Financial market research and analysis

FTSE started the day upbeat, as energy stocks outperformed at the London open.

 

Royal Dutch Shell (+3.14%)’s third quarter results and the solid cash flow charmed investors. The third quarter profits rose by 1% after the BG purchase, offsetting the negative impacts of cheap oil. The solid cash flow gave a positive signal for future dividends. Nevertheless, we warn that the BG acquisition has brought along an extraordinary increase in inventories and one-time items, but the sector dynamics remain sluggish due to the global oil glut and weak global demand.

 

BP (-2.10%)’s third quarter profits declined by 49%; yet beat analysts’ estimates. This is the ninth consecutive quarter of decline in BP’s earnings, and it is hard to see the end of the tunnel given the challenging dynamics in the oil market.

 

Oil rebounded from a month low as the OPEC agreed on a long-term strategy to manage production. Nevertheless, the long-term promises by OPEC are too vague to push the price of a barrel to a sustainable, rising path. A short-term plan is needed for a price recovery above $50/barrel.

 

The UK manufacturing PMI is expected to have eased to 54.5 from 55.4 in October. Yet activity in the UK’s manufacturing sector remains solid post-Brexit. The depreciation in the pound has thus far outweighed the potential slowdown in activity, although the future remains somewhat uncertain.

 

Interesting statements from BoJ and RBA

 

As broadly expected, the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA) maintained the status quo. The BoJ delayed its target time to hit the inflation goal, mentioning that inflation, excluding fresh food, may not reach the 2% target before spring 2019. The yen gave a little reaction to the BoJ’s decision. The USDJPY traded in the tight range of 104.67/104.97 in Tokyo. The EURJPY remained capped below 115.12.

 

In Australia, the RBA announced to be ready to tolerate a weaker inflation to avoid a sharp rise in property prices and household debt. Yet the new governor Lowe’s reluctance regarding the easy money policies trimmed expectations of a potential interest rate cut in the mid-run. The recovery in commodity prices, the structural shift from mining to the construction sector, and a brighter outlook for the Chinese economy should allow the RBA to have investors’ support regarding its less dovish monetary strategy. The Aussie gained 0.59% against the US dollar.

 

The unexpected acceleration in Chinese manufacturing activity revived appetite in commodities. Iron ore rallied 5.95%, as zinc surged 2.58%; copper added 0.27% in Asia. Hang Seng (+1.11%) and Shanghai’s Composite (+0.37%) outperformed their Asian peers, as Nikkei (+0.02%) and Topix (-0.11%) remained flat.

 

Is the euro inflation a delusion?

 

The euro strengthened against the pound, franc and the yen, yet remained offered pre-1.1000 against the US dollar. Although Eurozone inflation climbed to the highest in two years, the inflation excluding food and energy fell to a six month low. The divergence between the headline and the core inflation suggests that the pickup in headline inflation may be short-lived, given that the energy prices reversed trend.