Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:
FTSE 100 called to open -5pts at 6840 after another successful test of rising support but with resistance at 6855. Bulls need a break above Friday’s 6865 high if they are to challenge horizontal resistance at 6908. Bears require a breach of 6840 lows of the last few hours to reverse the bounce. Watch levels: Bullish 6875, Bearish 6835.
Calls for a mild open come after mixed overnight trading in Asia. Equities lacked general direction, with China lower on economic worries. The rest of the region was positive, however, with Australia’s ASX outperforming (+1%) courtesy of a strong performance by FTSE dual-listed Miners (+2-3%).
The Bank of International Settlements (the central bankers’ bank), published a quarterly review warning of more stock market volatility in the near future due to monetary policy tightening, corporate debt quality and trade tensions. FX space uneventful, ahead of this week’s Fed update with USD flat versus peers, neither helping nor hindering the FTSE or Commodities (metals & oil).
In corporate news this morning the Just Eat is under attack from activist investors Cat Rock (owns 2%) asking for new 3yr plan within 30 days and management pay linked to profit not revenue growth. Urges strategic review of non-core assets including possible sale of Brazilian iFood.
ASOS cuts FY sales guidance (+15% vs +20/25% prev.) after significant deterioration in November; Gross Retail margin seen -160bps, EBIT margin 2% (vs 4%). Conditions remain challenging. Plans to reduce capex to c. £200m from (vs medium term spend of £230-250m per annum).
SSE cancels merger of services business with Innogy’s npower; will consider other options incl. standalone demerger or sale. FTSE Housebuilders could be sensitive to overnight Rightmove House Prices which rebounded in December to +0.7% YoY, after November’s -0.2% contraction.
Ratings agency Fitch upgrades Royal Bank of Scotland to 'A' (from BBB+)/Stable; affirms Lloyds Banking Group at 'A+'/'a'; Outlook Stable. Sainsbury and Asda get favourable ruling from Competition Appeal Tribunal on CMA’s unfair timetable for review of proposed merger.
BHP completes $5.2bn off-market buy back (5% of capital) at 15% discount to Friday’s closing price and announces $1.02 special dividend (ex-div 10 Jan). Rio Tinto sells aluminium smelter in Dunkerque to Liberty House for $500m; sale proceeds to be returned to shareholders. Croda purchased Brenntag Biosector, a Danish manufacturer of adjuvants for human & veterinary vaccine for €72m in cash.
BP Trinidad and Tobago announces sanction of two new offshore gas developments, producing gas in Q3 2021 and 2022. Shell and EDPR joint venture wins auction to develop offshore wind block off Massachusetts. Cairn Energy partner Woodside commences front-end engineering design activities for SNE Field Development-Phase 1 offshore Senegal.
Glencore-controlled miner Katanga and directors (current and ex-) be fined $22m by Canadian authorities about hiding risks of doing business with Israeli businessman liked to Congo President. Polymetal sells full interest in Khakanja gold & silver miner for $30m to private Russian investors.
Hunting FY trading in-line, notes market softness in US onshore (Hunting Titan) as holidays, competition and lower client budgets likely to lead to decline in Q4 op. profit. Other regions in-line with Q3. 2019 outlook cautious due to potential client work deferrals.
In focus today will be UK PM May’s House of Commons address (3:30pm), briefing MPs on her unsuccessful visit to Brussels where she was unable to secure assurances on the Irish backstop. Whitehall appears to be at a complete Brexit impasse, with alternative options (no-deal, free vote, second referendum) garnering increasing attention from top-level politicians.
In terms of macro data, final Eurozone Consumer Inflation (10am) is expected to confirm an easing in October (2% headline, 1% core). Should expectations hold true, they will reinforce the ECB’s recent dovish stance with regards to interest rate hikes (no earlier than late 2019; markets imply 2020). Are risks to Eurozone growth still “broadly balanced” or shifting to the downside?
Traders may also pay attention to the German Bundesbank Monthly Report (11am) for commentary on current economic conditions (trade war, Brexit, fiscal discipline). It is traditionally a haven for Eurozone hawks, so should it strike more cautious notes, markets will take notice.
From the US, listen out for Empire State Manufacturing (1:30pm), forecast weaker in October, and the Housing Market Index (3pm), potentially unchanged after last month’s drop to a 2-year low.
Monday may be quiet, but with plenty in store later this week, most notably the US Fed (Weds, 7pm, presser at 7:30pm; hike forecast) and the Bank of England (Thurs, 12pm; no change). We also have China’s Central Economic Work Conference (starts Tues) with many asking whether stimulus may be forthcoming to counter slowing growth, especially after last week’s poor data.
Other data this week includes UK Inflation (Weds, expected weaker), UK Retail Sales (Thurs, expected weaker), as well as US and UK Q3 GDP (Fri, both forecast worse).