Financial market research and analysis

In the aftermath of the weekend tragedy it’s little wonder that investor sentiment is dented this morning with sectors related to tourism and travel all taking a hit. As of time of writing, the only FTSE sectors in the green are the energy and materials sector.

This morning’s flow tends to drive home the fact sentiment can turn on a dime. The rush to safe haven has been to the detriment of practically all benchmarks with the notable exception of the FTSE which is catching a bid higher on the back of higher gold prices and a small bounce in oil. The rise in geopolitical risks is difficult to quantify but it is easy to witness the response at a glance this morning.

Gold is undergoing a small bounce after the tirades of last week and the distinct bearishness on the metal over the last month or so. This is helping the likes of Randgold (+2%) and Fresnillo (+1.19%) rise.

The risks of uncertainty and geo political risks has also manifested in a bounce in the oil price. Light, sweet crude futures for delivery in December traded at $41, up 31 cents while January Brent crude on London’s ICE Futures exchange rose 48 cents to $44.95 a barrel. While this rise has helped BP (+1%) and Shell (+1.18%) this morning, with the backdrop of a glut in oil supply its unlikely to be anything but temporary.

Tullow Oil (+5.9%) has also benefitted from a broker upgrade (UBS). (Buy from Neutral, PT 240p from 195p) They stated ‘’This is a well-financed company with quality assets and a proven development track-record, offering long-term oil price exposure at the bottom of the cycle, yet well hedged at the front end (c.50% of 2016E production at $75/bbl).’’

Conversely and not surprisingly, IAG has fallen to the bottom of the FTSE as the drop in tourism and airline travellers is expected to be rather acute in the near term. Shares have fallen 3.54% in early trade. The same can be said for EasyJet (-2.4%) Carnival (-2.68%) and TUI Travel (-2.73%).

Taylor Wimpey (+2.7%) takes the top spot this morning following reports of an excellent summer season and the fact that order books are at record levels. Full year operating margin is also up more than 200bp. Jeffries has reiterated its buy rating and holds a price target of 222p on the stock.

Burberry (-2.13%) Following last week’s surprise rise in profits, the stock is under pressure again this morning and looks set to challenge the lows (1236p) of mid-October. This would no doubt open a path to new lows for the stock. Sales of luxury goods have still been hit hard by the change in China policy and the slowness in EM growth.

Sentiment was already soured last week on the back of US data. The latest retail sales and import price numbers coupled with this obvious fall in spending in what is deemed to be a consumption led economy could very well usurp the comfort some FOMC members appear to have when it comes to hiking rates before the end of the year.

Inflation, and the lack thereof, something that BOE and ECB have both decried have essentially led both central banks to change tack over the recent past. The BOE said it doesn’t expect to hits its 2% inflation target for another two years, with lower commodity prices and a stronger pound continuing to weigh on consumer prices. The Bank of England has seen its efforts to raise interest rates complicated by falling commodity prices, a stronger currency and concerns over a slowdown in global growth. Despite ‘guidance’ that interest rates hikes were likely when unemployment fell below 7%, we now see now see unemployment at a 7 year low (5.3%). Wage growth remains the barrier and while total wages rose by 2.0%, down from 3.2% the previous month, it marked the weakest increase since February. Thus the BOE has been validated in its decision to hold.

It’s likely we will get to see this further vindicated tomorrow upon the release of the UK CPI data. Forecast to come in at -0.1% year on year.

Wage growth did look to be on an uptrend but this very quickly faltered. There is little evidence to suggest that the same might not happen to the plight of US wage growth.

Similarly, today’s final release of Eurozone CPI is expected to be nil – and this will likely only bolster the idea garnered from last week’s Eurozone GDP numbers. The markets need to start not merely pencilling in the possibility of negative deposit rates and an extension to the present QE programme – it should now basically expect it as a matter of form and in tune with Mario Draghi’s propensity to act rather than merely jawbone.

Given that other central banks still have concerns, even if its generally felt that the spill over from the slowdown in China has yet to be hugely problematic, it’s difficult to see how the Federal Reserve can find justification in hiking rates. Empire State manufacturing index is released at 1.30pm and expected to remain in negative territory for the 4th consecutive month. Tomorrow’s US October CPI number could well disappoint too. The headline is expected to rise 0.2%, the core is expected to come in around 0.1%

We call the Dow higher by 30 points to 17278.