.6% YoY. Markets to watch: EUR crosses
5:30pm ECB President Draghi Speaks (EU)Market to watch EUR Crosses

Corporate News, Upgrades and Downgrades

  • Centrica has renewed a series of debt facilities worth a combined £4.2 billion with 21 banks. The new debt will mature in February 2024.
  • Pearson reported a 46% rise in annual profit for 2018, to £590 million, although adjusted operating profit was down 5% to £546 million. The dividend was raised by 8% to 13p per share.
  • Merlin Entertainments has sold its Australian ski resorts to Vail Resorts for £95 million.
  • Dairy Crest has agreed to a takeover by Canada’s Saputo Inc for £975 million, or 620p in cash for each Dairy Crest share.

Codemasters upgraded to buy at Berenberg
DKSH raised to neutral at Credit Suisse
DNB upgraded to overweight at Morgan Stanley
Leroy upgraded to buy at Fearnley


Centrica downgraded to neutral at Goldman
KAZ Minerals downgraded to sell at VTB Capital
Nordea cut to equal-weight at Morgan Stanley
Retail Estates cut to hold at Kepler Cheuvreux

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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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