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Luxury leather or Yellow Vest? - EMEA Brief 20 Mar

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  • Gold prices edged lower as the yellow metal’s rally might be over. Spot contracts hit $1306 at 6:00am GMT on the IG Web Trading Platform. The safe-haven appeal of the gold bullion seems to fade as investors get more bullish on a possibly incumbent US-China trade deal. However, according to Goldman Sachs the combination of a pause in interest rate hikes by the Federal Reserve and more robust growth in emerging markets could weaken the US dollar and support the gold price.
  • As palladium hit an alltime high yesterday we have seen fellow platinum group metal (PGM) platinum starting to rise as well. The high palladium price suggests its substitution with platinum in the petrol automotive sector, thereby speculating an increased demand for the metal.
  • Oil slipped on worries over global growth and over China pushing back on trade negotiations with the US. West Texas Intermediate was trading at $59.16, having dropped 0.35%, as of 5:30am GMT. The recent rally of crude seems to have stalled this week after Russia pressured the OPEC+ to delay the extension of its production cuts, which added up to the feeble US-China trade negotiations.
  • The US dollar weakened on the possibility of more dovish policies from the Federal Reserve. The Australian dollar seems to be mildly recovering from the drop that followed the release on Tuesday of the minutes of the Reserve Bank of Australia’s March meeting which suggested a more dovish stance. AUD/USD was trading at 0.70805 at 7am GMT on the IG Web Trading Platform.
  • French Luxury goods house Hermes International is scheduled to release today its full year International SCA Earnings. The report is likely to provide a good indication of how much the Yellow Vest protest is affecting business in France.

Asian overnight: Equities in Asia dropped on concerns over difficult US-China trade talks. The worst performer was South Korea’s Kospi which dropped 1% while the MSCI Asia Pacific Index fell 0.3% as of 12:38pm in HK. Caution over Federal Reserve’s rate decision due today might spur tiepid openings in the European markets.

UK, US and Europe: Conflicting trade talk headlines yesterday plus pre-FOMC caution saw equities in the US and Asia struggle, but European stocks had a better day yesterday on rumours that the ECB would dramatically expand its QE efforts. Mining stocks in Australia were hit hard on news that Vale in Brazil was planning to restart production at a key facility. Apart from the Federal Open Market Commitee later today, the session also sees the release of CPI data for the UK, coming off the back of a strong employment report ahead of the Bank of England meeting tomorrow.

South Africa: Tencent Holdings is flat on the day suggestive of a similar start for major holding company Naspers. BHP Group is down 1% in Australia, suggestive of a soft start for local resource counters. Meanwhile, the Rand was relatively flat against major global currencies on Tuesday afternoon, benefiting from a weaker dollar environment.

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

Econ Call 20 Mar.PNG

Source: Daily FX Economic Calendar

9.30am – UK CPI (February): inflation fall 0.7% MoM and rise 1.9% YoY, while core CPI to rise 0.6% MoM and 1.9% YoY. Markets to watch: GBP crosses

2.30pm – US EIA crude inventories (w/e 15 March): previous week saw a fall in stockpiles of 3.9 million barrels. Markets to watch: Brent, WTI

6pm – FOMC meeting: no change in policy expected, but the current outlook will be worth noting. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Kingfisher reported a 52.8% fall in pre-tax profit to £322 million for 2018, while underlying pre-tax profit fell 13% to £693 million. Like-for-like sales fell 1.6%, with performance hit by weakness in France that affected performance at its branches in that country. 
  • TI Fluid said that pre-tax profit for 2018 rose 37% to 217.1 million, but revenue fell 0.5% to €3.74 billion. 

B&S Group raised to overweight at Morgan Stanley
Deutsche Post upgraded to buy at HSBC
TUI upgraded to buy at Oddo BH

Antofagasta downgraded to reduce at HSBC
Bayer downgraded to neutral at MainFirst
Veolia downgraded to neutral at JPMorga

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