Financial Market Research and Analysis

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Adidas pulls the DAX higher, euro weakens
German factory orders disappointed deeply for the second consecutive month in September. New orders dropped another 1.7% in month of September, following a 1.8% contraction last month. On a yearly basis, Germany has seen a 1% decrease materialise in its factory orders while the market expected 1.9% y/y expansion. The Eurozone’s growth engine is suffocating.

The DAX reversed the early losses in Frankfurt. Adidas is up by 5.80% as its 3Q results beat analyst estimates. Adidas sales increased to €4.758bn in Q3 from €3.907bn last quarter; the operating profits increased by 14.5% compared to the same period last year, the adjusted net income improved by more than 25%. Despite the economic slowdown, China remains the best growth potential and the depreciation in euro is expected to increase Adidas’ competitive advantage versus its leading US competitors to grasp more market share in China and across the globe.
Utility stocks are leading losses in Germany this morning alongside with Volkswagen (-2%) trading below €100.

The euro weakened to 1.0834 against the US dollar and legged down to 0.70417 versus the pound. Euro traders are clearly crystallising profits before the Bank of England’s QIR and Fridays’ US nonfarm payrolls data. The euro now nears the oversold market conditions against both the US dollar and the pound. The corrective upside moves are expected to remain capped as traders will certainly chase to sell the rallies to strengthen the short-euro positions walking toward the ECB’s December meeting.

Yellen hints at December rate hike.

FOMC Chair Yellen’s speech outweighed the mixed ADP figures yesterday. The USD strengthened across the board as Yellen said ‘At this point, I see the US economy as performing well […] Domestic spending has been growing at a solid pace and if the data continue to point to growth and firmer prices, a December rate hike would be a live possibility.’ The probability the market gives for a December rate hike surged to 58%.

The ADP employment report showed the US economy added 182,000 private jobs in October (vs 180,000 exp), while last month’s 200K read has been revised down to 190K. Although the last 12-month correlation between the ADP and the NFP reads is only 52%, the ADP data generally triggers some position adjustment before the Friday jobs figures. A soft NFP read on Friday could cool off the appetite in USD although anything above 120,000 would (according to some FOMC members) be sufficient to keep them on track to hike interest rates.

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