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Trade War Progress Ripples Through Markets - EMEA Brief 25 Feb


IGAaronC

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  • Developments have been made in the US-China trade war with Trump announcing ‘substantial progress’ has been made by both sides resulting in the hike on Chinese imports being delayed.
  • Theresa May is set to meet world leaders in Egypt later today. Yesterday she announced there will be a new vote on her deal by the 12th of March but has faced criticism that this is just 17 days before the deadline.
  • Asian markets have rallied on the back of the trade war announcement, with the Shanghai Composite raised over 6%
  • The yen has softened as investors have come away from the safe-haven currency. The Australian dollar has seen gains as a result.
  • Oil has remained relatively flat with US exports at all time highs however the trade war could see some optimism on increased demand.
  • Kraft Heinz are said to be considering selling their Maxwell House coffee business following last week’s announcement that there are being investigated by the SEC which caused their shares to fall 27%.
  • Huawei have released a video of their folding phone named the ‘Mate X’. As with the Samsung version, both phones are testing price points at the higher end of the market with the Mate X being priced at £2000 which should be available mid-2019.

Asian overnight: Chinese markets saw huge gains overnight, as Donald Trump called for a delay to the ramp up in tariffs on Chinese goods, citing progress on many of the top issues faced by the two sides. No new deadline was set, yet with the president calling for a potential meeting between himself and President Xi Jinping to finale a deal, we appear to be moving into the endgame. This sent the yuan to a new seven-month high against the dollar. Data-wise, overnight retail sales figures from New Zealand spiked sharply, negating the weak figure from the previous quarter. 

UK, US and Europe: Looking ahead, we are set for a very quiet start to the week, with an appearance from Mark Carney providing the one event of note. For the most part, we are likely to see market feed off the positive sentiment provided by the overnight announcement from Donald Trump. 

South Africa: Global equity markets are trading firmer this morning after US president Donald Trump confirmed that he would extend the deadline of a trade truce between the US and China (previously set for 1 March). The Shanghai Composite has added 5.3% in early trade. Emerging market currencies have renewed strength as risk appetite improves in the short term. The dollar is weaker and in turn we are seeing commodity prices trading mostly firmer on the day. Tencent is trading flat in Asia, suggestive of a similar start for major holding company Naspers. The BHP Group is up 0.9% in Australia, suggestive of a positive start for local diversified resource counters.

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

Economic Calendar 25.02 .PNG

Source: Daily FX Economic Calendar

1.30pm – US Chicago Fed national activity index (January): forecast to fall to 0.1 from 0.3. Market to watch: USD crosses

Corporate News, Upgrades and Downgrades

  • Provident Financial has rejected a bid from rival Non-Standard Finance, calling the bid a ‘highly opportunistic approach’.
  • Bunzl reported a 6% rise in full-year adjusted pre-tax profit, boosted by small acquisitions and growing business in North America. Separately, it said that it had acquired US firm Liberty Glove & Safety, for an undisclosed sum.
  • Associated British Foods said that it would deliver first-half growth in all of its businesses apart from sugar. Adjusted operating profit is expected to fall slightly, offset by lower net financial expenses.
  • Roche is set to buy Spark Therapeutics for $4.8 billion.

BW LPG upgraded to buy at SEB Equities
Oriola upgraded to accumulate at Inderes
Rheinmetall upgraded to buy at Pareto Securities

Elekta downgraded to underweight at JPMorgan
Fresenius Medical cut to neutral at MainFirst
Retail Estates cut to hold at Bank Degroof Petercam

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