Lunch wrap: bulls limp, pound holds losses

Forex

Bulls have been a bit limp, stumbling out of the gate with their tails up but quickly getting bogged down on decidedly heavy going turf.  European markets perked up early but ran out of steam heading towards lunch. Having initially popped higher the Euro Stoxx 600 turned negative, sliding 0.3%, while the DAX edged 0.4% lower before paring losses a touch. The FTSE 100 held onto slim gains as sterling softened as the odds shortened considerably on the Bank of England cutting interest rates this month.

Chinese trade delegation is said to have left Beijing, on their way to Washington to sign phase one deal.

GBPUSD is softer, beating a retreat under 1.30 as markets aggressively reprice for a BoE rate cut this month following comments from rate setter Vlieghe and weak eco data (See earlier note, BoE: Stitch in time saves 9). EURUSD has been steady at 1.112 but USDJPY is firming with the pair crossing key resistance around the 200-week moving average around 109.70/80, to hit 109.9  

Crude oil is steady at $59 with little in the way of catalysts. Lots on the wires from Saudi Arabia on production but long and short is they are looking to extend output curbs agreement come March. Likewise, gold held the line around $1550 but is showing no real direction. 

US pre-mkts 

US stock futures indicate a solid open with the Dow eyeing a c70pt gain, having earlier looked at a triple-digit gain when the cash equity market opens. 

Lululemon shares rose c2% pre-mkt after it said raised its guidance, saying Q4 revenues would be between $1.37bn and $1.38bn, from previous guidance of $1.32bn to $1.33bn. 

Alphabet is on the verge of joining the $1 trillion market cap club. Shares were a little higher pre-mkt after Evercore ISI raised their price target on the stock to $1600 from $1350.  

Tesla bears are throwing in the towel. Shares were up 2% pre-mkt to $488 after Oppenheimer raised its price target to a Street high $612 from $385. Microsoft price target raised to $180 from $155 at Credit Suisse, whilst Apple’s price target was raised to $375 from $300 at Davidson. 

Sterling finds support at 23.6% Fib level

Forex

Sterling has found support at the 23.6% retracement of the rally from the Sep 2019 lows to the post-election euphoria highs. GBPUSD pushed through 1.32 at one stage on Tuesday, moving firmly clear from the support level at 1.3140.

The move erases much of the declines from last Thursday and Friday and may signal a recovery that bulls can use to base for a push north of 1.32 again. 50-day moving average support appears at 1.30 and is rising.

The rally ran out of legs at the 50% retracement of the decline from the Dec highs to the recent lows around 1.3220. Corresponding to this move, it’s the 38.2% retracement at 1.3140 that offers support near term. Double Fib support looks powerful.

Sterling trips on new cliff edge, Unilever dips

Forex
Morning Note

Sterling tripped over its heels as Boris Johnson is looking to legislate for Britain to leave the EU fully in Dec 2020 with or without a trade deal. That means no possible way to extend the transition period. I must confess to believing he wouldn’t need to be so drastic, that a large majority offered the flexibility yet strength a government craves in deal making. This sets up another cliff-edge and could create yet more months of uncertainty for investors just when we thought all was squared away.

GBPUSD plunged to the 1.3240 area before paring losses to trade around 1.3260. Elsewhere in FX, the Australian dollar was softer as the RBA signalled it’s looking at further cuts, possibly in February. AUDUSD traded at 0.68580 as of send time, its weakest since last Wednesday. EURUSD steady at 1.1140. Signs in the dollar index that it’s rolling over.

Equity markets remain buoyant but we are seeing some softness in Europe on the open. We’ve had a really good run for the last two or three sessions so it’s a good time for a pause and consolidate around this level. In particular we need the FTSE 100 to hold this 7500 level.

The S&P 500 made a fresh record top, though Boeing’s travails left the Dow glittering a little less. Europe’s Stoxx 600 made a record high. Asia took the cue to make 8-month highs overnight. 

Equities

Unilever shares fell 5% in early trade as it warns that sales growth is more meagre than expected. Management expects underlying sales growth for 2019 to be slightly below its guidance of the lower half of its 3-5% multi-year range. 

The company puts it down to economic malaise in South Asia, with the CEO on the conference call saying it’s down largely to India’s rural markets, although these are expected to bounce back in the second half of next year. Meanwhile management says trading conditions in West Africa remain difficult. Developed markets continue to be challenging, but management did point to ‘early signs’ of improvement in North America as it picks up ice cream market share.

Earnings, margin and cash are not expected to be impacted. Weaker sales growth is a problem, but lately we have been encouraged that earnings growth is being driven by price rather than volume. However, the problem for fast-moving consumer goods giants with the big brand names is that consumers have a lot more choice and are more discerning than ever.

Sterling hit by polls as traders weigh hung parliament chances

Forex
Morning Note

Sterling remains highly susceptible to polls and specifically exposed to big downside moves on anything other than a solid Tory majority: last night’s MRP edition from YouGov showed a sizeable narrowing in the Conservatives’ lead and raised for the first time the possibility of a hung parliament. The central case remains for a Tory majority of 20-30, but we are dealing with fine margins for error. Markets for the first time need to worry about a hung parliament and what that might mean in terms of more uncertainty over the economy and Brexit.

For traders – it means election night could be very interesting indeed. We’ll be increasing staffing overnight, looking particular at the exit poll at 22:00, and preparing for a potentially highly volatile session, with all that would normally imply in terms of reduced liquidity for GBP pairs and U.K. assets anyway. Then it’s going to be all hands on deck on Friday morning as the markets reopen to whatever brave new world the voters have chosen for us. Spreads may widen out of hours for assets like the FTSE and GBP crosses, whilst gapping even in FX pairs may occur. A hung parliament takes back to a 1.27 handle on cable, and could see UK-focused stocks on the FTSE 250 hit hard.

Having been bid up ahead of the poll’s release, the pound took fright at the poll data and GBPUSD plunged nearly one big figure from north of 1.32 to around 1.3110. The pair has pared losses overnight to reach 1.3140.

The good news is the polling is just about over – the next major one is the exit poll just after 22:00 on Thursday. This has been very accurate over the last 25 years.

Yesterday, Wall Street slipped as the tariff deadline comes into view and markets stand by for the Federal Reserve decision today. Trade talks appear their usual on-again, off-again self.

Stocks were mixed but generally flagged. The S&P 500 eased back 0.1% but had been positive at times, while the DAX was down 0.3%. The Stoxx 600 pared losses of 1.1% at one stage to close down 0.3%.

European markets this morning are set to open flat with the FTSE 100 at 7235 off the back of the pound’s fall since the close yesterday.

FOMC on tap at 19:00 GMT. The Fed is likely going signal it’s sticking to its dovish mantra. Whilst no rate cut is anticipated, we may well see evidence of a noticeable shift in the Fed’s stance: specifically that it’s now willing to do whatever it takes to stimulate the economy. Powell has already said it will take a sustained and significant uplift in inflation to warrant a hike, whilst there’s chatter about essentially parking the 2% inflation target to let the economy run hot.

The persistent lack of inflation means it has a free hand to go as low as it likes, it’s only maintaining the mask of prudence by not cutting more aggressively. Moreover the drag lower from trade, global economic stress and the move to lower rates in other major economies means this is by far the path of least resistance. Out go concerns about financial stability or asset bubbles. The danger now is the Fed is becoming the monetary policy wing of the White House.

Sterling rallies, European markets drift after Trump backs Hong Kong protestors

Morning Note

One way traffic? US equities were squeezed to fresh records again yesterday  as the main indices nudged higher on good US data and of course, the usual trade deal hopes. European stocks are drifting lower after Donald Trump signed a law that backs the Hong Kong democracy movement, casting the phase one initiative into a new spasm of doubt.

The FTSE 100 slipped under 7400 in early trade having yesterday threatened to break through the late Sep highs at 7440. Having touched that high, without any real catalyst a bit of a pullback is to be expected. Meanwhile the stronger pound is bound to be hurting the blue chips. Ex-dividend factors are scrubbing 8pts off the index also.

A batch of surprisingly healthy US economic indicators were a boost to investors and specifically US equity markets. Q3 GDP was revised up to 2.1% from 1.9% and durable goods orders far exceeded expectations. It was a sign that the US economy, as the trade war is said to bite, is maybe a lot more resilient than feared. From a market perspective it was perfect as inflation undershot – core PCE came in short of expectations at 1.6%, below the prior month’s 1.7%. Growth decent, inflation not moving up = ideal for markets as the Fed has made clear now it will only raise rates if it sees a strong and sustained uplift in underlying inflation.

Markets continue to work on the expectation of a trade deal  its close, so close – but this might be a case of labouring under a misapprehension. The message from China is there is no news on trade talks – just the tiny matter of Hong Kong…

Donald Trump has signed a law backing the Hong Kong protestors. At such a delicate moment for trade talks this could tip the balance against agreement. To rob a phrase, Trump seems apt to bring discord where there was harmony. China has promised countermeasures. It’s interesting how economic disagreements are being politicised. We’ve seen how Trump has used tariffs as a diplomatic tool – this move, albeit in reverse, is in this vein.

Now closed for Thanksgiving, markets across the pond at least should be quiet.

Over here, markets took signs of a decisive Conservative win as a cue to buy sterling.

The pound rallied firmly as a key poll signalled a whopping Tory victory in the Dec 12th election. GBPUSD had found decent bid all day and broke through 1.290 to hit 1.2950 and held the gains. The widely-watched YouGov MPR poll showed the Conservatives taking 359 seats to Labour’s 211, which would give Boris Johnson a commanding 68 seat majority. Some Labour northern heartlands would turn blue for the first tome in living memory, whilst the Tories would limit damage in Scotland to just two losses and the Lib Dem’s would fail to make the incursions they’d hoped. The Beast of Bolsover would be tamed.

It’s easy to overstate the importance of this poll but as it backs up every other poll, the picture looks quite clear now. 

However, the margins in many seats is very narrow and complacent Tory voters could stay home. The majority may be much smaller than this poll predicts, we may still get a hung parliament. Betting markets will be mis-pricing the result for sure. As politicians are wont to say, there’s only one poll that matters.

Two things to consider:

– The poll is based on national polls with Tories 11pts ahead – latest polls suggest Lab has narrowed the gap.

– predicted vote margins of under 1% in about 20 seats, under 5% in at least 30 seats.

Having pushed up through the mid-point of the range, we wait now to see if the bulls have the stomach to drive it up to 1.30 and attempt a breakout.

Whilst a clear Tory majority provides near-term certainty, the rapid timetable for agreeing a future trading relationship with EU is loaded with further downside risks for the pound.

Traders, cowed by the Brexit referendum and Donald Trump’s election, may be shy of putting all their eggs in the frying pan before the oil is hot enough. It would be prudent to consider the fine margins of this latest poll and the fact there’s still two weeks of campaigning to go. And Boris Johnson still hasn’t faced a mauling from Andrew Neil.

Elsewhere, having taken a bit of a scare as the dollar was bid on that stronger US data, and touching on a key support level at 1.0990, EURUSD has stabilised but is encountering near term resistance at 1.10080.

USDJPY seems to building momentum north of 109 but the Thanksgiving holiday may mean there’s not much impetus for further moves higher.

Oil broke a two-day win streak as US crude stocks rose 1.6m barrels last week against expectations for a 400k drawdown. Production hit a record high 12.9m bpd. Gasoline inventories swelled by 5.1m barrels vs the 1.2m increase expected.

WTI dipped through $58 but bounced easily in key support at $57.50. Thus level looks likely to offer a bulwark against more bearish data in the near term, until the OPEC meeting convenes next week (see note: OPEC Preview – the first cut may not be the deepest.)

Two-week high for cable as Conservatives extend election poll lead

Forex

GBP/USD has climbed 0.6% higher to break above $1.2985 today after a series of weekend election polls show that the Conservative Party has extended its lead over Labour.

Markets have moved to price in higher odds of a Conservative Party victory at the upcoming December General Election on the back of the latest polling data.

Data released over the weekend shows the Tories leading Labour by 15%-17%. A poll released this morning by Survation put the Conservatives at 42% and Labour at 28% – a 14-point lead.

Brexit party threat diminishes

Markets are also relieved to see that Nigel Farage’s Brexit Party is polling at just 5%. Even though Farage announced that Brexit party candidates would not stand in the 317 seats won by Conservative MPs during the 2017 election, there were still concerns that, by challenging Labour, the party would split the Brexit vote.

This risked diluting Tory support and potentially granting victory to Labour or Liberal Democrat candidates in hotly contested areas.

With support for the Brexit Party so low, markets are now betting that Boris Johnson will win enough support to form a majority government. Any Brexit Party candidates in Parliament would likely have advocated for a harder Brexit than the one outlined in Boris’s Withdrawal Agreement. In sufficient numbers, they could also have attracted the support of Tory rebels and pressed for more talks, or even a no deal exit.

UK on track for January 31st Brexit?

A solid majority for Boris Johnson means that it is likely the Prime Minister will be able to pass his Withdrawal Agreement bill by the new Brexit deadline of January 31st. This would finally put an end to the uncertainty that has gripped the UK economy for over three years and will allow politicians to focus once more on the domestic agenda.

Cable has twice tested and rejected the $1.30 handle in the past few weeks. There are still 24 days until the election, which is plenty of time as far as politics is concerned for everything to change. This, combined with the memory of the referendum and the 2017 election, could mean it takes more than just a few polls to fuel a rally above $1.30 ahead of December 12th.

Cable jumps to test $1.29 as Nigel hands Boris an early Christmas present

Forex

Markets have quickly priced in higher odds of a Conservative Party victory in the coming General Election after the Brexit Party today launched its own campaign.

Party leader Nigel Farage has backed away from his initial aim of fielding 600 candidates and will instead focus on Remainer strongholds; those held by Labour and the Liberal Democrats.

Farage has gone as far as to say that his party will not contest the 317 seats won by Conservative MPs during the 2017 election. He seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020.

Having knocked on $1.29, cable pared gains to trade around $1.2880. EURGBP dipped below 0.8560 before retracing to around 0.8570. The pound is stronger since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.

GBP/USD 5min Chart, MARKETSX, 14.30 GMT, November 11th 2019

This is a huge boon for Boris Johnson. Conservatives had reason to fear the Brexit Party before, as it offered a place for Leave voters who felt betrayed by Johnson’s broken promise to get Brexit done by October 31st. The PM claimed he would rather be dead in a ditch than request an extension, but thanks to some legislative arm-twisting, he was forced to do so.

Everyone knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.

Now Leavers in many constituencies have a much clearer choice; back the Tories or abandon Brexit.

Risk-off start to week, Greggs punches above its weight

Morning Note

We are starting the week in risk-off mode: Fiery protests in Hong Kong and the US-China trade war are conspiring to dampen the mood in markets on Monday. As usual expect the risk switch to be flicked to ‘on’ pretty quickly with the standard trade war pump in due course. And in terms of Hong Kong, we wonder how long term this de-risking kneejerk will last.
 
Asian shares were broadly weaker after another weekend of clashes in Hong Kong, in which at least one protestor was shot. The Hang Seng dipped almost 3% and the Nikkei dipped 0.25%, but Sydney rose. Overnight data showed Japan’s machine orders down for a third straight month.  

European markets are off to a soft start at about -0.5% across the board and are set for a weaker session as they take the cue from Asia, whilst political deadlock in Spain is not a help. 

In Spain, after a fourth election in four years, there is still political deadlock. No clear winner emerged from the vote, but the Right is resurgent. The lack of any consensus here is a troubling reminder of what might happen in Britain if there is a hung parliament. 

US equity markets notched a fresh record on Friday as a flurry of buy orders late in the day pushed the S&P 500 to an all-time closing high at 3,093. Futures are indicating a lower open.  

Gold has rallied off its lows back to $1463 on haven flows. It comes after a torrid week for gold bulls as a blow-up in the bond market torpedoed havens. Speculative positioning has barely changed, the CFTC’s COT report shows. 

Oil was lower round $56.65 in the middle of the rising channel trend since the start of Oct. A touch on the lower band at $55 may be possible before resumption of the uptrend. Traders have added to long positions in the last week, the latest CFTC data shows. IEA World Energy Outlook on Wednesday and the IEA Oil Market on Friday should be watched. 

A bid for safety boosted the yen, sending USDJPY back under 109 and under the 200-day moving average again. Dollar bulls will look to drive up again. GBPUSD traded with a 1.27 handle as markets exhibit a degree of caution over the General Election, but should be looking again for comfort at 1.28. On the open we saw GBPUSD rise slightly. Traders have continued to reduce short positioning. EURUSD has found support along the 1.10160 line and is looking to recover the 50-day line at 1.1040. 

On Saturday Donald Trump said trade talks are moving more slowly than he had hoped, adding that China is keener to do a deal than he is. It comes after last week’s pushback over claims the US is prepared to roll back existing tariffs as part of any deal. Despite this, it’s clear the economic reality is not lost on the White House.  
 
The US-China trade war will provide the pulse of daily market shifts. However, there are some additional factors to consider this week: 

  • Germany is in recession. This ought to be confirmed on Thursday with the Q3 print. Ahead of this we have the ZEW report. Interesting times for Christine Lagarde, who takes charge of her first ECB meeting this week, although it’s not a monetary policy event.
  • Fed chair Jerome Powell will discuss the economic outlook before the Joint Economic Committee of Congress on Wednesday. It comes after the Fed’s third rate cut this year and a signal that it is pausing the easing cycle. Given the introduction of press conferences after every FOMC meeting there are not expected to be many surprises. However Mr Powell can’t be completely relied upon not to drop an erratic comment. Likely to be more interesting is a speech on monetary policy by Richard Clarida on Tuesday. 
  • US inflation and retail sales are also due this week. Core inflation has risen to 2.4% – further upside from the last three rate cuts would be a (in central bank land) a sign of success following three rate cuts, but ought to raise questions about just how accommodative the Fed should be right now. Retail sales are expected to bounce and underline the resilience of the US consumer. 
  • A batch of UK data is crossing this week, providing traders with a clearer picture of the state of the economy as we enter the year-end. GDP and manufacturing numbers (Monday) are followed by unemployment and earnings figures (Tuesday), CPI inflation data (Wednesday), and retail sales (Thursday). But against the back drop of a Brexit election, these will only really mild distractions for sterling.  
  • The Reserve Bank of New Zealand is expected to cut interest rates when it convenes on Wednesday. There is a roughly 65% the central bank will cut the OCR to 0.75% from 1% and leave room for further cuts in the future. The recent rise in unemployment from 3.9% to 4.2% is seen warranting additional stimulus. 

Equities 
 
Greggs has the magic touch – another upgrade. The vegan sausage roll effect lingers on.  We’re now talking about a £2bn sausage roll seller.

Despite exceptionally tough prior year comparisons trading in the first part of the fourth quarter has proved remarkably strong. In the six weeks to Nov 9th, sales rose 12.4%, and +8.3% for company-managed like-for-like sales. Management now anticipate 2019 full year underlying profit before tax to be higher than previous expectations. 

We’ve also got a positive 10-month update from Informa. The company reported underlying revenue growth of 2.8% ahead of the significant, November/December trading period. Full year guidance unchanged. 

Aston Martin has been raised to buy at HSBC. On a purely valuation basis there is an argument, but debt levels are a worry.


Sirius Minerals has revealed a strategic review identifying a two-stage plan that will require significantly less capital than the previous incarnation. The plan would require c$600m for phase one, with an additional requirement of $2.5bn for the second phase. A possible way out of the mire, but needs to be picked over in more detail.

Brexit Day delayed as UK gears up for another General Election

Forex

Today was supposed to be Brexit Day. Instead the whole thing is on pause for another three months while the UK holds another General Election.

We’ll soon be entering the government’s quiet period, known as purdah, during which Downing Street won’t be announcing any major new policies that could influence the campaign.

Sterling is also facing a quiet period as well. The diminished threat of a no deal Brexit – for the time being – is providing solid support, but the upside is limited due to the political uncertainty.

Over the past few days cable has bounced between 1.28 and1.30, but there was a Fed meeting driving the dollar and the pound’s contribution to the volatility looked limited.

GBP/USD 4hr chart, MARKETSX: 09.00 GMT, October 31st, 2019

The deal on the table makes all the difference

We’ve been expecting an election for weeks now, and the upcoming poll is very different from a market perspective than it would have been if it had been held a couple of months earlier.

Boris Johnson managed to renegotiate Theresa May’s withdrawal agreement, replacing the backstop with something he claims is more palatable. The DUP don’t like it, however, and they’re not alone.

What’s important here is that if Boris gets to return to No.10 with a solid majority it’ll be his withdrawal agreement bill that he attempts to implement. This is a much better outcome for cable than the no deal Brexit he seemed intent on pursuing when he won the leadership contest.

Labour seems less market friendly no now deal off the table

For a while it looked like markets might have been relieved by the prospect of a Labour government due to its aversion to a no deal Brexit.

Back when Boris was talking about no deal, Labour was pretty tight-lipped about what exactly it wanted. Jeremy Corbyn has since come out in favour of a confirmatory referendum on a Brexit deal.

The political landscape has shifted away from a no deal Brexit. A Conservative majority may not be the downside risk it was once perceived to be. Labour still has the more market-friendly Brexit policy, but the Conservative alternate is not nearly as unpalatable as it once was. All parties in this election (other than the Brexit Party) are now offering to avoid a no deal exit.

This may free up traders to look a bit longer term and take into account Jeremy Corbyn’s radical plans for shaking up the system.

What are the risks of a hung Parliament?

The latest YouGov poll shows the Conservatives hold a 15-point lead over Labour at 36%, while Labour, at 21%, are just three points ahead of the Liberal Democrats. But it’s vital to remember that the Conservatives were polling at 44% the day before Theresa May called her disastrous 2017 election. Boris is by no means going to walk this one.

While another huge surge for Labour can’t be written off, perhaps the bigger threat comes from Nigel Farage’s Brexit Party. It could hoover up the votes of both Tory and Labour Leavers, weakening both parties. The other parties have given them the perfect campaign materials; Boris broke his own promise to ‘get Brexit done’ by October 31st, and Labour and the Lib Dems both want a second referendum.

Rather than looking at one established party dominating the others, this could be an election that sees the Brexit Party squeeze its way into Parliament, leaving no one with a majority. Not only would this promise many more months, if not years, of further chaos, but it would also put a no deal exit firmly back on the table, especially if hardcore Brexiters in the Tory party make alliances with Nigel Farage.

There really is a lot to play for, and the outcome will have huge implications for the UK’s future. But until we get more polling data and the candidates start doing things that are seen to dramatically alter their chances, the pound will be paralyzed by uncertainty.

Markets pause before Fed, Brexmas election eyed

Morning Note

A blow off top or just a moment to pause ahead of the Fed; either way the S&P 500 edged back from its all-time high to close down marginally on Tuesday. Asian markets have broadly followed the lead. Coming off a dip yesterday, European markets were flat to slightly lower at the open with the FTSE just a little under 7300 and the DAX holding above 12,900. Bonds remain pretty stable with bunds at -0.35% and US 10s at 1.83%.

Markets are in wait-and-see mode as we await the outcome of the FOMC meeting tonight. The Fed is all but certain to cut for the third time in a row, and while Jay Powell will of course leave the door open to further cuts, there’s a sense this should be the last cut this year. The FOMC is already divided on cuts, putting pressure on the dovish core to justify why more are needed, and although there has been some softening in the economic data since the last meeting, it’s by no means all bad and the immediate market-based pressure to cut has subsided. More in our Fed preview later.

There is a risk a balanced statement is taken as hawkish by markets, given the weight of expectations. That’s a key reason why the Fed won’t surprise by not cutting – doing so will only tighten financial conditions and undo all the positive energy from cuts it’s already carried out. But it may start guiding markets to expect the current mid-cycle adjustment to finish.

However given growing market expectations for the Fed to make this its last cut if the year, markets could be met with a dovish surprise. Funnily enough a lot may depend on the Q3 advance reading ahead of the Fed statement. A sub-2% print is on the cards. Weakness in manufacturing and a slowdown in the global economy are starting to weigh on the American economy, but we think the consumer remains more resilient. 

USDJPY is near 2-month highs a little under the 200-day moving average at 109. If the market sees a hawkish cut a push above that level is on, bringing 109.50 into view. Also bear in mind the Bank of Japan, which may use the cover of other central banks easing to hoover up even more Japanese securities. It’s expected to stand pat but signal it may act if required. A surprise move to additional stimulus would further pressure JPY. However an easing in trade tensions and softer yen means the BoJ doesn’t need to panic.

Overnight data showed Japan retails sales surging in September by 9% but this was due to consumers bringing purchase forward before the sales tax hike so will only make the Q4 numbers look even worse.

The dollar backed off highs against the euro yesterday. EURUSD regained the 1.11 handle and is sitting pretty at 1.1110. Data this morning showed France’s economy grew more than expected in the third quarter, expanding 0.3% in the three months to the end of September. German inflation data is on the way all morning.

GBPUSD continues to track around the 1.2850/1.290 area and will likely remain in ranges before the election. In early trading cable pushed up to 1.29 and could yield more upside as the market works itself out. But you feel it’s going to be hard to see a break above 1.30 unless there is real momentum in the polls. And with no deal seemingly averted, the downside is limited from here. Could be treading water until Christmas.

Quick word on Brexit – well it’s on pause. No! But that’s because we get six weeks of General Election bants instead. Yes! Sterling will now become a hostage to polling data.  Polls showing a Tory majority win is net positive as it would mean leaving with Boris’s deal, while anything else is net negative as it implies new uncertainty.

Gold is making tracks south with markets eyeing the Fed to pause its rate cut cycle. Real yields are ticking higher with 10-yr TIPS up to 0.23% from 0.1% at the start of the month. The problem for gold right now is that inflation expectations are falling and the Fed looks set to stop its easing cycle for the time being and we’ve seen US Treasury yields rebound.

Equities

Standard Chartered shares rose in Hong Kong after the bank posted a quarterly profit of $1.2bn, up 16% from the year before. It’s beaten expectations amid a challenging environment and managed to keep costs flat while simultaneously growing revenues. StanChart seems to have shrugged off any ill effects from the US-China trade war and unrest in Hong Kong. Return on tangible equity climbed to 8.6% for the nine months YTD, seemingly on course to hit 10% by 2021. It’s facing growing headwinds though, so much like peers this profitability target is not a slam dunk despite the solid performance this year. 

Next produces a similar set of results each quarter – online going great guns, in-store floundering. So no surprises from today’s breakdown showing online sales up 9.7% and in-store down 6.3%. Product full price sales were net +1.6%. It’s getting something, indeed a lot, right but there comes a point when they’ll be expected to do something about the store estate to reduce costs.

Overall Q3 full price sales rose 2% including interest income, beating guidance. September’s warm weather hit sales but the cold snap in October was a boost – this bodes well for Q4 although management don’t see the same uplift for the rest of the year as they witnessed in October. Full year profit guidance maintained at £725m Importantly this means annual profit growth again at Next. It’s small at just +0.3%, but it’s a whole lot better than the May forecast of -1.1%. Shares slipped probably due to the September soft patch. All in all though Next is in good shape. We noted in July and that Next had delivered a blockbuster second quarter as sales growth picked up markedly and was well ahead of expectations. Despite the gloom it’s been raising rather than lower guidance – the FY outlook could still conservative.

Deutsche Bank – the erstwhile German powerhouse reported a loss of €823m in the third quarter and a 15% decline in revenues. The loss is in large part due to restructuring costs that are the necessary evil of trying to get the bank back to profitability. Can it get any wurst? Management are comfortable with the figures, largely because they reflect large restructuring costs that they think will not last forever and the core bank posted a pre-tax profit of €352m. Restructuring takes time, of course, and may be more expensive than analysts think, but Deutsche has had a decade and several attempts at this already. And the decline in revenues can’t be masked. Bond trading is about all it has left in investment banking and the fixed income division posted a 13% drop in revenues. Shares -3.5% in early trade.

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    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

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