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Morning Market Pulse - US indices stand corrected

Morning Market Pulse - US indices stand corrected

FTSE 100 Index called to open -35pts at 7135, off its overnight lows of 7093 following yesterday’s break below 7200 and subsequent sell-off. It has also been hindered by falling highs resistance overnight which adds yet another hurdle to the down-trend from late January. Bulls need a break above 7150 at the very least to clear overnight falling highs resistance. Bears need shallow rising support at 7110 give way, if not overnight lows (bearish pennant?).  Watch levels: Bullish 7150, Bearish 7110

 

Calls for a negative start stem from yet another sell-off in the US which flowed into Asia to keep any recovery sentiment in check again overnight. More US budget bickering hasn’t helped although the Senate has at least passed a resolution down to the House. US indices in correction territory (10% from highs) and both GBP and EUR off their lows represents an additional hindrance as we await much needed distraction from the Winter Olympics with a historic North/South Korean team-up.

 

China inflation was as expected overnight with both Consumer (CPI) and Producer Prices (PPI)  growth slowing in January. CPI may have been the slowest since April but remains around 2017’s 1.5% average. PPI  of 4.3%, however, was the slowest since Dec 2016, which may beg questions about Chinese economy, especially yesterday’s Trade data (stockpiling) with a knock on for commodities and Miners.

 

Corporate news this morning:  British Land buys Woolwich Estate for £103m. Shaftesbury reports high footfall, robust trading, high occupancy, strong leasing, 52% of new space let. Victrex says if Industrial strength continues to offset Medical weakness, limited degree of upside to expectations; GBP strength represents increasing headwind for 2019.

 

In M&A Trinity Mirror sees 2018 trading in-line with views, 2017 ahead of consensus, buys Northern Shell’s publishing assets for £127m (Daily Express, Sunday Express, Daily Star, Daily Star Sunday). Hogg Robinson to sell Fraedom business to Visa for £141.8m. Plus500 granted Commodity Broker's Licence by International Enterprise Singapore..

 

From Europe, shipping giant and economic barometer AP Moller Maersk reported 2017 volumes +3% and above market growth in Q4, forecasting underlying profit growth in 2018. Asset Management groups may react to French group Amundi upping its 2020 profit targets after buying Pioneer from UniCredit.

 

During another lively session of trading, US equity markets closed sharply lower overnight. The Dow Jones fell by 4.2% (over 1000 points) as all 30 stocks closed in the red, now officially in correction territory having fallen 10% from January highs, while the S&P 500 dropped 3.75% with eight sectors in correction territory, its third largest fall in percentage terms in the last five years (the largest being Monday’s session). The Tech-heavy Nasdaq also closed sharply lower, down 3.9% as Facebook, Amazon and Microsoft all fell by more than 4.5%.

 

Gold is a beneficiary of the volatile trading in the US and Asia, climbing from its lows, however again not reacting as poignantly as the major safe-haven asset flocked to in times of stress has in prior market sell-offs. The precious metal climbed to an overnight high of $1323, however has since retreated as the US dollar remains steady around yesterday’s 2-week highs..

 

Crude Oil prices have again steadied overnight after Brent crude falls to fresh 2018 lows of $64.4 overnight. The latest leg lower comes as production restarts at the North Sea Forties pipeline, while the US dollar continues to trade around 2-week highs to the detriment of greenback-denominated commodities. This evening’s Baker Hughes Rig Count could be a major data point as US production creeps ever higher, now at a near five decade high, seeing US crude dip to a 1-month low of $60.3.

 

In focus today will be analysis of yet another volatile overnight session for US and Asian equities. Risk aversion returns to hamper what was a half-hearted recovery, with bullish conviction distinctly lacking while investors digest the reappearance of volatility and prospect of higher inflation.

 

In terms of data, UK Industrial and Manufacturing Production (9.30am), both forecast slower in December. This will be of interest given yesterday's more hawkish Bank of England and, of course, those leaked Brexit impact assessment papers.

 

The Industrial metric is expected to have slowed most significantly, with month-on-month growth of -0.9% the slowest since Oct 2016 whilst 0.3% year-on-year is down sharply from 2.5% in Nov and the most pedestrian since 0.7% in May. As for Manufacturing, 1.2% annual growth would mark the slowest pace since May’s 1.4%, and a far cry from October’s 4.7% best since Dec 2016.

 

UK Construction Output is forecast essentially flat and the UK Trade Deficit only marginally improved, but the UK NIESR GDP Estimate (12pm) is always worth watching, especially given following yesterday’s Bank of England growth forecast bump, albeit minimal.

 

This afternoon, US Wholesale Inventories (3pm) are expected to be confirmed pulling back in December from November’s 3-month high, while the US Baker Hughes Rig Count (6pm) will be closely watched by Oil traders following Wednesday’s record US EIA production as US shale/frackers make the most of higher oil prices.

 

 

Hot on the heels of yesterday’s more hawkish update from the Bank of England, those trading assets classes sensitive to GBP may want to listen out for what deputy Cunliffe (4.45pm) has to say at the annual FIA and SIFMA Asset Management Forum on Derivatives in California. It has potential to be even more enlightening than usual, in the wake of this week’s market moves.

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