Financial market research and analysis

The pound tanked to 1.2082 against the US dollar yesterday, on expectations that the Bank of England (BoE) Governor Carney would remain significantly loose to support the economy post-Brexit. However, Carney sounded less dovish than many expected, saying that a loose monetary policy post-Brexit ‘isn’t a given’, allowing the pound to recover to 1.2200 in the session.

In fact, the historically low interest rate environment, combined with a 20% depreciation in the pound against the US dollar and the euro, has enhanced inflationary pressures in the UK. The rise in consumer prices, while wages stagnate, is not what the BoE is looking for to avoid a potential recession after the UK quits the European Union. In this context, the rising inflationary pressures may become a major caveat for a looser monetary policy in the UK. The government would need to intervene in order to lend further support to the economy, as Brexit talks are held in a severe and unkind environment.

The FTSE 100 stocks opened downbeat. Energy (-0.99%) and mining stocks (-1.10%) are leading losses in London, as the WTI (-1.18%) trades below the $50 level.

UK financials are down by 0.55% after Lloyds (-3.07%) announced its quarterly results. Lloyds said that third quarter profits were unchanged compared to a year ago, yet warned of a potential sharp drop in earnings following the Britain’s ‘surprise’ decision to leave the EU. The bank also anticipates an additional £1 billion to finance the PPI costs, one of the UK’s biggest banking scandals in history.

Aussie rallies on inflation

The Aussie lead gains in Sydney as the inflation rate rose to 0.7% quarter-on-quarter in the third quarter from 0.5% q/q. The solid inflation report revived the Reserve Bank of Australia’s (RBA) hawks and sent the AUDUSD to 0.7709.

Apple disappoints

Apple’s revenues fell for the first time in fifteen years. The company announced a 8% decrease in sales, which equalled to a 14% fall in profits.

The decline in iPhone sales, weaker Chinese demand due to rising domestic competition, as well as softer-than-expected holiday sales forecasts, are among the major reasons weighing on investors’ appetite post results. However, the tech giant could profit from a jump in its sales amid Samsung’s troubles with its Galaxy Note 7.

Apple’s shift towards Services, such as Apple Music and Apple Pay, could drive profits higher in the coming quarters. Nearly 80% of brokers recommend buying Apple shares, 15% remain on hold for an average 12-month target price of $132.58, while 5% are positioned as sellers.