Flat finish for equities
Equity bears have found some breathing space cruising into Europe after risk sentiment settled down following an announcement that US imposed tariffs – around US$360bn worth – will remain as is until after the US presidential election takes place on November 3. In reality, this isn’t surprising for market expectations given Phase Two negotiations were already pencilled in to start post election.
While it’s unclear exactly how long this sustains as the status quo; based on Trump’s poor track record of sticking to his word, it’s entirely possible he dangles the prospect of tariff reductions between now and November as a means of boosting his own election narrative. The spillover of contained risk sentiment into Europe points FTSE and DAX towards a negative start, but could be buttressed depending on how US reporting tracks.
FX settled ahead of key Sterling releases
FX markets are equally quiet with major G10 pairs trading within tight ranges throughout Asia. Though, don’t be fooled, as upcoming newsflow looks set to make for more interesting price action.
GBPUSD manages to tread water at 1.303 back above its 55d-MA, after having been pounded at the start of the week following dizzying speculation around how the BoE might react in January. The release of UK December inflation, forecast to show 1.5% yearly growth, does certainly look to provide another clue on the UK economy. But as we noted yesterday, it’ll likely pale in significance to next Friday’s mammoth UK PMIs – set to be the deciding point for wait-and-see doves inside the BoE.
With MPC members Saunders and Haskel voting for a 25bps rate cut at the last BoE meeting, and Vlieghe and Tenreyro recently vocal about their UK economy dependent dovish leanings; it raises the question about who fills that last spot. Cunliffe seems inclined based on previous speeches, while Carney, Broadbent and Ramsden could tag in should the next fortnight’s worth of data paint a picture of UK sluggishness. We would only rule out Haldane who is commonly known as the most hawkish.
Strong banks beget strong banks
Overnight, significant beats against consensus at the revenue and EPS level by JP Morgan (JPM) and Citigroup (C) draws an optimistic tone for the next group of household banking names – Bank of America (BAC), Goldman Sachs (GS) and Bank of New York Mellon (BK) – set to report later today.
Strong revenue postings in fixed income markets relative to the prior corresponding period contain promise for the Markets and Securities divisions of other banks, and could yet spur further impressive results across the financial sector. As an increasing amount of focus is being put on the resilience of the US economy and consumer, especially as a key determinant of global investment flows in 2020, it is the financial sector that reveals the most amount of information given its ground zero position and intertwined nature with the global economy.
Outside of financials, Delta (DEL) made waves after posting higher revenues driven by an increase in premium services and higher-end fares. This comes at an interesting time as UK domiciled Flybe agrees to a government rescue deal to significantly reduce the regional airline’s near-term tax burden. As crude – one of the major costs to airlines that tends to be hedged – remains elevated against the backdrop of lingering US-Iran tensions, those with weak operations and treasury desks will be exposed.
Final thoughts
Some major news broke this morning that suggested the “Trump administration plans to restrict news media’s ability to prepare embargoed stories on economic indicators in data lock-ups” as early as this week. This proves very interesting given it’s sort of unprecedented to think about what impact on volatility there might be had from having little to no coverage of major economic releases in the lead-up.
Could this cause information asymmetry to widen even further between the public and institutional side of markets, with the latter arguably better judges of how data might fall. Or could it cause a discernible structural shift in how markets trade economic data like NFPs. Who really knows. Only time will tell.
