October 8, 2019 / 7:45 AM / 15 days ago

Daily Briefing: Big deals, blacklisting and obliteration

Mixed messages before Thursday’s U.S.-China trade talks in Washington continue to hold world markets in thrall, with Asia markets taking a marginally positive view of the outcome as Chinese markets returned from a week-long holiday.

President Donald Trump participates in a formal signing ceremony for the U.S.-Japan Trade Agreement at the White House, October 7, 2019. REUTERS/Kevin Lamarque

With U.S. President Donald Trump embroiled in several controversies from the sudden withdrawal of U.S. troop from Northern Syria to congressional moves to impeach him, his angle on the trade talks was nuanced.

On the one hand, he said a deal was possible, but also said he would not be satisfied with partial measures, a quick deal was unlikely and connected progress with Beijing’s handling of the Hong Kong crisis.

Without agreement this week, U.S. tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% from 25% on Oct 15. Jitters about the talks also grew after the United States on Monday blacklisted some Chinese tech companies over Beijing's treatment of predominantly Muslim ethnic minorities.

Still, Shanghai stocks closed 0.5% higher on Tuesday despite another negative close for the Wall Street indices overnight. Hong Kong also closed up more than half a percent and Tokyo and Seoul added more than 1%.

The gains were helped by optimism in the tech sector after South Korea’s giant Samsung’s guidance on third-quarter profits was not as bad as feared. China’s offshore yuan was stronger overnight against a weaker dollar.

The relatively positive stock market mood looks set to spill over into Europe. European stocks were set for gains of about 0.25% at the open after German August industrial production data came in better than forecast, easing some of the gloom over German manufacturing in recent months. Euro/dollar rose toward $1.10.

Sterling was weaker first thing, with little perceptible movement in the Brexit standoff as Brussels detailed to London where it sees its latest compromise proposals falling short. Britain’s independent Institute of Fiscal Studies, meantime, said a no-deal Brexit would see the UK budget deficit more than double to around 100 billion pounds and require a swift return to austerity measures to keep it in check.

Goldman Sachs said on Monday it had advised its clients to buy pounds against the dollar up to about $1.30 on what it said it saw as relatively low odds of a no-deal Brexit on Oct. 31.

Elsewhere, Turkey’s lira steadied after weakening up to 2.5% against the dollar since Trump’s surprise decision on Syria on Sunday night. Trump came under heavy criticism at home, even from Republicans in the Senate, for giving Turkey a green light for a military incursion into the homeland of United States’ Kurdish allies.

He then warned Turkey last night that he would "obliterate" its economy if it committed any abuses in the area. Earlier on Monday, Deutsche Bank said it cut its view on Turkish bonds to neutral from bullish.

On the European corporate front, the major news overnight was Hong Kong Exchange's decision to ditch its unsolicited takeover bid for the London Stock Exchange. Shares in one of the world's oldest and largest stock exchanges may fall as much as 8% as the LSE turns its attention to its deal with Refinitiv.

One trader reckons the stocks could return to around 6,800 pence, where it was trading before Hong Kong’s surprise offer, a 10% drop from last night’s closing price.

There was also plenty of earnings news to digest. British budget airline easyJet said full-year profit would reach the upper end of expectations, with revenues boosted by pilot strikes at rivals British Airways and Ryanair. Its shares were seen higher. Air France was expected to get a boost from its September traffic numbers.

In Germany, Wirecard was up 2% in premarket trading after the payments firm raised its 2025 targets. Qiagen shares were down as much as 13% after warning on its third-quarter sales and losing its CEO.

In M&A, Uniper shares were down more than 3% after Finnish utility Fortum said it will buy a majority stake in the German company. A major shareholder in Nordex Acciona raised its stake above 30%, increasing the chances that it would make a takeover offer for the German wind turbine maker. Nordex's shares were up 7%.

A report that the U.S. government had suggested issuing credit to Nokia and Ericsson to help them compete with China’s Huawei may give the Nordic telecoms companies a boost.

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

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