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BoE Tightens Bank Liquidity Controls - EMEA Brief 11 March

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JoeIG

  • Amid the political uncertainty surrounding Brexit, the Bank of England has advised UK lenders to triple their holdings of liquid assets in the run-up to Brexit to prepare for a forecast market meltdown if the UK leaves the EU without a deal later this month. Banks are also being told to adjust their balance sheets on the assumption that they will not be able to swap sterling for USD.
  • Worries over an economic slowdown intensified on Friday after US jobs data significantly missed forecasts, creating only 20,000 jobs in February, compared to the expected 180,000. This comes after China showed weak exports data last week, deepening concerns about the impact of the trade war. 
  • U.S. equities fell sharply at the start of Friday's before pulling back losses. The S&P and the Nasdaq both closed roughly 0.2% lower, with the S&P posting its fifth day losing streak.  
  • In Asia, markets were mixed as investors remained cautious. The CSI 300 gained 1.98%, whilst Japan's Nikkei fluctuated between gains and losses to finish up 0.47%. Nissan's shares rose over 1% as ex-chairman Ghosn, is reportedly seeking permission to attend the company's board meeting on Tuesday. The ASX fell 0.38% as most sectors saw declines.
  • The pound is down 0.3% at $1.2984, after falling to a three-week low of $1.2945 earlier today. The dollar traded at 111.15 yen.
  • Oil prices increased on the back of comments from the Saudi oil minister that supply cuts were unlikely to end before June. U.S. crude rose 0.5% to $56.35 a barrel. Brent crude gained 0.4% to $62.98. 

Asian overnight: A largely positive start to the week has seen gains across Asian markets, with the Australian ASX 200 providing the one outlier. Coming off the back of a week of substantial losses, many will hope that this is the beginning of a more positive phase, with growth fears behind us after a week of huge data.

UK, US and Europe: This week we see Brexit take centre stage, and the pound is losing ground as a result. With Tuesday and Wednesday bringing the potential for three Brexit votes, the monthly GDP reading, and the Spring budget, it is no wonder markets are showing great un certainty. However, for today we see things kick off in somewhat slow fashion where the US retail sales figures represent the only event of note for traders. That being said, coming off the back of such losses last week, today could set the precedent for where we go from here.

South Africa: Our local bourse is expected to trade flat to marginally higher on open this morning following US Index Futures which trade in positive territory and Asian equity markets which trade mostly firmer today as well. Markets will be eagerly awaiting the outcomes of Brext votes starting tomorrow, where UK Parliment will decide on whether to leave the EU without a deal, pass the existing deal or extend the deadline for a deal. Commodity prices are mixed this morning with oil up and metals mostly down. The rand has weakened to its worst levels in the last few weeks. Tencent Holdings is up 2.13% in Asia, suggestive of a positive start for major holding company Naspers. The BHP Group is 1% lower in Australia, suggestive of a soft start for local resource counters. 

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

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Source: Daily FX Economic Calendar

12.30pm – US retail sales: sales expected to rise 0.1% MoM. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Provident Financial said shareholders have been given until early May to assess the hostile takeover bid from Non-Standard Financial.
  • Polymetal reported net income for 2018 of $354 million, broadly flat on a year earlier, while revenue rose 4% to $1.88 billion due to increased output of gold and silver.
  • Kier Group has unexpectedly issued a warning that debt has increased to £180.5m, up £50m from last year. 

Eurazeo SE upgraded to buy at SocGen
Maersk upgraded to buy at Handelsbanken
SIG upgraded to neutral at JPMorgan
Tele2 upgraded to equal- weight at Barclays

Andritz Downgraded to Accumulate at Erste Group
Redde downgraded to neutral at JPMorgan
Deutsche PBB downgraded to neutral at Citi
Galp downgraded to underweight at JPMorgan

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