October 30, 2019 / 9:02 AM / a month ago

Daily Briefing: Christmas polls, cars and easy money

LONDON (Reuters) - While it’s difficult for global markets to peer much beyond the U.S. Federal Reserve policy decision and guidance later tonight, there’s a plethora of news and developments to digest – confirmation of a UK election on Dec 12, a $50 billion merger between Fiat Chrysler and Peugeot to make Europe’s second-largest car company, the management of expectations around phase one of a U.S.-China trade deal next month, Apple and Facebook earnings updates later in the day and another U.S. Congressional threat of sanctions against Turkey.

Anti-Brexit supporters are seen outside the Houses of Parliament in London, October 29, 2019. REUTERS/Yara Nardi

The imminent Fed decision has kept price action under wraps, but net bias overnight has been slightly negative. Wall Street stocks backed off new highs to end in the red. Asia’s main markets gave up about 0.5% earlier after Tuesday’s reports from U.S. officials warning not to expect a trade deal with Beijing by next month’s APEC summit, as many had hoped.

The Fed is almost certain to cut interest rates by a quarter point for the third time this year, but market reaction will determined by Chairman Jerome Powell’s signals about bias in policy for the rest of the year.

Futures markets have cut their chances of another rate cut in December in recent weeks to 30% from 70% as the clueless Fed – as President Donald Trump called the central bank on Tuesday - awaits developments on the trade war and economy. At least another cut is fully priced in by next June, however.

Before the Fed decides today, it will get a readout on third-quarter U.S. GDP growth, which is expected to have slowed to an annualised 1.6% during the quarter. After about six weeks in positive territory, Citi’s U.S. economic surprise index has returned close to zero this week. The U.S. third-quarter earnings season remains encouraging, however.

Despite expectations of aggregate annual profit contraction during the third quarter, some 50% of companies have already reported and almost 80% of them beat forecasts. Apple and Facebook will be key tonight after Alphabet’s underwhelming update on Monday night.

In Europe, the early buzz is all about the Fiat/Peugeot merger. Shares in both are automakers are expected to rise 3% to 7% at the open. Elsewhere, Credit Suisse earnings beat the street, though Deutsche Bank and Santander disappointed.

French third-quarter GDP came in better than expected. Incoming European Central Bank President Christine Lagarde urged euro governments to support regional growth and use any budget surpluses to increase investment.

Sterling held up after the UK parliament agreed a Dec.12 election. While the poll has not yet punctured recent optimism surrounding a smooth Brexit, the uncertainties are bound to rein in further gains from here as implied volatility around the vote creeps higher.

Opinion polls suggest UK PM Boris Johnson’s Conservatives are favourites to return with a majority – a move that would likely see Johnson’s recently agreed Brexit deal pushed through by the end of January – but polls on the popular vote often struggle to capture the UK’s first-past-the-post system accurately and almost 50% of the UK electorate are now considered “floating voters”.

Betting markets put only a 50% chance on a Conservative majority and a 45% chance of another hung parliament where no party has control. One risk considered by some banks, such as Deutsche Bank, is that Johnson may require the support of new lawmakers from the hard-line Brexit Party and be pressured to abandon his standing agreement with Brussels in favour of no deal.

Elsewhere, currencies were mostly steady, with the dollar index weaker. In emerging markets, Turkey’s lira weakened after lawmakers from the U.S. House of Representatives overwhelmingly backed legislation calling on President Donald Trump to impose sanctions on Turkey over its offensive in northern Syria.  

Turkey-backed Syrian rebel fighters drive along a street in Tal Abyad, Syria October 29, 2019. REUTERS/Khalil Ashawi

South Africa's rand was steady before Finance Minister Tito Mboweni delivers his medium-term budget policy statement, in which he's expected to reveal a wider government deficit and higher debt.

Lebanon remains mired in crisis with investors focusing on how the void left by Saad al-Hariri's resignation as prime minister will be filled. Banks remained shut on Wednesday as the army ordered protesters to vacate blocked roads.

On the European corporate front, Fiat Chrysler confirmed talks on a merger with French rival PSA. The premarket moves aren't over the top - PSA is seen up 3% to 5% - there is scope for more price action throughout across auto industry. However, Volkswagen lowered its full-year outlook for vehicle deliveries, warning of slowing demand.

In banking industry, Deutsche Bank is expected to fall at the open after reporting an 832 million-euro third-quarter loss. Santander reported net profit fell 75%. Credit Suisse third-quarter profits jumped. Record third-quarter output boosted Total's cash flow but low oil prices hit profit. OMV also saw its third-quarter hit by lower oil and gas prices.

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

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