SVS Early Robin 02/08/2019


  • SVS expects the FTSE 100 to be 85 points lower at today’s market opening.
     
  • UK equities ended virtually unchanged on Thursday
     
  • As expected, the Bank of England yesterday voted unanimously to keep interest rates unchanged
     
  • The US major averages gave back their morning gains to end deep in the red following President Trump tweeting additional Chinese tariffs
     
  • Asian markets are diving in late Friday trading after President Trump explodes US-China trade tensions in response to China’s apparent stalling tactics
     
  • Today’s UK financial updates include: Interims from BT Group, Essentra, Equiniti, Ferrexpo, International Consolidated Air, Millennium & Copthorne Hotel, Royal Bank of Scotland and Salt Lake Potash, trading announcements from Pets at Home, with Annual General Meetings scheduled for Adm Energy and Highbridge Group.
     
 

Global Market Movements

Global Market Indices
FTSE 100 7,584.87 -1.91 -0.03%
FTSE 250 19,634.31 -32.21 -0.16%
Xetra DAX 12,253.15 64.11 0.53%
CAC40 5,557.41 38.51 0.70%
EuroSTOXX50 387.68 1.91 0.50%
Dow Jones 26,583.42 -280.85 -1.05%
Nasdaq 8,111.12 -64.30 -0.79%
S&P500 2,953.56 -26.82 -0.90%
Nikkei 225* 20,970.87 -568.12 -2.64%
Hang Seng* 26,913.33 -652.37 -2.37%
Shanghai* 2,859.81 -48.96 -1.68%
Sensex50* 36,635.30 -383.27 -1.04%
Foreign Exchange (Majors)
USD/JPY 107.07 -0.28 -0.26%
EUR/USD 1.1079 -0.0006 -0.05%
GBP/USD 1.2107 0.0032 0.27%
EUR/GBP 0.9154 0.0015 0.16%
Crude Oil
Nymex 55.05 1.10 2.04%
Brent 62.02 1.52 2.51%
Gold (USD/ounce)
Spot 1,432.27 -12.91 -0.89%
Futures 1,444.40 12.00 0.84%
Bond Yields (10 year)
U.S 1.887 -0.0081 -
German -0.448 -0.0099 -
*figures correct as of (06:00 – GMT)

Today's key Economic/Political events

Time (GMT) Event Expected Previous
08:30 UK Markit Construction PMI (Jul) 46.0 43.1
09:00 EU Producer Price Index (YoY, Jun) 0.8% 1.6%
09:00 EU Retail Sales (YoY, Jun) 1.3% 1.3%
12:30 US Average Hourly Earnings (YoY, Jul) 3.2% 3.2%
12:30 US Non-Farm Payrolls (Jul) 164K 224K
12:30 US Unemployment Rate (Jul) 3.7% 3.7%
12:30 US Trade Balance (Jun) $-54.6B $-55.5B
14:00 US Michigan Consumer Sentiment Index (Jun) 98.5 98.4

Today's Market Call

  • SVS expects the FTSE 100 to be 85 points lower at today’s market opening. This follows President Trump launching his latest, although not totally surprising, offensive against China, breaking recent a fragile truce, as he imposed a new 10% tariffs, supposedly effective 1st September and in response to Beijing’s apparent stalling tactics, that covers US$300 billion in Chinese goods including consumer products such as smartphones, clothes and toys. Coming on top of the heavier 25% tariffs already imposed on imports of US$250 billion in imports, these come with the treat that all current tariff rates could be raised further. The news emerged after the European close, immediately reversing the quite impressive US rebound to take all major averages back deep into the red. Asian markets have not surprisingly followed the US lead by tumbling significantly this morning, as oil prices also were hit hard on fears of potential global economic slowdown while, in a further shock, Japan has announced its removal South Korea from a list of preferential trading partners, due to an escalating dispute over supposedly outstanding World War 2 reparations. Meanwhile, with President Trump could potentially escalate international tensions still further later today through a scheduled speech that may also herald a deepening of the current trade dispute between the US and EU. In response to all this, Fed Futures moved significantly overnight and are now again indicating scope for two further US rate cuts between now and the year-end; potentially providing additional guidance regarding the Reserve’s options, this afternoon’s key US Non-Farm Payrolls numbers are forecast to see 165,000 jobs added in July while the unemployment rate is projected to tick down to 3.6%.
     
  • UK equities ended virtually unchanged yesterday, reflecting a mixed bag of major corporate results, Sterling hitting a new two-year low as the MPC left interest rates unchanged while the Bank of England expressed uncertainty ahead of Brexit. Governor Mark Carney went on to point out that the central bank now had only limited options, suggesting that it was ‘highly, highly unlikely’ that it would adopt plans to support Sterling in the face of a No-Deal outcome. The Pound had fallen to US$1.214 by Thursday’s European market close, falling from US$1.222 at the same time on Wednesday. The FTSE 100 finished off just 1.91 points at 7,584.87, while the FTSE 250 closed 32.21 points lower, down 0.2%, while the FTSE AIM All-Share was up 0.31 points. Amongst the blue-chip corporates reporting yesterday, gains made by the London Stock Exchange (+6.52%, on confirming it has agreed to buy financial markets data provider Refinitiv) and British American Tobacco (+6.89%, on its strong half-yearlies) were offset by losses for Rio Tinto (-3.37%, on impairment charges for its Oyu Tologi mine) and Royal Dutch Shell ‘B’ (-5.01%, after it reported a half-year decline in earnings). Mid-caps Capita and ConvaTec both made dramatic moves, closing up 17.33% and 17.87%, on their maintaining their yearly targets while undertaking internal restructuring ongoing transformation programmes. Embattles Kier Group put on 33.33% on production of a better than expected update. Elsewhere on the Continent, the STOXX Europe 600 closed 0.5%, with France’s CAC 40 up 0.1% and Germany’s DAX 30 rising 0.5%.
     
  • As expected, the Bank of England yesterday voted unanimously to keep interest rates unchanged at 0.75%, while keeping corporate bond purchases at up to £10 billion plus purchased assets at £435 billion. It also lowered its 2019 GDP growth forecast to 1.3%, below the 1.5% forecast at the time of its May inflation report. 2020Economic growth was also reduced to 1.3% (from 1.6%) while 2021 was raised to 2.3% (from 2.1%). The complications of the looming Brexit have been seen in terms of stockpiling and car factory closures, producing growth by 0.5% in Q1’2019, but are now expected to contribute an unchanged number for Q2 as these effects unwind, followed by +0.3% in Q3. Uncertainty is clearly being reflected by the fact that although the MPC continues to assume a smooth Brexit transition, its Minutes nevertheless noted that "In the event of a No-Deal Brexit, the Sterling exchange rate would probably fall, CPI inflation rise and GDP growth slow. The Committee's interest rate decision would need to balance the upward pressure on inflation from the likely fall in Sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand". It went on, however, to observe "Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate."
     
  • The US major averages gave back their morning gains to end deep in the red following President Trump tweeting additional Chinese tariffs. The Dow Jones Industrial Average dramatically reversed a strong rebound, WTI oil dropped 8% and the yield on the benchmark 10-year US Treasury note tumbled down to its 2016 low just one day after Jerome Powell’s suggestions had effectively lowered the market’s expectations regarding further interest rate trimming in 2019. The blue-chip index dropped 280.85 points, or 1%, to 26583.42, marking its third consecutive day of losses, while the much broader S&P 500 tumbled 0.9% and the tech-heavy Nasdaq Composite lost 0.8%. Having been in a forgiving mood during yesterday’s early trade, US stocks had staged a surprisingly strong rebound from Wednesday’s Fed-inspired disappointment with the Dow Jones climb over 300 points in late Thursday morning trade that followed the blue-chip index posting its worst one-day drop since end-May. But one tweet was all it took for him to tell the world that the US will impose 10% tariffs on an additional US$300 billion of Chinese goods from 1st Sept, despite US plans to continue its current trade talks next month in Washington. With many believing China will not be willing to bow down to such ‘bully-boy’ tactics, the trade dispute is increasing expected to become a lengthy affair, which has wide ramifications for the rest of the world. Overnight the Fed Futures reassumed expectations that two cuts of 25bp will now be delivered in 2019, as the benchmark 10-year Treasury yield slumped below 2%, its lowest level since Trump’s 2016 US election, leaving the markets leaning on such a ‘crowd pleasers’ to sustain market momentum after the Q2’2019 results season has ended. Amongst the individual stocks, Qualcomm disappointed with a cut in its full-year forecast for global smartphone sales, leaving the shares down 2.68%, while Prudential Financials’ shares also tumbled 10.09% after the delivering disappointing earnings. More positively, General Motors's lost just 0.47% after beating expectations, while Verizon Communications ended roughly unchanged on higher than expected wireless customers numbers.
     
  • Asian markets are diving in late Friday trading after President Trump explodes US-China trade tensions in response to China’s apparent stalling tactics, while Japan also negatively surprised with its approving the removal of South Korea from its list of most-favoured trade partners. The us decision imposes new 10% tariffs on an additional US$300 billion of Chinese imports, effective 1st Sept, hit global markets hard in tandem with an 8% collapse in WTI crude oil prices on Thursday and diving US bond yields. Japan’s Nikkei 225 is presently off -2.49% and Hong Kong’s Hang Seng is down -2.24%. The Shanghai Composite is-1.76% while the more domestic Shenzhen Composite is being hit -2.10%. Elsewhere, South Korea’s Kospi has not been so badly damaged by this morning’s actions from Japan’s losing just -0.78%, while other regional benchmarks including Taiwan’s TAIEX is currently -1.59%, Singapore’s STI -0.80%, Indonesia’s JCI, -0.82% are all hurting with Australia’s S&P/ASX 200 XJO the least damaged at just -0.27%.
     
  • Today’s UK financial updates include: Interims from BT Group, Essentra, Equiniti, Ferrexpo, International Consolidated Air, Millennium & Copthorne Hotel, Royal Bank of Scotland and Salt Lake Potash, trading announcements from Pets at Home, with Annual General Meetings scheduled for Adm Energy and Highbridge Group. US quarterly earnings statements include: American Axel, Exxon Mobil, HMS Holdings, ITT, Johnson Outdoors, Och-Ziff Capital Management, Spectrum Brands, Trinseo, XSport Global and The York Water Co.
     

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