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UK economy grows amid Brexit stockpiling - EMEA Brief 11 Apr

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DanielaIG

  • The British economy managed to grow in the month of February as manufacturers are said to have increased stockpiling in preparation for the original Brexit deadline of March 29. GDP grew 0.2% MoM in February, despite predictions of economic stagnation amid fears of a global economic slowdown. 
  • The UK and EU have agreed to extend the Brexit deadline until October 31. The "flextension", which allows the UK to leave before the deadline if a deal is approved in Parliament, means that the UK will have to take part in the European Elections in May, electing representatives in the European Parliament, which would cease their role when the UK leaves the EU.
  • The Dollar was trading softer on Thursday morning as the Fed's dovish stance keeps the greenback hovering around two-week lows. The softer dollar has aided gains in commodity prices and emerging market currencies. Sterling seemed to show no reaction to the extension of the Brexit deadline, as the market expected an extension to be granted in order to avoid a no-deal Brexit. 
  • China's Consumer Price Index and Producer Price Index were both up in March, rising 2.3% and 0.4% YoY respectively, calming fears of deflation and consumption stagnation. The rise was driven mostly by an increase in food prices.
  • Following the increase in inflation, Chinese stocks were trading lower in the afternoon session with the Shanghai Composite down 1.36%, the Shenzhen Composite down 1.73%. The decline was followed by other Asian markets as the Hang Seng was down 0.92% while the Kospi and Nikkei were trading flat.

Asian overnight: Asian markets were largely in the red overnight, with Chinese indices losing substantial ground in the wake of a sharp rise in inflation. With CPI jumping to 2.3% from 1.5%, we see less room for stimulus from the PBoC.

UK, US and Europe: Yesterday's FOMC meeting saw the committee maintain their stance that rates will likely remain steady through 2019. Meanwhile, the UK managed to obtain an article 50 extension to October 2019, which is both longer than the June deadline set out for by the government, yet shorter than the 12-month timeline previously mentioned by the EU. However, the pound has seen little upside, with GBPUSD remaining in consolidation mode.

Looking ahead, today is somewhat of a lull between the busy Wednesday and Friday releases. With little to nothing in Europe, we see US PPI, unemployment claims and a few FOMC appearances from the likes of Clarida, Williams, Bullard, and Bowman.

South Africa:  Tencent Holdings is up 2% in Asia, suggestive of a similar start for major holding company Naspers. The BHP Group is down 0.6% in Australia, suggestive of a softer start for local diversified resource counters

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

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Source: Daily FX Economic Calendar

  • 1.30pm – US PPI (March): forecast to be 0.3% MoM from 0.1%. Markets to watch: USD crosses

Corporate News, Upgrades and Downgrades

  • Man Group said that funds under management rose to $112.3 million from $108.5 million a year earlier, for the three months to 31 March.
  • Grafton Group will acquire Polvo, a specialist ironmongery business, for €131 million.
  • WH Smith reported a rise in like-for-like revenue of 3% for the first half, while the dividend was raised 8% thanks to a positive outlook for the full year.

IWG Upgraded to Buy at Peel Hunt
KAZ Minerals upgraded to buy at Goldman
Leroy upgraded to buy at SEB Equities
Lancashire upgraded to buy at Berenberg

Glencore downgraded to neutral at Goldman
Whitbread downgraded to equal- weight at Morgan Stanley
Hiscox downgraded to hold at Berenberg
Ocado downgraded to reduce at HSBC

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