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FOMC today - EMEA brief 1 August



  • Asian equity markets have crept slightly higher overnight following on from a firm Wall Street finish yesterday.
  • Apple gains 4% on good results yesterday as it races with Amazon to be the world's first trillion dollar company.
  • Turkey sharply increased their inflation forecast yesterday to 13.4% just a week after keeping interest rates on hold.
  • Bitcoin pulls back to a one week low, however still ends the month about 20% higher MoM.
  • Oil has pulled back after industry data showed US stockpiles rose unexpectedly. 
  • Tesla are set to release their Q2 results about one month after announcing it met its most recent target of building 5,000 Model 3's /week.
  • The U.S. Federal Reserve's Federal Open Market Committee (FOMC) announces its decision on interest rate at 19.00 BST.

Asian overnight: Japanese markets were the one outlier overnight, as the promise of continued loose monetary policy from the BoJ earlier in the week continues to have a toll on the yen and Japanese stocks. Uncertainty continues to rein amid a week of hugely significant economic and corporate releases. Oil prices have been falling back amid speculation that sanctions on Iranian exports could be avoided. On the data front, New Zealand posted weaker jobs data, with a slight fall in the employment change figure (0.5% from 0.6%) accompanied by a slight rise in unemployment (4.5% from 4.4%).

UK, US and Europe: US Index futures trade firmer this morning while Asian markets trade mixed. The US dollar has firmed after better than expected consumer confidence data was released yesterday afternoon. Looking ahead, the beginning of a new month brings the usual trio of UK PMI readings, with the manufacturing figure kicking things off today. There are a host of eurozone PMI surveys, but for the most part they are revisions rather than the preliminary reading in the UK.

That PMI theme will carry into the US session, with the Canadian and US ISM manufacturing PMI surveys released later on. We also see the first of the major data points from the US, with the ADP payrolls figure ahead of this evening’s FOMC meeting. Crude markets will also expect volatility, with the release of the US crude inventories data earlier on in the afternoon. On the corporate front, all eyes will be on Tesla as Elon Musk hopes to prove the firm can be profitable going forward.

South Africa:  The rand while weaker against the strengthening US dollar, has underperformed its emerging market currency peers following news that ruling party, the ANC had resolved to change the South African constitution in lieu of land redistribution without compensation. Rand hedge industrial counters are expected to outperform on the Jse this morning. While a stronger dollar has weighed on commodity prices, suggestions that China US trade talks will resume have provided some reprieve.  BHP Billiton is up 0.63% in Australia and Tencent Holdings trades 0.5% higher in Asia, suggestive of a positive start for local resource counters and Naspers. 

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

Source: Daily FX Economic Calendar

Corporate News, Upgrades and Downgrades

  • Direct Line saw a decline in operating profit (-1.5%) and pre-tax profit (-13.9%) in H1, driven predominantly by higher weather-related claims. Normalised for weather, operating profit was slightly higher compared with H1 2017. Interim dividend of 7p established in line with business growth. 
  • BAE Systems saw a fall in sales (-3%), underlying EBITDA (-6%), and underlying EPS (-2%) for H1 2018, as the firm pushed through a ‘transition earnings year’. Despite this fall in metrics across the firm, they have raised dividends to 9p (from 8.8p) as they look forward to a strong H2. Significant wins on the Australian SEA 5000 and US Amphibious Combat Vehicle programmes, coupled with the launch of the UK Combat Air Strategy, are expected to provide strong momentum going forward.
  • Lloyds Banking Group saw a 23% jump in pre-tax profit to £3.1 billion for the first half of 2018, beating market expectations, while also raising their full-year guidance. This is despite another £460 million worth of PPI claims, taking the total cost of the scandal to £19.2 billion. 
  • Next saw a 4.5% rise in full price sales for the first half of 2018, with online sales growth (+15.5%) far outstripping instore activity (-5.3%). The extended period of sunshine in the UK has helped drive sales of summer products, yet with the possibility that these sales have simply been pulled forward from August, sales and profits guidance remains the same for the year. 
  • ArcelorMittal South Africa Interim results showed Ebitda improved by R2 121 million from a loss of R534 million to a profit of R1 587 million.

Standard Chartered upgraded to hold at HSBC
BHP upgraded to reduce at AlphaValue
EDF upgraded to equal-weight at Morgan Stanley
Peugeot upgraded to buy at Citi

Macquarie upgrades AECI to outperform with a target price of 12800c
Renaissance Capital upgrade  African Rainbow Mineralsto buy with a target price of 15000c

Hammerson downgraded to underperform at Jefferies
Pearson downgraded to neutral at Citi
Rightmove downgraded to sell at Berenberg
Worldline downgraded to hold at HSBC

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