LCG Market Analysis

Pound gains little on data, stocks sold

The UK’s manufacturing and industrial production data surprised on the upside in September. The trade deficit narrower more than expected during the same month. The UK’s deficit eased to 11’253 million pounds in September versus 12’800 expected by analysts; last month’s figure was revised lower from 13’245 to 12’350 million pounds.

Cable shortly traded above its 200-hour moving average (1.3160) posterior to the data release. The strong data could keep the GBPUSD above 1.3085 (November support), before next week’s inflation data, yet could hardly boost the hawkish Bank of England (BoE) expectations provided the Brexit uncertainties and slower growth expectations in the next two years.

The European Commission cut its UK growth forecast to 1.5% from 1.8% this year, and predicted 1.3% and 1.1% growth in 2018 and 2019 respectively. If the European Commission estimation is correct, the BoE will likely remain stuck in a low growth - high inflation loophole even after having raised the interest rate by 25 basis points at its last meeting.

On the other hand, Brexit talks are complicated and bear no fruit. Businesses involving big banks, become gradually impatient and could throw in the towel if there is no clarity regarding the post-Brexit operating conditions by early next year.


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GBP tanks, ‘no confidence’ in PM May

Asian stocks opened the week on a mixed note. The US dollar gained against the G10 currencies in the overnight trading session. Hong Kong (+0.32%) and Chinese mainland stocks (+0.32%) advanced with US equity futures. Metals gained.

Alibaba’s single day generated $25 billion, 39% more than a year earlier. Call it an immense marketing success story or an ecological disaster, retailers in China are benefiting from a steady growth in middle class revenues, giving a decent support to the Chinese recovery theme.

FTSE 100 opened upbeat. Mining (+1.10%) and energy stocks (+0.57%) led gains.

Oil steadied on Monday; WTI crude traded near $57/barrel, Brent crude consolidated at $63/barrel. Precious metals were marginally positive. Gold traded at $1’274/1’276.

The pound depreciated versus all its G10 counterparts in Asia and sold off the most against the Japanese yen (-0.83%), the US dollar (-0.80%) and the Swiss franc (-0.71%). The 10-year gilt yield rose by 8.1 points on Friday. Rising pressures on PM Theresa May and fruitless Brexit talks were the major negative catalyzers. Sunday Times reported that forty Conservative MPs agreed to sign a letter of no confidence in Theresa May, ‘almost enough to trigger a leadership challenge’.


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GBP softer post-CPI, EUR gains past 1.17

The UK’s headline inflation remained unchanged at 3.0% year-on-year in October, versus 3.1% expected by analysts. The core inflation steadied at 2.7% compared with 2.8% predicted by analysts.

The sharp depreciation in pound posterior to the Brexit referendum is a major cause of rising the inflation. The deterioration in the economic sentiment and stagnant wages encourage the BoE to stay as accommodative as possible when it comes to the UK’s monetary policy.

The BoE is expected to raise rates by 25 basis points in 2018 and by another 25 basis points in 2019.

Cable eased to 1.3074 as softer-than-expected inflation data kept the Bank of England (BoE) hawks on the sidelines. Traders watc 1.3040 (November support), if broken, would place the 1.30 support under a decent pressure.


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Republicans could find it hard to pass a joint proposal on Obamacare repeal and tax reforms

The US 10-year yield eased to 2.35% and the US stocks retreated on the US’ complex tax reform debate. Latest news suggest that Republicans would add the repeal of Obamacare’s individual mandate to their legislation. The goal of adding the Obamacare repeal into the mix is to propose a financing solution for the major tax reforms, but of course the joint-proposal on two controversial subjects could also decrease their chances of success for passing the bill on the Congress.

US equity futures traded lower. Dow Jones (-0.41%), S&p500 (-0.41%) and NASDAQ (-0.43%) futures hint at a softer open in New York.

The US economic calendar is busy today. The US headline inflation may have slowed to 0.1% on month to October from 0.5% printed a month earlier; the consensus for October retail sales is 0.0% month-on-month versus 1.6% previously. Soft data could keep the USD-bulls on the sidelines, a subdued inflation read will unlikely impact odds for the Federal Reserve (Fed) rate hike by the end of the year, although some began asking if the Fed is about to make a policy mistake by raising the rates by additional 25 basis points before the year ends. The probability of a December rate hike stands at a solid 92.3% and is mostly priced in.


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FTSE flat, global stocks rebound

Nikkei (+1.47%) and Topix (+1.01%) rallied after five consecutive session losses. European stock markets inherited a bullish market. US equity futures gained despite worries on controversial tax reforms, now augmented by the repeal of Obamacare’s individual mandate.

DAX (0.61%) and CAC (+0.55%) opened upbeat.

FTSE 100 stocks (+0.01%) lagged despite a positive open elsewhere in Europe. Individual company news was the main responsible of the FTSE’s underperformance. GKN plunged as much as 9%, as the company announced that CEO-designate will leave with immediate effect and the write-off to its US aerospace business, which has been announced to be around 40 million pounds a month ago, could be as much as 80-130 million pounds. Investors sold off the stock aggressively.

Energy stocks (-0.64%) were mixed; BP (+0.84%) gained while Royal Dutch Shell (-1.08%) slid.

The pound gained marginally following the better-than-expected retail sales data. The retail sales in October printed 0.1% month-on-month growth compared with the 0.6% contraction a month earlier. The headline inflation steadied at 3% over the same month, as wages growth steadied at 2.2% in September. Traders are looking for top-selling opportunities at a period of rising political certainty. Brexit news and rumours squeeze the markets. GBPUSD offers are eyed at 1.3210/1.3240 (50-day moving average).


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US stocks gain as House passes tax bill

Cable is edging higher for the fourth consecutive session. It has been a data-full week for pound traders. The inflation steadied at 3% year-on-year in October, wages growth stabilized at 2.2% versus a deterioration predicted by analysts. Retail sales came in better-than-expected as well. It is not sure if the rebound was due to the mixed bag of data or it was a correction on the Monday’s dip, as UK political developments over the weekend triggered a sell-off. The pair traded above the 50-day moving average, yet bumped into resistance at this level. It is important to keep in mind that gains could vanish in a puff of smoke if there are more tensions at the heart of Theresa May’s government. As mentioned above, the Monday open was heavy on pound, some traders may be willing to avoid a similar risk next week. Offers are eyed at 1.3255/1.3275.

FTSE 100 opened downbeat on stronger pound and mixed picture in oil and commodity markets.


US stocks gain as Republicans approve tax bill

US stocks rallied (S&P500 +0.82%, Dow Jones +0.80%, Nasdaq +1.30%) as House Republicans approved their version of the tax package. The debate is now moved to the Senate and there are worries that the tax bill could remain short of votes, as the Senate will be debating over its own separate plan which has significant differences. Either way, Republicans may have taken a historical step. The tax overhaul includes massive corporate tax cuts, which have been priced in the US stock prices since months. On the other hand, the overall package is estimated to cost as much as $1.4 trillion to the US government, an amount which should alert the Federal Reserve (Fed) in its way to calibrate and conduct its monetary policy accordingly. The probability of a December rate hike stands at a solid 97%.


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Euro declines as German coalition talks collapse

The single currency kicked off the week downbeat on news that German Chancellor Merkel’s efforts to form a coalition government collapsed. The euro was the leading G10 loser against the greenback in Asia. The EURUSD retreated to 1.1722. The 100-day moving average (1.1798) could act as a resistance to any price recovery. Bloomberg warns that Merkel could face a new election. The German event risk could curb the positive momentum and keep the appetite limited in the single currency and weigh on the DAX stocks.

In addition, the European Central Bank meeting accounts (due on Thursday) could reveal that some policymakers dissented to discuss about tapering at last month's meeting. Even if this is true, it won’t change the ECB’s plans to continue the Quantitative Easing (QE) program at half speed from January. The euro interest rates are expected to stay low for sufficiently long after the end of the QE. This is already priced in.


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AUD tanks on RBA minutes, EUR edgy

The EURUSD consolidates losses after news that German coalition talks ended with no deal hit the euro on Monday. German Chancellor Angela Merkel said she is ready for new elections, ‘a minority government isn’t part of my plans’ she added.

The latest opinion polls showed that the probability of a new election stood at 45%, chances of a grand coalition were slightly above 25% versus a minority coalition with slightly less than 25% (source Forsa for RTL/n-tv, Bloomberg). A new election would certainly not happen before April according to diverse sources.

The German political turmoil didn’t prevent the DAX from outperforming European peers on Monday and should not be particularly negative for the euro in term, given that new elections would not have an impact on the European integrity nor Germany’s commitment to the single currency. However, the crisis has curbed the positive momentum in euro, which is needed to push the currency higher in the current low yield environment. The hourly trend and momentum indicators are negative, and the downside move could stretch to the 200-hour moving average (1.1720) and 1.1707 (50% retracement on November rise).

Cable extended gains to 1.3280 yesterday, on news that the UK would offer to pay a higher Brexit bill so that the Brexit negotiations with the EU could carry on. The UK budget is due tomorrow. Chancellor Philip Hammond is expected to remain cautious on the budget, especially if the UK prepares to loosen its purse string to quit the EU in a friendly manner. Of course, the UK’s offer may fall short of the EU’s demand. The downside risks prevail, and resistance could be found at 1.3280-1.3300 area.

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EUR gains on PMI, GBP steady post-GDP

The UK’s third quarter GDP growth came in line with 0.4% quarter-on-quarter expected by analysts (second estimate), 1.5% year-on-year. Exports may have contracted by 0.7% compared with +1.7% printed earlier, the gross fixed capital formation declined to 0.2% from 0.6% and 0.4% expected. The pound gave a limited reaction to the GDP data. The UK budget statement, the GDP revision and fluctuations in the US dollar are the main drivers in the pound markets.

The GBPUSD advanced past 1.3327, the highest level since October 12. The positive trend has been the GBP-long positions’ friend this week. Next natural target for the GBPUSD stands at 1.3336/1.3342 (October 12 peak / 50% retrace on September – October decline). Yet the upside potential could be limited as the official UK growth figures are revised lower. In addition, today’s GDP data showed that the components that drive growth in the long-term could be somewhat discouraging for the buy-side.

The FTSE 100 edged lower on stronger pound, stagnant oil prices and individual stock news. Centrica Plc (-15.43%) plunged on profit warning and erased 5.4445 points off the index.


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Black Friday could boost risk appetite in US stocks

Today is Black Friday in the US, the beginning of the Christmas shopping season and nearly 70% of Americans are expected to hit the online or traditional shops over the weekend. The pre-sales data indicate a better performance compared to last year; early numbers point at a solid 18% year-on-year increase in November sales so far. US households’ holiday spending could increase as much as 4% compared with last year, according to Bloomberg news.

The US dollar is quiet after having depreciated on Federal Reserve (Fed) meeting minutes earlier this week. The US yields have slightly improved, but the US 10-year yield remains near the critical 2.30% support (200-day moving average). The US equity futures are flat after having reached record highs before the Thanksgiving break. Provided the encouraging pre-sales data and the unusually high risk appetite in the US stocks this year, Black Friday could give traders a good reason for jumping on the back of a bull.


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Global stocks edge lower, gold gains

The week started with a mixed risk sentiment.

The US dollar index eased to a two-month low on Friday and lacked a clear direction against the G10 currencies on Monday. Gold (+0.32%) consolidates gains between mid-upper Bollinger band ($1’280/1’295). Positive breakout could see more resistance by $1’300/1’306 (psychological resistance / Oct high). Buyers are eyed at $1’265 (lower Bollinger band & 200-day moving average).

Asian stock markets closed the first trading day of the week on a negative note.

The FTSE 100 edged lower at the open. Energy (-0.14%) and mining stocks (-0.67%) traded under pressure, as COMEX copper futures slid 1.25% and WTI crude (-0.83%) bounced lower from $59/barrel. OPEC and its allies will meet in Vienna this week; they are expected to extend the output cut agreement from March 2018 (current deadline) to September 2018 the earliest. This is widely priced in, therefore deeper cuts or a longer engagement may be needed for a sustainable attempt above the $60 level.

Cable consolidates last week’s gains above its 50-day moving average (1.3249). The next natural target for GBP-longs is 1.3400. The Bank of England (BoE) Financial Stability Report could curb the pound appetite on Tuesday and trigger some profit taking. In the dirt of important economic data, the pound traders will shift their focus to the Brexit issue. The UK should submit its official offer for a Brexit settlement to unlock talks regarding the future of the EU/UK trade relationship. Hence, pound traders will likely opt for short-term long positions, as longer duration bets are too risky and will not give traders a peace of mind before a concrete outcome on Brexit negotiations.


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‘Heightened risk premia’ on UK assets

The Bank of England (BoE) released its Financial Stability Report and the UK banks’ stress test results. In his statement, Governor Mark Carney highlighted that there is ‘some evidence of heightened risk premia on UK assets’ and 18-24 months may be needed for the Brexit transition. Carney said, ‘the sooner the better’ for a transitional deal.

Governor Carney’s speech slightly weighed on the pound. As expected, the BoE hawks could hardly find a motive to capitalize on the FPC’s (Financial Policy Committee) statement. Cable’s failure to extend gains above the 1.3383 level (Monday high) could be an early toppish sign and encourage short-term traders to realize profits and move to the sidelines. A downside correction in the GBPUSD could stretch toward the 50-day moving average (1.3250).

Pound traders will also remain sensitive to developments on Brexit negotiations. News that the UK could consider doubling its settlement bill to break the impasse in post-Brexit trade negotiations boosted the pound last week. But there is no official statement from the UK officials yet. Any negative news on this issue could further weigh on the pound’s positive trend.


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GBP gains on UK/EU deal, US stocks up

Asian stock markets traded mixed. Japanese stocks gained on softer yen, while Chinese stocks remained on the back foot. Gold traded close to its daily upper Bollinger band ($1’297). WTI crude consolidates near $57/barrel as traders are holding their breath before the OPEC and its allies’ decision on the extension of the production cuts, but also on how to end this deal. Russian decision is important.

The pound appetite remains firm on news that the UK and the EU reached a deal on the settlement bill, which would be an amount between 45 – 55 billion euros. According to the FT, the UK could even assume liabilities up to 100 billion euros. It is a hefty price tag, but it will allow both sides to start the post-Brexit trade negotiations off on the right foot. This is an encouraging development for the UK businesses and the pound. Cable advanced to 1.3431 in London. The positive momentum strengthens. Light call options are seen at 1.3465. The next natural target for long positions is 1.35.

The FTSE 100 (-0.55%) is giving back a part of yesterday’s rally.


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FTSE down on strong GBP, steady oil

The GBPUSD extended gains to 1.3480. The major driver of this week’s 260 pips rise was the EU/UK agreement on the Brexit settlement. The trend and momentum indicators point at a further rise. The next natural target for the GBPUSD-long positions is 1.3500. The key resistance is eyed at 1.3657, the 2018 high. Support could be found at 1.3370/1.3350 (50, 100-hour moving averages respectively).


The FTSE 100 fell on the lack of enthusiasm in the oil market and a stronger British pound.

Energy stocks (-0.49%) edged lower at the open.

OPEC and Russia agreed to extend their production cut agreement to the end of 2018. Oil prices gave two-sided reaction, but no important levels were breached, provided that the deal was fully priced in. At this point, the best OPEC could do is to meet its target. Therefore, the bias turns on the downside. Failure to clear the $60/barrel resistance could encourage a downside correction in WTI on its June – November rise. The mid-term support is eyed at $55.00 and $52.50 (minor 23.6% and major 38.2% retracement).


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US markets squeezed by delayed tax vote

Cable extended losses to 1.3550. The positive trend gains momentum and there is more potential to explore on the upside. The next resistance is eyed at 1.3657, the 2018 high. The UK’s manufacturing PMI is due today. Analysts expect improvement in the activity in November. A solid number could reinforce the buy side. On a side note, it is important to remember that the Brexit risks prevail, as the EU/UK agreement has not been officialized just yet.

The FTSE 100 opened flat. The pound appreciation could curb the upside. Resistance could be found at 7338p and 7364p (minor 23.6% and major 38.2% retracement).

The EURUSD held ground at 1.1805 (major 38.2% retrace on November rebound & 100-day moving average) and recovered past the 1.19 mark in Asia. The Eurozone’s November inflation estimate accelerated from 1.4% to 1.5% year-on-year, slightly less than 1.6% expected by analysts. The core inflation was steady at 0.9%, compared with 1.0% expected by analysts. Soft inflation is not a new challenge for the European Central Bank (ECB) hawks and has not reversed the sentiment in euro. The Eurozone’s final manufacturing PMI will likely confirm a stronger activity in November and boost the bulls’ appetite. In addition, a further weakness in the US dollar could underpin a bullish move toward the 1.20 psychological level. There are no option barriers at this level.


US tax vote drives the stock markets

The US Senate postponed the vote on Republican’s tax reform, as three GOP senators asked for modification, worried that the tax overhaul would cost the federal government as much as $1.4 billion. The US equity futures retreated on delayed vote, after the stocks traded at fresh historical high levels on Thursday. The S&P500 (+0.82%) hit 2’633.74, as the Dow Jones traded at 24’327.82 for the first time. The VIX index advanced to 12%. The US 10-year yield jumped past 2.40%. The US dollar was mixed.


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Stocks gain as US Senate passes tax bill

The US stock futures rallied as the US Senate finally approved the Republicans' much discussed tax reform. The S&P500 (+0.62%) and the Dow Jones (+0.91%) futures gained, the US dollar strengthened against all its G10 counterparts. The US 10-year yield jumped to 2.4187%. The market is focused on the historical tax overhaul rather than political tensions and investigations on Donald Trump. The positive trend in the US stock markets could stretch to uncharted territories.

Asian stock markets were mixed. European and British stock markets opened on a positive note. The FTSE 100 and the DAX rallied by 0.80% and 1.20% shortly after the opening bell. The Britain’s industrials gained past 2% on hopes that the trade policy changes in the UK could benefit to some businesses.

The softer pound helped as well. Cable eased at the start of the week, as some traders preferred realizing their profit on last week’s rally and avoid the Brexit risks as UK PM Theresa May meets the EU’s Jean-Claude Juncker for lunch today. There are still pending issues such as the Brexit settlement deal, the Irish border and the EU citizens’ rights after the divorce. The pound could give back its recent gains if the EU/UK officials do not conclude that enough progress has been made to start discussing about the post-Brexit trade relationship. The downside risks prevail.


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Softer GBP boosts FTSE, USD retreats

The pound eased as the Irish border issue curbed the enthusiasm on an eventual progress in the Brexit negotiations between the UK and the European Union. The pound has been the biggest loser against the US dollar in the basket of G10 currencies. Cable retreated to 1.3406. Irish PM Leo Varadkar said that there is still time to reach an agreement before the Brexit talks resume on December 14. However, every lost battle means less hope for a significant progress in the Brexit talks and the time is running out. Businesses in the UK are impatient to have a clearer insight on the future. In the dirt of positive news, Cable will likely face some profit taking.

All FTSE 100 sectors opened upbeat on the back of a softer pound.

The UK's November services PMI is due today. A solid data could limit the earlier losses. The key Fibonacci support to GBPUSD’s November rebound stands at 1.3355 (major 38.2% retracement). Intermediate support could be found at 1.3460 (100-hour moving average) and 1.3390 (200-hour moving average). Solid offers trail below 1.3550.

The EURGBP sees resistance near its 200-day moving average (0.8833). A lack of enthusiasm in the pound could gather a sufficient positive momentum to surpass this level. Gains could extend toward 0.8868 (minor 23.6% retracement on August – October decline).


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Indices
-European markets have opened lower after another late sell-off on Wall St
-The Nasdaq 100 gave up 1% gains to end lower
-Japan’s Nikkei stock average closed down 2% for its biggest loss of 2017
Shares
-Hammerson has agreed to a £3.4bn offer for Intu Properties
-Legal & General is selling its closed mature savings business to Swiss Re for £650m
Forex
-Dollar mixed before ADP data as Senate/Congress begin talks over tax bill
-Talk of a Johnson-led Tory revolt against UK & EU ‘regulatory alignment’ hurting Sterling
Crypto
-Bitcoin breaks $12k for the first time
Commodities
-Gold has broken lower, now back to key $1260/5 per oz support
-Oil consolidating before EIA US inventory data (after -5.5M draw in API data)

For full report, please click here

Le Westfield merger & Brent crude oil tops $65
By Jasper Lawler, Head of Research
LCG - London Capital Group

-European stocks have opened higher
-US stocks closed slightly higher yesterday despite the terror attack in NYC
-France’s Unibail-Rodamco is buying Aussie shopping centre firm Westfield for $32.7bn
-Ashtead, Balfour Beatty gain after earnings
-Carpetright drops 7%
-dollar is steady on first day of FOMC meeting
-Sterling still soft vs usd and euro going into BOE meeting on Thurs
-Bitcoin cash-futures differential plunged overnight - as we suggested yesterday
-Oil prices jumped after closure of Forties pipeline in the UK, Brent > $65 pb

Europe opens higher
Shares in Europe opened mixed in subdued trading on the first day of the Federal Reserve two-day meeting. The disproportionately large representation of oil giants BP and Royal Dutch Shell helped the FTSE 100 outperform after a jump in crude oil prices.

Another day another merger in retail
It seems the owners of retail property think bigger is better. France’s Unibail-Rodamco will buy Westfield for $32.7bn. It’s the second merger of its kind in as many weeks. As well as size, the deal also provides geographical diversification. The trouble is that competition from online shopping means the falling shopping centre footfall is global phenomenon. The poor performance of US shopping malls have seen Westfield shares fall 23% since 2015. Unibail-Rodamco is in-effect doubling down on an industry undergoing a generational decline.

Brent above $65 per barrel for first time since 2015
Some supply disruption in the UK provided the perfect catalyst for oil prices to continue the run of good form. The shutdown of the Forties pipeline can have a durable impact on the price because it adds to the tighter supply picture brought about by OPEC’s output cuts. We have been surprised by the brevity of the post-OPEC pullback. It seems that some weaker short positions have been squeezed by an oil market that is overwhelming positioned for higher prices. We suspect any pullback after this latest surge will be limited and that Brent is on its way to challenge the 2015 high near $68 per barrel.

Moore problems & Dixons subpar-phone sales
By Jasper Lawler, Head of Research
LCG - London Capital Group

-Republican Roy Moore has lost his Alabama Senate seat
-Dixons Carphone shares rally on mobile unit plans
-TUI shares rise after own-brand hotel sales outstrip airline losses
-Eurex open delayed
-UK unemployment data up next
-Fed meeting today
-Interactive brokers is now allowing short-selling for Bitcoin futures
-oil higher after bigger API inventories drawdown than expected

Markets open mixed before the Fed
European stock markets opened mixed on Wednesday, supported by some well-received corporate results but weighed down by caution ahead of the Federal Reserve interest rate decision. It’s a typically low-vol lead up to the FOMC.

The FTSE 100 is sitting on top of the 6500 handle and looks poised for more gains should the recent sell-off in the British pound accelerate. A Tory rebellion against Theresa May in favour of a “meaningful” vote on the Brexit deal should spell more weakness for Sterling. A “meaningful vote” probably ensures a softer Brexit but in the meantime it threatens May’s leadership and wider political stability.

US futures point higher despite Roy Moore
Stocks in the US look for a positive open despite Roy Moore’s election loss and its potential to disrupt tax reform plans. The Republican majority slipping to a thin 51-49 reduces the ease at which tax reform agreement can be reached. We think the political will for tax cuts mean they still happen. Moore’s loss just narrows the odds on a delay in tax reform being signed off by Donald trump until early 2018.

Dixons Carphone phone sales slump
Shares of Dixons Carphone have rallied after a dramatic fall in half-year profits prompted the electronics retailer to rethink its mobile phones division. The disappointing results have been exaggerated by the delayed release of the new iPhone models. If you can look through the iPhone factor and take heed from restructuring plans, the outlook looks better than it could have done. CEO Seb James’ newly announced plan to reduce ‘capital intensity’ sounds a lot like the store sales that investors were looking for.