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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.


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