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'Spend It Well'; M&S and Ocado Confirm £750m Deal - EMEA Brief 27 Feb

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  • Marks & Spencer and Ocado have officially confirmed a deal whereby M&S will buy a 50% share of Ocado's retail business in a £750m home delivery deal, a huge transformational step for the iconic retailer. M&S will finance the deal by offering a £600m rights issue to shareholders and cutting dividend payouts by 40%.
  • President Trump and North Korean leader Kim Jong-Un are set to meet today in an attempt to end North Korea's nuclear program in exchange for a relief in sanctions by the US.
  • Ahead of the Trump-Kim meeting stocks in Asia generally increased, the Hang Seng rose 0.48% followed by a 0.44% gain with the Nikkei. The Chinese markets mirrored these gains as the Shanghai composite increased 0.8% and the Shenzhen composite by 0.4%.
  • US Index futures edged lower after the CME Globex markets stopped trading due to a technical issue with the exchange, the Dow dipped by around 29 points followed by small decreases with the S&P and Nasdaq.
  • Theresa May promised MPs a vote to delay Brexit if her withdrawal agreement fails to get through Parliament on the 12th of March. MPs will have the chance to vote on two separate votes, one being to support a no-deal Brexit and the other to extend the deadline beyond the 29th of March.
  • Sterling dipped slightly to $1.3251, down 0.1%, coming of the back of Tuesday's rally.
  • Gold dropped to 0.1% to $1,327.4 per ounce.

Asian overnight: The bulls were back in the driving seat overnight, with gains across the board coming in the wake of Fed chair Powell’s reiteration of a ‘patient’ stance. We are also seeing continued optimism surrounding US-China talks, with Trump’s two-day meeting with Kim Jong-Un providing further hopes of regional stabilisation. Meanwhile, the New Zealand trade balance took another negative turn, falling sharply back into deficit after a mere single month of surplus. 

UK, US and Europe: Looking ahead, an appearance from Bundesbank President Weidmann provides the one point of interest in an otherwise quiet eurozone session. In the UK, Brexit is back on the agenda, with a series of amendments being voted on which could shape the process for leaving the EU. However, with Theresa May already setting out a new sequence of events to allow for a potential extension, these are largely a formality. Also keep an eye out for Canadian CPI, alongside US trade balance, factory orders and crude inventories. Finally, with Jerome Powell returning for a second day of testimony in Washington, watch out for potential dollar volatility.

South Africa: Global markets are trading mixed with US index futures modestly lower, while Asian equity markets trade marginally firmer on the day. In turn, our local bourse is expected to open flat to slightly higher this morning. Precious metal prices remain firm (platinum in particular) trading near short term highs, while base metals trade mixed with copper up and iron ore down on the day. The rand has managed to firm against the majors. There is little in the way of high impact data scheduled for release today, although markets will look to the continued testimony of Fed Chairman, Jerome Powell this afternoon for directional guidance. Tencent is down 0.5% in Asia, suggestive of a softer start for major holding company Naspers. The BHP Group is up 0.4% in Australia, suggestive of a positive start for local diversified resource counters.

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

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Source: Daily FX Economic Calendar

10am – eurozone business confidence (February): forecast to rise to 0.75 from 0.69. Market to watch: EUR crosses

1.30pm – Canada CPI (January): prices expected to rise 1.7% YoY. Market to watch: CAD crosses

3pm – US pending home sales (January): sales expected to fall 1.9% MoM and 11% YoY. Markets to watch: US indices, USD crosses

3.30pm – US EIA crude inventories (w/e 22 February): stockpiles rose by 3.7 million barrels last week. Markets to watch: Brent, WTI

Corporate News, Upgrades and Downgrades

  • Marks & Spencer will launch a rights issue and cut its dividend in order to pay for a joint venture with Ocado. M&S will pay Ocado £750 million for its half of the venture, with a £600 million rights issue and a 40% cut to the dividend. 
  • Rio Tinto said that net earnings rose 56% to $13.64 billion for 2018, while underlying earnings rose 2% to $8.81 billion. 
  • ITV said that 2018 pre-tax profit was up 13% to £567 million, while revenue was up 3% to £3.77 billion. Advertising revenue was weak, but growth in online activities offset this. 
  • Taylor Wimpey reported an 18% rise in pre-tax profit, to £810.7 million, for 2018 while the number of completions rose and margins grew. The firm said it had a made a positive start to 2019. 

Freenet upgraded to hold at Berenberg
Total upgraded to outperform at RBC
Viscofan upgraded to hold at Santander

Air France-KLM cut to equal-weight at Morgan Stanley
Metro Bank downgraded to market perform at KBW
Tullow downgraded to hold at Jefferies
Shell downgraded to sector perform at RB

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