Financial market research and analysis

With little in the way of corporate earnings today this side of the pond, the market is now ultimately focused on the prospect of a US rate hike. Last Friday provided a real boost to the December campers with 271,000 jobs added in October and wages growing twice as fast as expected. A single monthly data point, good or bad, should not be relied on as pivotal and one decent jobs number should not be taken as the main deciding factor for Janet Yellen. External headwinds could also pose a problem to tightening. The IMF’s Christine Lagarde is also somewhat concerned that the Fed may move too quickly and have to reverse course – which would not bode well for economic confidence. Since 2008, no central bank has successfully raised rate and managed to sustain the tightening. While the market now prices in a 68% chance of a rate hike for December, the jury is still very much out.

For the time being, the prospect of the US embarking on a tightening cycle has been deemed positive by market participants with financials, energy and materials pressing higher and leaving the defensive equities unable to catch a break.

Even a fairly impoverished Chinese trade balance has failed to dent the risk on attitude today as it may mean additional policy easing and potentially another cut to the RRR rate. Commodities tell the real story and the fact that copper prices continue to slide, losing further ground below the $5000/T marker tends to underline the struggling growth in the second largest global economy.
A hawkish Fed will likely continue to hurt any attempts at a recovery in global commodities and even oil, having taken a hit on the back of the burgeoning US dollar last Friday, losing 2% at one point is showing some semblance of a recovery this morning. It may not be able to keep the weak-at-best momentum going should the dollar continue to rocket. Already speculative longs in the greenback are at levels last seen in mid-August.

Intraday, the upside is aiding oil stocks with BP and Shell both adding 1.13%.

Here in the UK, the CBI announced a "modest" downgrade in its forecast for this year, saying it expects the economy to grow by 2.4%, compared to an earlier prediction of 2.6%, and by 2.6% next year, down from 2.8%. Mark Carney’s less than buoyant outlook for the economy and his failure to (at present) to make good on his guidance that monetary tightening could take place at ‘the turn of the year’ has had a contagious effect- and not for the better.

The pound has been under pressure for the past week or so what with the divergences in both the perceived paths of the individual central banks and the rush to the dollar, the $1.50 level is holding as support. Clearly global financial stocks are going to benefit in terms of positive net interest margins should the Fed actually do the deed and this is reflected in the moves in HSBC (+1.61%) this morning once again which is adding to Friday’s gains. Standard Chartered, despite being cut to hold at Maybank and being placed on review by Moody’s for a long term ratings downgrade is up +1.85% and leading the charge.

Aberdeen Asset Management (+1.84%) and Barclays (+1.79%) are all amongst the top 5 spots on the FTSE leader board this morning.

UK utility stocks are out of favour this morning owing to some broker downgrades.

Already cut to underweight at Morgan Stanley last week, SocGen has weighed in on the United Utilities this morning downgrading it to hold form buy. The stock has fallen 1.62%.

Severn Trent is lower by 1.8% following a downgrade to underperform from Exane.

We call the Dow lower by 40 points to 17870.