October 28, 2019 / 8:57 AM / 24 days ago

Daily Briefing: Record highs and election heat

LONDON (Reuters) - A new record high for Wall St’s S&P500 stock index on Friday ahead of this week’s expected U.S. interest rate cut added to ever more positive noises about a trade truce between Washington and Beijing as soon as next month as well as a relatively upbeat U.S. earnings season to put a gloss on world markets first thing.

Traders work on the floor at the New York Stock Exchange, October 25, 2019. REUTERS/Brendan McDermid

MSCI’s all-country world stock index pushed higher for the fourth straight day, just shy of Friday’s three-month high.

The Fed is widely expected to cut interest rates by another quarter of a percentage point on Wednesday, with most market interest in whether Fed Chair Jerome Powell signals a pause in the rate cutting campaign for the remainder of the year. The likelihood is he keeps is options open for another move in December but makes it highly contingent on a further weakening of the economy.

Critical to that will be signs of détente in the year-long trade war between the United States and China and all the latest signals from the two sides suggest some more progress toward a deal ahead of next month’s meeting between U.S. President Donald Trump and China’s President Xi Jinping at the APEC summit in Chile.

Chinese Vice Premier Liu He had a phone call with U.S. Trade Representative Robert Lighthizer on Friday as both countries confirmed technical consultations on some parts of a trade agreement were basically completed. Meantime, some 80% of U.S. companies that have reported third-quarter earnings so far have beaten forecasts, with results from tech giant Alphabet due out later on Monday.

With U.S. stock futures continuing to nudge higher on Monday and 10-year U.S. Treasury yields at their highest in over a month, Asia bourses advanced too. Shanghai and Hong Kong stocks gained almost 1% each, while Tokyo’s Nikkei and Seoul’s Kospi were up by a more modest 0.3%.

China’s offshore yuan slipped back after briefly touching its strongest level in over a month, with MSCI’s emerging market currency index hitting its highest since early August.

Elsewhere, sterling was a fraction weaker against the dollar and euro first thing Monday as traders awaited a UK parliamentary vote later on Monday on Prime Minister Boris Johnson’s proposal for a Dec. 12 election.

Prime Minister Boris Johnson visits Middleton Primary School In Milton Keynes, October 25, 2019

With the opposition Labour Party expected to reject that, it is unlikely the vote will pass. However, other opposition parties are reported to back a Dec. 9 election if, as widely reported at the weekend, the European Union agrees this week to another Brexit delay to the end of January. Johnson’s government may agree to that and that would put an election ahead of any new Brexit attempt.

Argentina’s sovereign bonds weakened almost a cent first thing on Monday after the country’s populist Peronist party swept back into power on Sunday, ousting conservative Mauricio Macri in an election result that puts Latin America's third biggest economy back under the control of a more leftist government after it was battered by economic crisis.

The country has been grappling with frenzied markets since an August primary election vote where candidate Alberto Fernandez - now president-elect - soundly beat Macri, sparking a sell-off of the local peso currency, bonds and equities.

Although there was no indication of peso trading yet on Monday, Argentina's central bank announced early on Monday morning it would sharply cut the amount of dollars individuals could buy to $200 a month, amid concerns over outflows of foreign exchange reserves accelerating after the election result.

In Lebanon, a Lebanese state prosecutor on Sunday banned traders and money exchangers from taking significant amounts of physical dollar currency out of the country at air and land borders as protests entered their second week.

Banks remain closed for an eighth working day. The International Monetary Fund stressed reforms should be implemented urgently given the country’s high debt levels and fiscal deficits.

On European corporate front, HSBC's profit warning shows the escalating trade war between China and the U.S., easing monetary policies, unrest in its key recession-hit Hong Kong market and Brexit continue to roil banking sector. HSBC's Hong Kong-listed shares slid about 3% in Hong Kong trading earlier.

In stark contrast, luxury companies continue to show resilience with a host of companies beating earnings expectations last week showed Chinese shoppers are continuing to spend heavily on luxury goods.

After reporting strong results in early October, LVMH has now approached Tiffany with what a source said was a $14.5 billion acquisition offer. LVMH shares are seen up 2% to 3%.

Cyclical sectors face the heat again this quarter with German chemicals maker Covestro warning on profits, a week after rival BASF posted weak profits. Covestro shares are seen opening 2% to 3% lower, according to dealers.

In other major moves, UniCredit shares are seen down 1% to 2% after it said that it had identified a data breach involving a file created in 2015 and containing records of about 3 million Italian clients.

It’s also worth keeping an eye out for Tenaris, BBVA and other stocks exposed to Argentina.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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