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Breakfast Today

  • 20 Jan 17

Today is Trump's day. While the world at large may have been shocked by his confrontation attitude, sneered at his apparent lack of sophistication, dismissed his aggression and criticized obvious conflicts of interest, global markets still have to ask themselves whether in fact he is their corporate saviour? Were the UK's Brexit vote and Trump's US victory actually flashing red lights as to prospective disintegration within the fabric of western society? Was the President-elect the only one smart enough to understand that a US crisis, possibly more obviously moral than economic, as deep as the great depression that faced Roosevelt back in the late 1920s is looming and, more to the point, that he is the only one with the courage to fix it? Time will tell but, of course, getting his revolutionary agenda - which includes the creation of 25m new jobs, more than halving corporation and personal taxes, applying swinging border and import controls, while throwing out the bulk of Federal regulation - through is now the giant challenge. Whether he eventually achieves this through a mixture of threats, coercion, bribery and possibly even charm, or finds himself so bamboozled by Congress that he simply walks off in a huff halfway through his first term in office, for sure Donald Trump is already assured that he will be more than just a footnote in American history. Contemplating all this last night, the principle US indices all struggled to make headway ending slightly down, with some considering the markets had become rather overbought in their push to see the Dow Jones break through the 20,000 marker. Traders gleaned little new from either of Janet Yellen or Theresa May's speeches yesterday, although US Treasuries still suffered their biggest sell-off in four weeks as investors became increasingly resolved to the idea of the Fed kicking off its round of rate hikes sooner rather than later. Asia ended mixed, with the Shanghai Composite making a reasonable gain on news that Chinese economic growth for 2016 came out at 6.7%, comfortably within Beijing's target range and providing relief given evidence of slow industrial activity during the fourth quarter; the Hang Seng and ASX just followed the US market lead into modest losses. Today, the UK Prime Minister is scheduled to meet with senior executives from Wall Street, while London is also due to publish December Retail Sales data along with earnings or trading updates from a few UK second-liners like Bonmarche (BON.L), Brainjuicer (BJU.L) and Midatech Pharma (MTPH.L) and, later this afternoon, a few US majors including General Electric and Procter & Gamble are expected to publish their quarterlies. In reality, however, all this will fade into the background with the new President takes to the microphone afternoon. Awaiting this, London is seen opening in a quiet, contemplative mood with the FTSE-100 seen 5 points either side of unchanged in early trading.

Breakfast Today

  • 19 Jan 17

One day ahead of Donald Trump's inauguration, today's market focus is likely to fall on the European Central Bank which is due to hold its first policy meeting of 2017, with formal release of its interest rate decision due at 12:45hrs GMT. Not that anyone is expecting the benchmark to be moved, but they do look for hints from the President, Mario Draghi, regarding a possible target date for tapering of the QE programme to start and, perhaps, his acceptance that inflationary pressures are now finally creeping back into the system. Other than reminding investors that she would 'take action' should Trump's expansionary fiscal policies threaten some form of pricing shock Fed Chair, Janet Yellen, said little new in her speech yesterday. The US accordingly ended fractionally mixed, with the Dow Jones suffering from mild profit taking on the likes of Goldman Sachs and United Health. Asia was slightly more active although it closed similarly mixed with the Nikkei, as usual, pivoting on Yen:US$ sentiment to end up almost 1%, led by financials, as the Dollar gained on belief that the first of the Fed's proposed rate hikes cannot be far away given that near full employment has been achieved and inflation is now close to target; elsewhere, Chinese equities closed down, despite the central bank having already injected a record 1.04tr RMB liquidity into the market this week, while the ASX trod water. London traders will be keen to review the latest RICs Housing Price Balance data - a key indicator of consumer confidence - that suggests slowing demand in December with quarterly expectations falling to +24% against +29% in reported November, breaking a four-month rising trend. Given the focus on tomorrow's appointment of its 45th President, macro data from the US, which includes Housing Starts, Jobless Claims and the Pliladelphia Fed Manufacturing Survey, is unlikely to capture the market's attention. This leaves just soundbites form the World Economic Forum in Davos, where Theresa may is due to speak today, to potentially steal the headlines. UK corporates due to release earnings or trading updates today include British Land (BLND.L), CyanConnode (CYAN.L), Finsbury Foods (FIF.L), Halfords (HFD.L), Pets at Home (PETS.L), Royal Mail (RMG.L) and Van Elle (VANL.L). London equities are expected to have a rather lacklustre start, with the FTSE-100 seen rising around 5 points during opening trade, although US majors like IBM and American Express that are due to report this afternoon could potentially generate a flurry of additional activity.

Breakfast Today

  • 18 Jan 17

While advanced media notice of key aspects from Theresa May’s speech took the sting out of the event itself, Sterling undertook its biggest rally since 2008 on the basis of her exacting presentation and the fact that UK corporates can now at least plan for a formal exit from the single market. Most commentators thought the PM was demanding both to have her cake and eat it, while injecting veiled threats should the EU decide to adopt a hard line for good measure but, in reality, this has to be her starting point. Considering the two or three months of ground preparation needed following the enacting of Article 50, plus the 4 or 5 months required to gain approval from all the EU’s national parliaments, the remaining 16 to 18 months barely looks enough to get a comprehensive framework in place, particularly given that it will also be subject to approval here by both MPs and Peers. To hope that the process will also have been sufficiently engineered to permit what she wishes to be “a smooth and orderly Brexit”, is possibly asking for too much. So something looks like it will have to give, which is a concern given that pricing data released yesterday morning confirmed December’s UK inflation had accelerated to its fastest pace in more than two years with Sterling’s step decline driving a surge in import cost. Now at 1.6%, CPI is within striking distance of the Bank of England’s 2% target which it believes will be breached early summer. Although Mark Carney is expected permit the economy to ‘run hot’ for the whole of 2017 unless the figure spikes a full percent above his preferred ceiling, UK’s highly indebted economy will likely already be slowing the following year just when it will be knocked further by a series of interest rate hikes. Not the best circumstances to confront the realities of life outside the EU! Having thrown the markets yet another googly, Donald Trump describing the US$ as “too strong” was enough to unnerve the principal US equity indices which all ended in negative territory. Asia also suffered from his apparently haphazard commentary, closing mixed to down as the US$ recovered slightly from its earlier dive to a 1-month low against the international basket, with Chinese equities the only ones confident enough to stay in the positive. While Theresa May heads for Davos in order to convince world leaders she has a winning Brexit strategy, the UK is due to release unemployment data as the also EU publishes its December Consumer Price Index. A batch of US macro releases, such as the Redbook, Consumer Prices, Industrial Production and the NAHB Housing Market Index, can be expected this afternoon. A batch of US macro releases, such as the Redbook, Consumer Prices, Industrial Production and the NAHB Housing Market Index, can also be expected. UK corporates due to provide earnings or trading updates include Anglo Pacific (APF.L), Diploma (DPLM.L), Experian (EXPN.L), Ladbrokes Coral (LCL.L), Pearson (PSON.L), Premier Foods (PFD.L), Watkin Jones (WJG.L) and Weatherspoons (JDW.L). While media comment regarding Rolls-Royce’s involvement in contract bribery will generate some market gossip this morning, traders will also be more focussed on quarterly earnings anticipated from a number of US majors this afternoon. Against this background, London is seen opening gently firmer this morning, with the FTSE-100 rising 15 points or so in early trade.

Breakfast Today

  • 17 Jan 17

"In his first speech of 2017, Mark Carney was clear. "Households appear to be looking through Brexit-related uncertainties" he declared at the LSE yesterday, detailing his concerns that growth which is led by private consumption remains vulnerable to an inflationary spike fuels by Sterling weakness. While it is believed that the Bank of England will be prepared to let the economy 'run hot' for a brief period, should price-growth stay stubbornly above its 2% target, then it will be prepared to raise interest rates as sharply as necessary. Given that the Prime Minister is today also expected to lay out her 12 main negotiating objectives for the UK in pending divorce negotiations from the EU, with the expectation that business investment will remain relatively subdued as management await the final outcome of Article 50 discussions, this all suggests the UK could now be facing 2 years or more of below par growth. The Pound's weakness of the past few days is expected to intensify as markets recognise the increasing likelihood of a 'Hard Brexit', with Theresa May seemingly prepared to rule out membership of the Single Market in the hope she will instead be able to secure a unique, special relationship with the EU. This all sets a nervous scene for London's opening this morning, given that yesterday's Martin Luther King holiday means traders cannot rely on the US to set opening sentiment while Asian markets closed broadly weaker. The FTSE-100 is seen down around 15 points in early trade, although this will stay relatively light until the implications of the Prime Minister's speech have been fully digested. The UK also is scheduled to release a batch of December macro data this morning, including Retail, Consumer and Producer Prices, which may build upon the concerns highlighted by Mark Carney, while the EU is scheduled to publish its ZEW Economic Sentiment Survey as the World Economic Forum Annual Meeting gets underway in Davos. Speeches from Fed members, William Dudley and Lael Brainard are also anticipated this afternoon. UK corporates due to release earnings or trading updates this morning include Cairn Energy (CNE.L), Greggs (GRG.L), Hotel Chocolat (HOTC.L), Miton Group (MGR.L) and Provident Financial (PFG.L). Traders will also remain sensitive to certain majors reporting in the US this afternoon, including Morgan Stanley and Tiffany." - Barry Gibb, Research Analyst

Breakfast Today

  • 16 Jan 17

Seemingly never tiring of controversy while building a cabinet that appears keen to air its obvious divisions, Trump threw another googly over the weekend. With some concern that he is 'making it up as he goes along', in an interview with The Sunday Times newspaper, the President-elect suggested he will ensure the US offers the UK a wide-reaching trade deal that 'We're going to work very hard to get it done quickly and properly.' Having stated his view that 'Brexit is going to end up being a great thing' while predicting other countries will also leave the bloc, he noted such a bi-lateral deal would be 'Good for both sides' advising that he planned to meet with Theresa May soon after he gets to the White House. Back on Planet Earth, of course, things are never that simple; such negotiations usually take diplomats between 4 and 8 years to negotiated the fine detail and, in any case, the UK government remains bound by EU law that precludes such independent negotiation until withdrawal is formalised in, perhaps, 24 to 36 months from now. Given also the fact that the US accounts for less than 15% of total UK trade, compared with the EU which makes up roughly half of its international business, the proposal provides limited comfort at a time when the Chancellor, Philip Hammond, is being forced to recognise that the UK could change its economic model if it is not granted access. The net result of his German press interview was to again raise the spectre of a 'Hard Brexit', which saw Sterling knocked again during Asian trading. This news nevertheless is seen pushing London equities ahead this morning, with the internationally-biased FTSE100 expected to open up 10 or so points in early trading, despite the fact that the overnight markets mostly ended mixed to lower. The Dow Jones and S&P500 closed fractionally either side of unchanged, leaving only the NASDAQ to put in a creditable gain. Asia responded to Trump's continuing rhetoric, with the Nikkei suffering from gains in the Yen while Chinese traders, listening to Trump's latest rant regarding the potential imposition of a 35% border tax on BMW motor cars, remained nervous ahead of Friday's inauguration, leaving only the commodity-heavy ASX to bask in the glow of a strong US$. European trading will be relatively light today, given that the US markets will be closed for Martin Luther King Day, but investors will nevertheless look to the release of the IMF World Economic Outlook report for insights, while the Governor of the Bank of England, Mark Carney, is also due to speak at the LSE on policy issues. UK corporates due to release earnings or trading updates include Ashmore (ASHM.L), Ibstock (IBST.L) and WANDisco (WAND.L).


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