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Morning Market Pulse - A five star mess

Morning Market Pulse - A five star mess

FTSE 100 Index called to open +5pts at 7075, up off Friday’s lows but still within the falling channel from end-Feb, one which that could yet prove the start of a second leg lower, extending the correction that began in early February and which we talked of late last week. Bulls need a break above 7110 to escape the falling channel; Bears require only a breach of Friday’s 7065 lows. Watch levels: Bullish 7110, Bearish 7065

Calls for a positive open in London may yet prove ambitious as markets digest an Italian election result that heralds yet another populist triumph within Europe. This could well lead to a re-run or a right-wing coalition (headed by Five Star Movement) while a grand coalition (including Berlusconi, but lead by current PM Gentiloni ) now looks achievable with both parties underperforming, likely involving protracted negotiations and of course needing PD leader Renzi to fall on his sword.

This nullifies a mixed-to-positive close for Wall St on Friday and is at odds with a negative start to the week in Asia. Note the DAX called to open 1.5% lower, and equities set to take a hit on Italy’s MIB, while the EUR understandably trades lower to buoy GBP and hinder the FTSE.

Corporate news this morning: Paddy Power Betfair CFO Alex Gersh to step down after six years once a successor has been appointed. Tesco announces cash/share merger with Booker now complete. Trinity Mirror FY revenues -12.6% (-8.8% like-for-like), operating profit -9.3% but margin +70bps, pre-tax profit -8%, div +6%, digital growing, pension deficit lower, legal provisions increased, proposing name change to Reach plc. GVC buys 51% of Georgian betting group Mars for €41.3m.

Polymetal mineral reserves +10%, gold +9%, silver +25%, copper -28%, average grade +11%. Petropavlovosk issues exploration update and resource review. 3i Infrastructure to increase investment of Infinis by £125m to fund acquisition of Alkane Energy.

US equity markets finished mixed on Friday as traders continued to digest the Trump administration’s imposition of tariffs on both Steel and Aluminium. The Dow Jones remained under pressure after, falling a further 0.3% as both Boeing and Caterpillar weighed alongside McDonald’s, the latter falling after a lacklustre reaction to its new menu. Meanwhile, both the S&P 500 and Nasdaq closed higher, with the former recovering from being more than 1% lower to close 0.5% higher thanks to healthcare gains, while the Tech-heavy Nasdaq outperformed, closing up 1.1%.

Gold has ticked higher overnight on increased political uncertainty in Europe following the Italian election, however with the Euro trading sharply lower, a stronger US dollar is keeping a lid on gains. Having broken out from $1324 falling highs resistance, the precious metal traded an overnight high of $1327 before edging slightly lower.

Crude Oil benchmarks have retreated from overnight highs as the US dollar makes steady gains on the back of Euro weakness. Global benchmark Brent is hindered by falling highs resistance just shy of $65, while US crude also retreats from falling highs around $61.8. The performance of the Euro and its reciprocal impact on the US dollar will be a key driver of sentiment for commodities today.

In focus today will be the Italian election result, exit polls pointing to a hung parliament, setting the country up for complicated coalition negotiations lead by the anti-establishment Five Star movement (32.5%), a party that has previously ruled out working alongside other parties. That said, without a ruling majority it looks like it will be pushed towards a formal tie-up with other populist parties (anti-Europe, anti-Euro, anti-immigration) including the Northern League (18%), the Brothers of  Italy (4%) which were in cahoots with Berlusconi’s Forza Italia (14%) in a centre-right coalition (36% total).

This latest  European election result suggests a huge defeat for the governing PD party (23%) and comes just hours after Germany finally cobbled together a working government thanks to the SPD voting two-thirds (stronger than expected) in favour of a coalition with Merkel's CDU and sister party CSU, putting to bed six months of negotiating and an absence of genuine leadership for Germany, and perhaps even the EU. The Italian MID is called sharply lower, while the DAX look set to suffer too.

Data-wise, it’s all about PMI Services updates from Europe, the UK and US. Note Japan and China have already missed expectations overnight although merely pulling back from recent highs. Consensus is for France (8.50am) to confirm a pullback to the average of the last year while both Germany (8.55am) and the Eurozone (9am)confirm normalisation from Jan’s spike. The UK (9.30am) is seen bottoming out from its weakest in over a year  while the US (2.45pm) bucks the trend by confirming an acceleration to its best since last Summer, although US ISM Manufacturing (3pm) probably slipped back from recent highs


Thereafter, Eurozone Retail Sales (10am) are expected positive in February from a negative January, remaining unchanged on a yearly basis, while this afternoon, US ISM Manufacturing (3pm) is expected to retreat marginally from January’s 13-year high. 

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