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Breakfast Today

  • 27 Mar 17

"A nervous opening is expected this morning as investors attempt to assess the impact of President Trump being forced to take his Bill designed to replace Obamacare off the table, as the White House was forced to admit defeat in its first legislative priority on Capitol Hill. The withdrawal came despite desperate, last minute calls to lawmakers in the House of Representatives, raising serious questions regarding his ability to unify Republicans sufficiently to keep his pro-growth reforms from tax to infrastructure spending on the road. Tensions will remain high, as Wednesday the Administration’s attention turns his proposals to build a border wall between Mexico and the US. And, if that is not enough to worry about, the same day this week will also focus on a historic event, Theresa May triggering Article 50 and, in so doing, kick-off two years of divorce negotiations with the European Union. Although the Healthcare Bill was not formally withdrawn until after the US markets closed on Friday, doubts over its ability to succeed had already led to volatility, with the S&P500 falling 1.4%, its worst weekly decline of the year. After starting on the upside, the country’s three principal indices closed mixed in anticipation of Friday, with the NASDAQ ending positive helped by Micron Technologies while elsewhere oils and financials met gentle selling. With the new week’s market openings led by Asia this morning, however, more selling was evident with all major regional bourses trading in the red, led by Japan dropping over 1.5%, hitting its lowest point since early February as US$ falls were reflected in almost a 1% spike in the Yen, as the Euro also raced to almost a four-month high. Chinese equities remained weak despite reports the nation’s Industrial Profits had grown 31.5% in January-February, leaving both the Shanghai Composite and Hang Seng nursing minor losses. Recent good macro and political news that has bolstered European sentiment, helping an oversold STOXX 600 outperform, will be boosted further this morning on news that German Chancellor Angela Merkl’s conservatives scored a clear victory in the small state of Saarland, knocking optimism amongst centre-left challengers that changes in national sentiment could force her from office at September’s Federal Election. There is no UK macro data due for release today, although the EU provides personal loans and M3 Money Supply for February, followed later in the afternoon with the Dallas Fed Manufacturing Business Index from the US. The Fed’s Charles Evans and FOMC’s Robert Kaplan are both also due to make speeches. London’s major financial news today will the Bank of England’s scenarios for the latest of its stress tests, this time for the Royal Bank of Scotland which fails at its previous assessment. Elsewhere, UK corporates scheduled to release earnings or trading updates only include second liners, such as Inspired Energy (INSE.L), YouGov (YOU.L), GLI Finance (GLIF.L), and Gama Aviation (GMAA.L). Traders will also be seeking more information following OPEC apparently warning its Members regarding compliance with agreed oil-production cuts, following recent media reports of widespread cheating. Light sweet crude for May delivery traded down again on the NYME, despite suggestions of a further, deeper production cut being considered by the Organisation, amid reports that nearly two dozen non-American producers may limit output during the second half. London equities will be sold down from the opening this morning, with the FTSE-100 seen falling over 55 points in early trading. " - Barry Gibb, Research Analyst

Breakfast Today

  • 24 Mar 17

"The Dow Jones gave up almost a 100-point gain yesterday evening, to close in the red as it became clear that House Republicans would have to postpone Thursday's planned vote on a bill designed to dismantle the Affordable Care Act. As of Thursday afternoon, Republican lawmakers remained short of the votes needed; this is, of course, highly sensitive, considering most economists view the outcome to be a barometer on President Trump administration and, ultimately, whether he will be able to push through dramatic agenda for policy changes like tax cuts, fiscal stimulus and deregulation, optimism for which has spurred international financial markets to new record highs post his election. A further attempt will be made later today, although the White House Budget Director, Mick Mulvaney, has already conceded that Trump will have to leave Obamacare in place if he fails to muster sufficient support. The principal US indices tumbled in unison during the last trading hour to all end with fractional losses. This year's big winners, financials and industrials, were obvious casualties of the news, although energy stocks also managed to notch up their six-consecutive day of losses as crude prices fell on concerns of unabated rising US inventories and doubts regarding international adherence to scheduled production cuts. Despite this, Asia-Pacific equities regained some risk appetite Friday morning, with the Nikkei sparking higher as the Yen weakened against the stronger US$ that followed the Robert Kaplan suggesting three rate hikes in 2017 to be a 'reasonable baseline'. This also boosted the ASX that otherwise would have been concerned by soft overnight minerals prices, while the Shanghai Composite followed closely behind to leave just the Hang Seng treading water. Possibly a measure of investor cynicism, and in sharp contrast with the past, financial markets barely noticed Wednesday's terrorist attack in London, underscoring conviction that such events have limited scope to undermine businesses or the economies of affected regions. While the FTSE-100 spent most of the day with marginal losses, despite February Retail Sales data emerging slightly above consensus, it staged a late recovery inspired by a firmer US opening, itself on stronger than anticipated on February New Home Sales, to close with a modest gain. European stocks, by comparison, shone quite brightly, with the Stoxx Europe 600 hiking 0.85% as analysts continued to point out the wide valuation gap that now exists between it and the S&P-500, at a time when macro and political confidence for the Continent appears to be rising. UK macro release due today are limited to January BBA Mortgage Approvals, although March Preliminary PMI figures are due form the EU. The US provides February Durable Goods and its own Market Preliminary PMI data; speeches are also due from the Fed's Chales Evans and James Bullard. UK corporates due to release earnings or trading updates include Smiths Group (SMIN.L), Henry Boot (BHY.L), and Concurrent Technologies (CNC.L). As investors are in 'wait and see' mode with this afternoon's vote in the US expected after the close, little can be expected from the London markets today. The FTSE-100 is seen trading just 5 points either side of unchanged during early business." - Barry Gibb, Research Analyst

Breakfast Today

  • 23 Mar 17

Has Donald Trump’s luck finally started to run out? Just at the time when the populist revolution that threatened to engulf Europe appears to be fading? That’s the question investors are now asking, pointing at the enormous valuation gulf that has opening between the two trading blocks. Based on forward earnings multiples, the spread between S&P 500 and the Stoxx Europe 600 is near to its widest point in five years. It would only take a signal from the President that some of his ambitious reflationary proposals, ranging across tax, policy and budget, could have to be watered down in order to have a chance of being pushed past Congresses’ arch-conservatives, and the French electorate to convincingly reject Maine le Pen’s candidacy in the presidential polls that take place one month today, to reverse the tide of money that has flowed due west for so long now. Sure, it requires a brave asset manager to take the plunge right now, but background data is certainly supporting a more positive scenario for Europe. In February, for example, IHS Markit's eurozone composite purchasing managers index hit a near six-year high; even Mario Draghi from the ECB has started to sound more confident that the threat of deflation is passing; fourth quarter results from the region’s blue-chip corporates showed a net 20% of the 450 companies tracked by UBS beating earnings expectations, the best result for six years! Meanwhile, as bourses around the world have been setting new record highs, the European blue-chip index still sits 10% below its 2015 peak. Perhaps these thoughts were occupying trader’s minds yesterday, as the principal US indices once again closed softly mixed ahead of today’s key healthcare reform vote in the House of Representatives. Being seen as a barometer of Trump’s administration, the passing of his bill designed to trim departmental costs that accounted for a giant 16.9% GDP in 2016 would most certainly be taken as a big positive by the markets. Asian equities this morning simply reflected US sentiment, with the principal Chinese indices both down, the Nikkei recovering modestly from the previous day’s sharp fall inspired by Yen weakeness, while the ASX enjoyed a modest rebound in its minerals and financials stocks. Crude futures also rebounded during the Far Eastern session after new data showed U.S. gasoline and distillates stocks declined in the latest reporting week, signalling that US refiners’ crude demand is set to rise. UK macro data due for release today includes the sensitive February Retail Sales figures and the CBI Distributive Trades Survey, while the US provides a batch of statistics including Initial Jobless Claims and February New Homes Sales, which will be followed mid-afternoon by the EU releasing its March preliminary Consumer Confidence figures. Coming shortly after the FOMC meeting, the markets do not anticipate any particular fireworks being provided by the Fed Chair, Janet Yellen, when she addresses a meeting in Washington, although the FOMC’s Neal Kashkari is also due to speak at 18:00hrs GMT, which could add some flavour to last week’s less hawkish tone, particularly given suggestions in the overnight press that the Fed may be willing to allow inflation to trend higher before responding with discount rate moves. UK corporates due to release earnings or trading updates include Next (NXT.L), Curtis Banks Group (CBP.L), Sopheon (SPE.L), Ted Baker (TED.L) and Futura Medical (FUM.L). Investors will also be keen to receive any further updates regarding the supposed terrorist attack that took place in Westminster yesterday afternoon.The FTSE-100 was trading down 13 points at 8:15 this morning.

Breakfast Today

  • 22 Mar 17

U.S. stocks, the Dollar and government-bond yields pulled sharply back on Tuesday, with the principal equity indices suffering their steepest declines of the year. The Dow Jones Industrial Average was hit in excess of 1% for the first time in five months, with the S&P 500 and Nasdaq tumbling even more. Doubts regarding Trump’s ability to garner sufficient support from House Republicans this week to dismantle the Affordable Care Act came to the fore; seen by some as a proxy on his mandate to govern, concerns quickly spread to his ability to force through ambitious tax, policy and budgetary measures on a reasonable time schedule. As a result, touch-sensitive investors holding overweight equity positions on heady valuations needed little encouragement to lock in some of their substantial profits. Financials led the falls, tracking bond yields, with industrials following behind. The US$ retreated for the fifth consecutive day, similarly hitting its lowest level against the international basket in four months. European sentiment followed the US markets south during afternoon trade, with early strength deserting the Stoxx Europe 600 to see it close down 0.5%. The FTSE-100 did likewise, having been hurt earlier in the session by higher than expected Consumer Inflation figures that were released mid-morning and saw February prices hitting 2.3%, their fastest pace in nearly three and a half years, breaching the BoE’s 2.0% target in the process having spiked from 1.8% the previous month. Unless wage growth is seen to catch up rapidly and Governor Carney holds sufficient nerve to keep base rates unchanged while Theresa May commences Brexit negotiations, consumer spending, the key economic driver for the UK, could start to stall. Sterling not surprisingly rose sharply against the US$, although its gains against the Euro were limited given increasingly perceived diminishing chances of Le Pen now claiming victory at the forthcoming French Presidential elections, following Monday evening’s televised debate. Asian stock markets followed suit this morning, as the region also examined its optimism around the 'Trump trade'. Japan's Nikkei Stock Average was down over 2% to a three-week low ending a whisper from the key 19000-point support on surging Yen, with the ASX and Hang Seng closing just a little way behind. There are no significant UK macro releases due today, but the EU is due to provide its Current Account data for January, while the US follows later this afternoon with MBA Mortgage Applications, its Housing Price index and Existing Home sales. UK corporates due to release earnings or trading updates include Kingfisher (KGF.L), Ferrexpo (FXPO.L), Softcat (SCT.L), Cello Group (CLL.L) and EG Solutions (EGS.L). Investors will also be awaiting news from the Scottish Parliament later today, with Members due to vote on a second Independence Referendum. London accordingly is set for a nervous opening this morning with the FTSE-100 see down around 40 points in early trade.

Breakfast Today

  • 21 Mar 17

"The trigger will be pulled on the 29th March – two days before Theresa May’s own self-imposed deadline. Under Article 50 treaty provisions this should theoretically see Britain out of the EU at the end of a two-year negotiating period, although the Prime Minister has already suggested to the House of Commons that the complication of the exercise it see could take longer. In an otherwise quiet day for the London markets, during which financials softened and miners were knocked by falling minerals prices, equities still managed to tick upward curtesy of the Pound slipping against both the US$ and Euro on the news. Just a fractional move by the close, but still enough to push the FTSE-100 to a new record high, as defensives and income stocks including consumer staples found favour. US equities, by comparison, were again struggling to maintain the record pace set during the first 10 weeks of the year, as the US$ fell a further 0.1% having just posted its worst week against the international basket since July. Janet Yellen’s less hawkish than expected tone last week is now reflected by Fed Funds discounting just 1.5 remaining moves for this year followed by two next, compared with her existing guidance of 5 hikes over the duration. Given that equity valuations are heady right now and until President Trump can convincingly demonstrate his ability to ‘walk-the-walk’, negotiating Congress’ arch-conservatives through major tax, policy and budgetary proposals, sceptical investors do not need much convincing to take a little money off the table. U.S. government bond yields, meanwhile, fell to their lowest level in more than two weeks on Monday, extending last week's slide as the Federal Reserve soothed expectations of a spike in yields; the benchmark 10-year Treasury note was 2.472% in late trading, compared with 2.5% Friday, its lowest since March 1. This leaves the European markets to be the ones that could surprise on the recovery front, with traders now increasingly pondering the European Central Bank's next policy step, which could begin an exit from quantitative easing, as opposed to more loosening, which in turn has lifted the Euro and added to US$ pressures. German central bank President Jens Weidmann is the latest to stir this particular expectation, suggesting yesterday that the ECB should slowly start to retreat from its easy-money policies, even though Greece’s ongoing talks with creditors have still provided no breakthrough regarding labour reforms and threaten to derail the country’s bailout. Stocks were modestly mixed in the Asia-Pacific region, with Japanese equities knocked by a stronger Yen while the Chinese markets drifted mildly positive in the absence of new stories. A busy economic calendar today, however, may help provide this, with a large batch of UK releases including February Retail and Producer and Consumer Prices, as well as Public Sector Net Borrowing and the CBI’s March Industrial Trends Survey. Later in the afternoon, the US is scheduled to contribute its Redbook index plus Q4 Current Account data, while speeches are expected from the Fed’s Ester George and the FOMC’s Loretta Mester. UK corporates due to release earnings or trading updates include Bellway (BWY.L), Mears Group (MER.L), 888 Holdings (888.L), Fevertree Drinks (FEVR.L), Smart Metering Systems (SMS.L) and SCS Group (SCS.L). Save for any particular surprises from this quater, London is expected to take its hint from the lacklustre overnight markets, with the FTSE-100 seen gaining around 5 points in early trade." - Barry Gibb, Research Analyst

 

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