European markets to open lower amid US & UK political storms, bitcoin tumbles
Markets have taken a bit of tumble on fears US president Trump could be impeached, while the drama in Westminster is just as intoxicating as the Brexit drama rumbles on.
House Democrats have opened an investigation into the
President and, while there have been calls to impeach the president since pretty
much his first day in office, this looks decidedly more serious. The Democrats
think they’ve got him on charges he enlisted a foreign power to support his
Markets won’t like the uncertainty it brings. In previous
instances (Nixon, Clinton) there has been rockiness for equities and the
dollar. Mr Trump says he’ll release transcripts of a call to show his innocence
today. We shall see – fundamentally you can’t see this succeeding as the
Republican Senate won’t touch Trump. If anything it’ll serve Trump’s cause
well. Markets may not like it but ultimately it seems to have a very low chance
of success. Probably a storm in a tea cup.
The S&P 500 fell 0.84% to 2966 on the news. We’ve
also noted some rockiness in some the more frothy parts of the
market. Consumer confidence in the US softened. House price growth was
strong. China’s Beige Book shows real weakness in the economy. Trump’s address
to the UN was a customary attack on globalists, China and Iran – nothing new.
Asia has taken the cue from Wall St and is broadly weaker.
After a weak couple of sessions futures show European equity markets are having
another rough day. The FTSE 100 has been trapped in a very narrow
range between 7350 and 7260, the 50% and 38% retracements. At send time the
FTSE was looking to open a tad weaker at 7254. The breach of the lower Fib
level could result in a move back to 7200. There is also a risk of sterling
strength exerting an influence. The DAX is seen 50 points or so lower at 12250.
In the UK, Boris Johnson heads back to a storm of his own
with MPs resuming their places in Parliament today following the Supreme Court
ruling. Calls for resignation grow. But nothing has really changed. The only
narrative that counts is that there’s elite out there frustrating Brexit at
every turn. The court ruling only supports this story.
is the bellwether trade. For the time being the market is not terribly sure
whether no deal risks have diminished or not. GBPUSD is
holding around the 1.2460 level having touched 1.25 yesterday. Looking for a rally north of the last swing high at 1.2490
before the recent month-high at 1.2570. On the downside, look for support at
1.240 and past resistance at 1.2380.
Bitcoin futures took a tumble and posted its biggest
intraday loss for over a year. Prices sank below $8,000 for the first time
since June. Lots of reasons being proffered – some technical, some to do with
lacklustre demand on Bakkt on the first day of trading physical bitcoin
futures. I’ve even heard it’s because of broader risk-off selling in the
market…and I was led to believe bitcoin is a safe haven/hedge. Anyway $8000 has
been recovered for now but look for a move to $7500 if this goes again.
Gold is up again, continuing its advance having
consolidated at $1500. Declining yields and a broad risk-off mood in the market
has helped. US 10s declined to 1.65%, while 10yr TIPS dropped back further
towards zero. We now seem to have a fairly decisive break north of the resistance
level around $1526, so bulls will look for a drive through to $1550.
Oil was weaker on the broad softening in risk
appetite, with WTI slipping the $57 to trade around $57.83. A surprise build in
inventories also weighed with the API estimating a 1.38m barrel build versus
expectations for a 750k draw. EIA inventories are on tap today and
forecast a 0.5m draw, however the API numbers maybe suggest we could see
another surprise build. There is a real
geopolitical risk premium still in play after the Saudi attacks, but the
fundamentals for the market have not changed and remain pretty bearish –
I.e. the world is awash with plentiful crude supplies and demand growth is
heading south. If there is no trouble in the Middle East then oil has to fall,
but assuming ongoing tensions and the threat of more attacks and escalation on
the Iranian front then prices should be fairly supported.
Adam Neumann is resigning as CEO of WeWork but will
remain on as chairman. The move is clearly aimed at addressing governance
problems that have dogged its IPO process. Quite whether investors think that’s
enough to get the stock listed is another matter. The financial cracks can’t be
papered over so easily. They need to get this listing out the door to unlock
$6bn of bank loans. At the last look it appears they could only muster
$2bn of the $3bn they are required to raise to unlock the cash. And half of
that is from SoftBank.
Sainsbury’s tries to move on from its Asda marriage
being called off. Retail sales in Q2 rose 0.1%, while like-for-like sales fell
0.2%. Grocery total sales were up 0.6% but General Merchandise fell 2%.
Management say they remain on track to deliver full year 2019/20 underlying
profit before tax in line with consensus expectations. The most eye-catching
announcement however was the store restructuring. Sainsbos is planning 10
new supermarkets and 10-15 closures; (net -5) c.80 new Argos in Sainsbury’s and
60-70 Argos closures (net +10/20); c.110 new convenience stores and 30-40
closures (net +70/80). Management say the closures will boost net operating
profit by about £20m a year, but will come with a one-off cost of £230m to
£270m, of which the cash cost will be £30m to £40m. No word on Mike Coupe’s
future…maybe he’s sticking around for longer.