LONDON (Reuters) - New-found trade and tech optimism and hopes of lower U.S. interest rates as soon as tomorrow have given world markets a renewed zip this week, with Wall St’s S&P 500 stock bellwether setting a record closing high, the ViX volatility gauge dipping below 13% for the first time in three months, MSCI's all-country world index hitting its highest since February last year and the “safe-haven” Japanese yen retreating to its weakest level against the dollar since Aug 1.
And the warm words around the chances of an at-least initial U.S.-China trade deal next month continued late on Monday, with the latest speculation surrounding possible extensions of U.S. tariff suspensions beyond a December expiry.
Futures markets are also fully priced for a quarter-point Federal Reserve interest rate cut on Wednesday, and while there may be a pause in the rate-cutting campaign in December, markets have a full 50 basis points of easing baked in by next June.
However, despite the new highs, Monday’s effervescence went a little flat in overnight markets. While chipmakers led the charge higher on Wall St last night, results from Google parent Alphabet were a little underwhelming. While revenue beat forecasts, rising costs saw a miss on the bottom line and its stock fell almost 2% in after hours trade. Facebook and Apple report earnings on Wednesday.
Also, Shanghai stocks – partly buoyed by tech and blockchain stocks on Monday following comments from China’s President Xi Jinping urging great use of blockchain technology – retreated about 1% today as shares of suppliers to China's Huawei fell after news that the U.S. Federal Communications Commission plans to vote to designate Huawei and ZTE as national security risks.
Hong Kong stocks also fell back about half a percent after forecasts of a possible full-year contraction of the city’s economy following months of street protests that have paralysed many businesses.
Elsewhere in Asia was a bit more mixed, with the weakening yen helping Japan’s Nikkei up half a percent to its highest in over a year. Some traders held out the possibility of a Bank of Japan policy easing this week too. In Europe, stock futures were flat ahead of the open.
Sterling was steady after the UK parliament late on Monday failed to give the required two-thirds majority backing for PM Boris Johnson’s request for a Dec. 12 election. But Johnson is expected to push ahead a bill on such a snap election later on Tuesday that would only require a simple majority.
The only real question for markets is whether the election will now be Dec. 12 or Dec. 9 as opposition Liberal Democrat and Scottish Nationalists insist instead. To try and get their backing, Johnson’s government is reportedly willing to abandon any attempt to pass its Brexit withdrawal bill before such an election.
For the pound, the Brexit delay to Jan. 31 takes all remaining heat out of no-deal Brexit fears for now. While an election creates some additional headline risk, a majority for Johnson’s Conservatives would likely just see his Brexit bill return and get passed in January, and a win for some constellation of opposition parties could just see further delay or even a second referendum. None of these outcomes is seen as terribly negative for sterling going forward.
On the European corporate front, quarterly updates will be the main focus, and so far Europe Inc has managed to deliver a modest beat, although the bar had been lowered significantly with the latest Refinitiv IBES indications pointing to a 5.3% drop in Q3 profit, prolonging an earnings recession.
Results this morning look mixed. BP's Q3 profit dropped sharply, but still beat expectations, hurt by weaker oil prices, lower production and one-off charges linked to large divestments. Its shares are seen rising around 1-2% at the open.
Shares in Stora Enso are seen falling 7-10% after the Finnish paper company said geopolitical uncertainties would dampen demand in Q4 following a sharp drop in profit in the three months to September.
But shares in Fresenius are up 4% in premarket trade after the German healthcare group slightly exceeded Q3 revenue forecasts, citing strong performance of its infusion drugs unit in emerging markets and growth in home treatment at its separately-listed dialysis business. German dialysis specialist Fresenius Medical Care also beat expectations, sending its shares up 3% in premarket trade.
Beiersdorf is seen opening down 2-3% after the consumer goods firm reported slower sales growth in Q3, citing a "challenging and very competitive market environment", with its adhesives unit dented by a fall in sales to the auto industry.
Deutsche Boerse posted a 10% rise in Q3 net profit thanks to increased trading in derivatives markets as well as power and gas markets and the company confirmed its targets for the full year. Traders see the shares falling at the open as core profit missed expectations.
— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —