Financial market research and analysis

The FTSE opened in the red as reality hindered yesterday’s enthusiasm after BHP announced £4bn half year loss to really help dent risk appetite. Energy, health care and materials are the worst performing sectors in London.

The UK miners are under selling pressure despite the recovery in oil and commodity prices. Iron ore futures have bounced higher by more than 30% off the December lows, the iron ore delivered to Qingdao in China surged by a significant 6.18% in Asia. Copper is ready to grasp the 100-day moving average, $2.15/lb. WTI took a big step above the 4-month channel top ($32).

BHP Billiton (-4%) is the main culprit here, dragging everything down in in its wake as it cut its dividend by 75% after posting a massive half year loss of £4bn. The key issue here is that the mining giant doesn’t feel all that upbeat on the year ahead and expects the current malaise in the commodity market to continue. Even with prices fairly weak, the firm will still target higher output to offset lower margins which will only serve to aggravate the present supply glut situation.

Standard Chartered (-8.48%) is being punished severely owing to a surprise full-year loss. . The pre-tax loss was $1.5 billion in 2015, down from profit of $4.2 billion a year earlier. While investors were expecting a tough ride for the bank on the weaker Chinese economy, the extent of the loss was unexpected. Shares are now trading at historic lows close to 400p. The dividend was already scrapped in November as part of a plan to save money and bolster capital and a rights issue already raised $5.2b. Management may need to start getting creative if this current trend is to be reversed.

The pound hit a fresh seven-year low against the US dollar on mounting Brexit risks. The 1.40 handle is straight ahead and could give way to further depreciation down to 1.3657 (March 2009 low) and 1.3503 (January 2009 dip). The 1-month risk reversals on GBPUSD have fallen to the lowest levels since May 2015 General Election as the market is increasingly hedging against the risk of a further and significant depreciation in the pound.

The euro lost ground against the US dollar and it may be just a matter of time before the 1.10 support is completely abandoned. Brokers now appear to be returning with parity calls ahead of Mario Draghi’s expected stimulus next month.
The GDP growth in Germany met market expectations in the fourth quarter; Europe’s growth engine grew 0.3% q/q. The 0.6% contraction in exports, the slowdown in private consumption and lower government spending have been compensated by 1.5%q/q expansion in capital expenditure, 2.2% surge in construction investment and 0.8%q/q growth in domestic demand. Mixed data sent the DAX 1% lower in Frankfurt. The cheaper euro has helped create a semblance of a floor to the downside.

The sentiment of insecurity and the risk aversion keeps risk haven assets in demand. The dollar currently fights back the franc at parity, euro-franc slid past 1.10 in Zurich this morning. Market chatter is presently based around the possibility of a further SNB action to prevent franc appreciation as the ECB seems to be preparing for more monetary easing at its March meeting. The euro-swiss futures trade north in anticipation of a potential rate cut from the SNB.

Gold is also well supported by $1200 level. Below this level, we will watch $1080, the Fib 38.2% retrace on Dec-Feb rally, to lend support to the current bullish development for a potential mid-term recovery toward 1250/1260 (Feb 11 peak). Below 1180, a further slide to $1055 (Fib 50%) could be considered.