Financial market research and analysis

European markets have opened flat on Tuesday. LCG pricing points to a lower start on Wall Street after record highs were made yesterday. The US dollar is mostly firmer while the British pound is down on Tuesday morning. Oil and gold prices are little changed in early trading.

More record highs in the US

‘Hello, is it me you’re looking for?’ Shades of Lionel Richie from trade negotiators was music to the ears of markets. A phone call between the US and China, in which a degree of consensus was apparently reached was enough to catapult the S&P 500 and Dow Jones to record highs. We don’t see this phone call being a material difference-maker for a trade deal being completed this year. The more important thing is markets, with the support of central banks, feel more comfortable with the current state-of-play in trade. It might just be that the December 15 deadline is too far away to get worried about just yet. Attitudes to risk could shift once we are within a fortnight of the new US tariffs being implemented.

Alibaba debut

It was a good day at the office for Alibaba and Hong Kong shareholders on Tuesday. The homecoming Alibaba listing went off without a hitch and landed a 7% share price gain to boot. More success (if you judge it by money raised) could be on the cards if Alibaba exercise the green shoe option, where more shares can be issued. The backdrop of a good year for tech shares in Asia was clearly enough to overcome any doubts about the implications of a pro-democracy election-result over the weekend. On the assumption a phase one trade deal between the US and China gets completed, Alibaba shares can continue this initial momentum.

Merger Monday

Charles Schwab buying TD Ameritrade, and LVMH buying Tiffany are the attention-grabbers but they are part of a bigger M&A trend. It’s no coincidence that mergers and acquisitions have picked up since the summer. The M&A activity is tracking the cost of funding and level of liquidity available in the market. Interest rates are lower and central banks are adding assets to their balance sheets again. Very much related – investor confidence has risen with alongside stock markets. It is a repeat of the kind of activity we saw in 2014 before the record-breaking M&A activity in 2015. 2020 has the potential to be another M&A record-breaker. There are many old industries (e.g. automotive & banking) that are being disrupted. If funding costs stay this low- or lower- consolidation is one way to try to survive.

Jerome Powell – glass more than half full

Jerome Powell struck a typically optimistic tone towards the state of the US economy. The US dollar is stronger since Powell’s comments reaffirm the idea of no more US rate cuts over the next 2-3 Federal Reserve meetings. Equities also gained, seemingly happy with support offered by interest rates at these levels.

British pound – polls tightening

The British pound is seeing small losses early on Tuesday. A poll by ICM has the Conservative lead over Labour down to 7 points. That’s half the initial lead in other polls. Labour’s big-spending manifesto has clearly made more of a splash than the play-it-safe Conservative manifesto. Making a splash might be good for short-term polling but we think it darkens Labours overall prospects. We just don’t think public perception can change so quickly from accepting austerity after the financial crisis to the biggest state the UK has ever had in one election. Faced with the choice of uninspiring Conservatives and risky Labour, we think many will choose to sit this election out. Low turnout makes the result less certain and a hung parliament more likely.

US opening calls

S&P 500 to open 4 points lower at 3,129

Dow Jones to open 33 points lower at 28,035