Asian stocks rebound, Turkish lira slides on US threat
Mario Draghi made investors’ day on Tuesday as he explicitly admitted that the ECB could both cut rates further and resume its asset purchase programme if economic growth did not rebound. Such comments were read by market participants as a hint the ECB will have to do something soon because the economic outlook does not seem to improve. On top of that, we have a lot of outside risks to this outlook predominantly from the trade front as well as Brexit. Upbeat sentiment seen in Europe yesterday was also present in the United States and today in Asia. The Hang Seng is rising 2.3% a while before the close whereas the Shanghai Composite (CHNComp) is moving up 1.4% and the Japanese NIKKEI (JAP225) is climbing 1.8%. Let us 开设模拟账户 also recall that Mario Draghi and his speech was not the sole reason for a widespread rebound in equity markets globally.
The second one came from Donald Trump who confirmed a meeting with Xi Jinping in Japan later this month. Earlier it was uncertain whether both meet during a G20 meeting in June. However, all of that looks like a game as Trump’s notion changes from day to day, for example he said overnight that the US would have a great deal with China or no deal at all. Moreover, one may be 开设模拟账户 almost certain an exchange rate between the US and the Eurozone will be a pivotal element in current frictions between the two countries. Trump blamed Draghi for talking the euro down against the US dollar which could be an excuse to threaten the euro area tariffs on cars and parts. What’s more, Trump has pressured Jerome Powell recently to cut rates immediately in order to help the economy by weakening 开设模拟账户 the greenback. However, this does not look as easy as it seems. Keep in mind that market participants have already priced in a rate cut in the US by September, hence weakening the US dollar could not be an easy task. It appears that the Fed could be able to do so only if it presents dovish forward guidance - let’s be true the Fed does not have too many 开设模拟账户 reasons to change the course of the current policy stance.
The Hang Seng (CHNComp) jumped at the opening and broke above the key resistance in the form of 10580 points. Source: xStation5
Major currencies stay calm
Although sentiment across equity markets looks rosy, market participants are much less confident in case currencies. During Asian trading we have not had a clear direction there with slight appreciation of the Japanese yen. In terms of macroeconomic data we were offered first quarter current account from New Zealand showing a deficit of 3.6% of GDP, a slight improvement compared to a deficit of 3.8% of GDP in the final three months of 2018. In addition to that we got a release on foreign trade from Japan for May bringing a 7.8% YoY decline in exports and a 1.5% YoY decline in imports. The detailed numbers showed exports to the US rose 3.3% YoY while exports to China dwindled 9.7% YoY. Looking beyond major currencies one needs to focus on the Turkish lira being 0.8% down against the US dollar this morning. Its weakness 开设模拟账户 came after Bloomberg comments regarding possible new US sanctions on Turkey on the back of a purchase of Russian missile defense system by Turkey.
The USDTRY shot up on the news that Turkey could face new sanctions from the US. The move has abated to some extent but the TRY remains under pressure anyway. Source: xStation5
In the other news:
Jeremy Corbyn said it would back an option of 2nd Brexit referendum
Donald Trump asked White House lawyers for options on removing Jerome Powell
As many as 97 Chinese state-owned industrial conglomerates have been instructed to boost profits by 9% this year so as to stabilise the economy
Backstop headlines reveal GBP’s sensitivity to rumours
In a clear example of how headline driven the pound is at present, there’s been a swift move higher and just as quick a drop back lower as the latest round of Brexit rumour and counter-rumour hit the news wires. Reports that German Chancellor Angela Merkel was willing to 开设模拟账户 grant a 5-year time limit on the backstop saw traders rush to buy the pound in anticipation of a breakthrough that could have potentially 开设模拟账户 revived PM May’s deal by bringing hardline Tory Brexiteers and maybe even the DUP back onside. However, the gains were fleeting and they were promptly handed back when it was confirmed the reports were untrue and we can expect more of this sort of thing in 开设模拟账户 the coming days. There remains an underlying feeling that a large and sustained move in the pound is just around the corner, but 开设模拟账户 the problem for the here and now is that there will likely be several false dawns beforehand and heightened levels of volatility which lack a clear direction before that occurs.
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The GBPUSD spiked higher on the rumours that Merkel would put a 5-year time limit on the Irish backstop, before falling back when the rumours were denied. Source: xStation
In a development that has been a long time coming, Debenhams has finally fallen into the hands of lenders after rejecting an 11th hour intervention from Sports Direct. The boardroom conflict between the high-street retailers has grown increasingly bitter of late, and it appears that Debenhams have resisted the £150M offer to prevent the collapse. Stores are expected to stay open and continue to trade, but the future of the department store is highly uncertain and the fate of the company’s assets as well as that of around 25,000 employees now lies in the hands of 开设模拟账户 several high street banks and US hedge funds. Unfortunately for investors this means the firm’s equity has been wiped out, while it is hard to see a long-term future for employees unless a takeover can be agreed upon with lenders likely to take any legal means to recoup as much of the debt as possible. The firm’s demise has played out over several years and Debenhams has now become yet another iconic failure of the British high street.
Crude Oil makes fresh 2019 highs
There’s been more gains seen in the oil price at the start of the week with both Brent and WTI making new highs for the year. 2019 has seen a pretty stunning recovery in the price of crude, as the market has bounced back pretty emphatically from the rout seen during the final quarter of last year. As is often the case in market moves that last for a prolonged length of time, the main catalyst for the rally has changed during. The initial gains seen in early January seemingly began on a recovery in risk appetite due to a U-turn from the 开设模拟账户 Fed before a stream of improving rhetoric on the US-China trade front in recent weeks has provided a further boost. While stock markets have paused in the past couple of sessions, Oil has continued higher with a softening in the US dollar providing much of the recent heavy lifting. Underpinning the entire move has been OPEC+ cuts, that while below the agreed upon level of compliance has still acted to reduce production while the political turmoil in Venezuela continues to weigh on supply.
Oil has now recovered more than half of the decline 开设模拟账户 开设模拟账户 seen after the large plunge at the end of last year. The 61.8% at 72.88 could be the next target for bulls while the 50% fib at 68.57 is possible support. Source: xStation
Stocks attempt to recover recent declines
There’s been a strong rally in stock markets this morning with the FTSE 100 gaining over 100 points as investors seek to recover from the recent declines. The benchmark has moved up to its highest level in 3 weeks on the back of this, but is still set to post a large monthly 开设模拟账户 decline. The pound is also in an upbeat mood, gaining across the board as it too seeks to recoup some recent losses.
Worst month for stocks in 6 years
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Even after this morning’s gains global equity markets are left licking their wounds after a brutal month, with the MSCI world equity index still down over 8% for October and on track for its worst month since 2012. Ongoing US-Chinese trade tensions, slowing global growth and rising US interest rates all have contributed to the sell-off and the 开设模拟账户 question going forward now is whether the worst of it is over or if there’s another wave of selling into year-end. The recent stabilisation is a pleasing development at least and with positive seasonality often seen in US stocks following the Midterms this latest rise could 开设模拟账户 yet be more than a dead cat bounce and may well lead to a sustained recovery.
Facebook called to open higher after mixed earnings update
There’s been some volatile after hours trade in Facebook shares following the firm’s latest trading update, with an initial swoon being bought and the stock is now called to open higher by around 3% after being down as much as 5% yesterday evening. The moves are a reflection of what could be described as a mixed earnings release, with earnings per share smashing forecasts but any over optimism was tempered by a smaller than expected rise in daily active users and a small miss in revenues. Taking a step back the results are fairly solid on the whole and while it looks like rapid growth for the tech giant may be becoming a thing of 开设模拟账户 开设模拟账户 yesteryear, at least the business is consolidating and generating decent profits. The previous update back in July was met with a bloodbath as the stock plunged 20% after hours, and while the stock has been whippy this time out, it is expected to be more sanguine when it opens at 1:30 this afternoon.
Pound slumps to new lows
The slide in the pound has continued this morning with the currency falling to its lowest level since last August against the US dollar. The fall in sterling has failed to boost the FTSE however, with the benchmark dropping lower by more than 40 points.
More Brexit warning signs do little for sterling
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If the huge drop seen in the pound in the immediate aftermath of the Brexit vote was due to a single seismic shock which caught many traders off guard, the recent weakness is more akin to a death by one thousand cuts, as a near constant news flow of negative stories in the past couple of months has seen the GBPUSD rate fall by more than 10% from it’s April peak - a similar amount to the fall seen the day after the referendum in June 2016. The most recent sign of steps being taken to ensure against a no-deal Brexit has come in the number of lawyers registering in Ireland in an apparent bid to pre-empt any issues regarding future access to the EU. More than 1,600 solicitors have signed up to the Irish Roll of 开设模拟账户 Solicitors since the vote, with the preceding years typically seeing less than 100 register per annum.
Tui and BT drag FTSE lower
Despite a bright start, the FTSE has fallen lower by more than 40 points, or half a percent this morning, with Tui and BT the two biggest decliners. Travel company Tui, seems to have suffered from the recent heatwave throughout Europe, with the firm warning investors to remain a little cautious this year due to the hot weather adversely impacting operations. It appears that Britons and North Europeans have shunned their usual holiday trips to Southern Europe due to the warmer weather at home - and quite possibly from a UK perspective also because of the fall in the pound. The stock of Tui has fallen nearly 10% since last night’s close so far this morning. BT is the next worst performer of the blue-chips, falling by 4.5% after the shares have gone ex-dividend. The decline on the day in points terms of 10.85 is almost exactly the same as the 10.55 dividend that will be paid, so this is clearly just a case of the market subtracting the imminent cash outflow from the stock’s market value and therefore shouldn’t really be seen as a negative development.
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