Market News & Analysis

Market Brief: Mega earnings slate, Fed offer break from Brexit, impeachment


Stock market snapshot as of [30/10/2019 2:26 PM]


  • Stock markets have been mostly lower in Europe following another huge slate of earnings, with some high profile let downs in results, outlooks, or both
  • Britain is heading into its first winter election in about a century. Brexit will now be delayed further, though hopefully for less than a 100 years, even if Britain’s departure from the EU is definitely off the cards till the New Year. Then, the UK could yet face another crunch as the new 31st January deadline approaches. The pound is lower though within range of Tuesday’s highs
  • Bank of Canada’s rate decision managed to surprise in a surprising way, even though it held rates as expected. It also cut expected growth in 2020 and 2021 and laid out concerns on global growth and trade unambiguously. The loonie was understandably upended
  • Conflicting reports about the date of tentatively expected meeting between U.S. President Donald Trump and China President  Xi Jinping add more drag to risk appetite. Resumed trade conflict uncertainty helps get Wall Street off to a tentative start. The message from Washington has flipped from portraying ‘Phase One’ completion as almost just a formality, to stating that completion isn’t imminent after all, though still close
  • The impact on U.S. consumer confidence from uncertainty about a possible resolution of the trade conflict appears to be one of the drivers of an all but totally baked in rate Fed rate cut. The decision is due at 18.00 GMT. Confidence readings fell again in October, according to Tuesday data, though remain within reach of the highest levels since late-1990s/early-2000s record highs. Still, two consecutive monthly dips will likely have caught the Fed’s eye, given the importance of the consumer for propping up growth
  • Growth is almost certainly slowing, looking at an ‘advance’ (or early) estimate of U.S. GDP data out earlier. Still the 1.9% print of third-quarter growth beat consensus forecasts pointing to a 1.6% rise, against growth of 2% in Q2. Consumer confidence did indeed do the heavy lifting, with the component rising 2.9%, albeit that was slower than the final 4.6% outcome of the prior quarter. All in, the readings are very unlikely to dissuade the Federal Open Market Committee from mandating a rate cut
  • Read our Fed interest rate decision preview by Head of Research Matt Weller, HERE
  • The U.S. impeachment process is turning up a gear and is still largely being ignored by markets. For what it’s worth (and maybe the market may find the process worth watching eventually) House Democrats placed Intelligence Committee Chairman Adam Schiff at the head of the next phase of its inquiry, with public hearings due to start shortly

Stocks/sectors on the move

  • In STOXX super-sector terms, Financials are faring worst, led by banks, with Deutsche Bank leading the downside as it tanks a further a 6.4%. Revenue has so far failed to respond to the CEO’s latest turnaround plan
  • Banco Santander also dropped a hard 6%, though its earnings had more high points than DB’s. Net interest income was still a let-down for the European and LatAm-facing lender
  • STOXX Materials are also sharply offside led by miners, with a new iron downcycle weighing. There’s a defensive tilt in view with Consumer Staples shares firmly higher, led by consumer care groups, L’Oréal, Unilever and  Beiersdorf. L’Oréal’s 10-year high in sales, reported on Tuesday, offers a magnet as risk appetite turns less ebullient again
  • Other high-profile European firms actually reporting today saw mixed share price reactions:
  • Airbus traded 2.7% higher as Wall Street’ session was kicking off. Fairly solid Q3 figures, though somewhat spoiled by lower than expected delivery guidance
  • Bayer rose 2%. Faster than forecast synergies and savings offset lacklustre earnings and sobering comments around a legal settlement
  • VW was barely higher after cutting production guidance amid warnings of a “tough” couple of years to come. In fact the share move may have as much to do with confirmed talks between Fiat Chrysler and PSA Peugeot Citroen.  Peugeot rises 5.4%. Fiat adds almost 10%. Exor, the biggest stakeholder in Fiat, could become the biggest investor in any new entity
  • Total profits beat, though like rival BP, which reported on Tuesday, its shares fell, just like profits
  • GE, Molson (TAP), Yum Brands! (YUM) and Uber star early in the U.S. session, though the real game will be tonight, when the after-hours release schedule is if hefty, including Facebook and Apple
  • For now, GE’S better than expected profits lift the shares 9%. TAP falls 4.8%. It’s cutting 400-500 jobs and sees up to $180m in revamp charges after missing EPS expectations by two cents. YUM slumps 5.6% as soggy Pizza Hut turnover hurts group sales. Uber Money launches today, though appears mostly aimed at drivers, for now, despite a broader credit card offering in partnership with Barclays. UBER falls 0.5%


FX snapshot as of [30/10/2019 2:25 PM]


FX markets and gold

  • After a fillip from stronger than expected GDP, it’s become even more the dollar’s day. The loonie was firmer ahead of the BOC decision to stand pat. That flipped with a decent advance by USD/CAD after Canada’s central bank edged up its 2019 GDP growth forecast to 1.5% from 1.3% whilst cutting the one for 2020 to 1.7% from 1.9% and 2021 to 1.8% from 2%. Whilst still optimistic about employment and wages, BOC telegraphs concerns on global growth, whilst it expects the “economy to be tested as trade conflicts and uncertainty persist”
  • As for sterling, polls show the Tories strongly ahead, though polls have been wrong in all UK public votes of recent years. Myriad moving political parts also suggest uncertainty should rise not fall as the 12th December general election approaches. Still GBP/CAD is a standout, with a rise of more than 0.4% in light of BOC’s dovish hold. The rise of the yen vs. CAD adds a caution that risk-aversion is on the rise, particularly with Treasurys and core European bonds following suit
  • The Aussie also still makes hay with chances of an RBA cut perceptibly collapsing after inflation data matched forecasts. Quarterly CPI still fell, though annual readings inched closer to the bank’s 2% target, as expected

 

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