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US bill risks China retaliation

Shares in Europe slipped, and US futures are pointing lower on Wednesday. There’s some fear out there that China will retaliate to a US bill defending the rights of Hong Kong protestors. The timing is certainly awkward, just as the US and China struck a “phase one” trade deal. The bill has still not completely passed so we don’t expect anything more than warnings from China at this stage.

We don’t think it’s in China’s interest to take any retribution against the US bill via the recent trade pact. We think its possible this bill will push China into a public show of defiance against US “interference”. That would mean cracking down on the HK protestors. Under that scenario, markets would be relieved if China’s retaliation kept the trade pact intact. However, higher political uncertainty in Hong Kong would be a sizable downside risk.

The S&P 500 is set for a weaker start on Wednesday ahead of results from Bank of America. The lower start comes off the back of big gains on Tuesday where better than expected Q3 results from leading US banks got earnings season off to a strong start. On a quick aside. Markets are not paying attention to the anti-business remarks by some of the Democratic presidential candidates during the debates, notably by Elizabeth Warren. It is too soon to judge the candidates because we are still a far cry from nomination, let alone the election.

The Dax index is lower in morning trade. Trade concerns and muted hopes for a managed UK exit from the EU is holding back sentiment in Europe. Pound strength has been the undoing of the FTSE 100 in recent sessions. On Tuesday the UK index closed flat despite a global equity rally. Today the UK index continues to underperform indices in Europe. UK inflation for September was 1.7% y/y vs 1.8% expected. If you can read anything from this more muted rise in UK prices, its that the Bank of England has a little more liberty to cut interest rates in the case of a disorderly exit from the EU.

ASOS shares were top gainers. It’s a lesson in expectations management at ASOS where profits cratered, but by less than analysts had forecasted. Looking under bonnet things don’t look so bad at ASOS. It was restructuring costs that saw profits crater 68% and sales smashing £2.7bn is an offsetting positive. Our takeaway is that the 50% fall in the share price over the past year has priced in most of the operational difficulties that brought about this profit drop. We see value in Asos as a flexible business, positioning itself to capture the fast growing areas of online and sustainable retail.

13-11-2019

RBNZ throws a curveball. Equities down on waning appetite. Pound is quiet before inflation data
The Kiwi rallied after the Reserve Bank of New Zealand (RBNZ) left the official cash rate unchanged at 1.00%, while investors were expecting a 25-basis-point cut to 0.75%. The NZ 10-year yield jumped 16 points. Even the worsening inflation outlook didn’t bring… Read more

12-11-2019

Investors turn to cash on lack of further progress in US-China talk
Alibaba beats its own record by more than 26%If the Singles’ Day sales are a gauge of the Chinese consumer health, then the Chinese consumers are doing just fine. E-sales on Alibaba’s platform hit a new worldwide record with $38 billion worth of sales during t… Read more

11-11-2019

Chinese deflation throws cold water on equities race. Pound below $1.28 ahead of Q3 GDP release.
China buys.Chinese consumers have their eyes stuck to their phones today for the country’s biggest e-shopping festival known as ‘Double Eleven’. They are buying. Sales on Alibaba’s e-commerce platform hit $13 billion in the first hour of sales after midnight, … Read more

8-11-2019

US equities race to record highs, sovereign yields rise as gold tanks $30 dollar on refreshing US-China news
Stock buyers jumped on the back of a bull following news that the US and China agreed to unwind tariffs they apply to each other’s exports gradually starting from next month. Lower tariffs mean higher spending, higher earnings and eventually a higher growth fo… Read more

7-11-2019

Waning risk appetite on postponed US-China talks. Euro breaks key support. Pound still ahead of BoE decision
News that a potential trade deal between the US-China may be postponed to December weigh on the market sentiment. Investors were hoping to get an interim deal out of their way in November, but it is likely not happening. If stock traders are moody, it is becau… Read more

6-11-2019

US dollar rallies. Gold tanks on major slump in Indian demand
Tit for tat.US trade deficit shrank to $52.5 billion in line with expectations, after exports fell 0.9% and imports retreated 1.7% in September. Trade with China took a hit after Washington imposed more tariffs on Chinese goods from September 1st. But the Whit… Read more

5-11-2019

Equities gain on trade optimism. Will UK services PMI surprise in October?
Global markets trade with joy on improved trade optimism, as encouraging news continue breaking in from the US front. According to the latest news, the US is now debating whether to remove a part of tariffs imposed on Chinese imports on September 1st. Such a c… Read more

4-11-2019

Stocks rally on US jobs data, US-China deal optimism. Aramco goes public.
US equities reached fresh all-time highs following an inspiring jobs report on Friday. The US economy added 128’000 new nonfarm jobs in October, comfortably beating the 85’000 expected by analysts despite the GM strike. The average hourly earnings grew 0.2%, s… Read more