Stocks News

Daily Briefing: Topping out

LONDON (Reuters) - Another record close for Wall Street’s S&P500 hasn’t been enough to spur world markets early on Wednesday, with most exchanges consolidating recent rallies and sterling dropping further on the resurfacing of no-deal Brexit fears.

Traders work on the floor at the New York Stock Exchange, December 17, 2019. REUTERS/Brendan McDermid

And the new U.S. index highs – which put the S&P 500 on course for 2019 gains of more than 27% - were only eked out late on Tuesday and futures prices were flat overnight.

Politics dominated the headlines, with Donald Trump set later today to become only the third president is U.S. history to be impeached by Congress. Few expect a trial in the Republican-dominated Senate to force Trump out of office, but the process focuses investors on next year’s U.S. election risks and how it affects Trump’s standing.

There are fewer worries on the economic front. November U.S. housing starts and manufacturing data both came in ahead of forecast, underlining the fourth-quarter rebound in global business sentiment and activity.

Bank of America’s monthly survey of almost 200 global fund managers showed a record surge in global growth expectations over the last two months that drastically cut recession worries.

The December instalment of the poll showed 20% of money managers now think the world economy will grow above trend and inflation will come in below trend next year -- the so-called goldilocks scenario.

As a result, their allocation to global equities jumped 10 percentage points month-on-month to a net 31% overweight, the highest level in a year, while their cash levels, a gauge of risk aversion are the lowest since March 2013 at 4.2%. Japan, on the other hand, reported its exports declined on an annual basis in November for the 12th month in a row.

But even here, the decline recorded last month was lower than forecast.

In tech, Netflix shares rose 3.7% on Tuesday after the streaming service provider said its overseas growth, particularly its Asia-Pacific business, was accelerating.

Shanghai stocks slipped from yesterday’s three-month highs, however, and China’s central bank lowered the interest rate on 14-day reverse repurchase agreements by another five basis points, following a similar reduction in the short-term liquidity tool last month.

Hong Kong and Seoul benchmarks were lower, too. Tokyo’s Nikkei underperformed with losses of 0.5%, and euro zone and UK stocks were expected to open lower.

Sterling continued its dramatic reversal from post-election highs, wiping out the gains it recorded following Thursday’s win for PM Boris Johnson’s Conservatives. The speed with which Johnson’s team have re-ignited no-deal Brexit rhetoric in relation to post-January trade negotiations has spooked the currency market.

Prime Minister Boris Johnson speaks during an MPs' meeting to elect a speaker, December 17, 2019.

Brexit withdrawal legislation due to be presented later this week is now expected to rule out any extension of Brexit transition from the end of 2020, upping the ante for what’s likely to be an intense 10 months of trade talks.

While UK employment stats out on Tuesday showed the labour market in good shape, inflation numbers will be watched closely before tomorrow’s Bank of England meeting.

Speculation is also rife over who Johnson will appoint to replace Mark Carney as head of the BoE when he departs next month. The pound fell below $1.31 on Wednesday for the first time since election day last week, with euro/sterling rising to its highest since Dec 4.

Elsewhere, Turkey’s lira was the biggest mover – accelerating this week’s slide to two-month lows after the U.S. Senate late Tuesday passed legislation that among other things calls on President Trump to impose sanctions on Turkey and halt delivery of F-35 jets.

Ties between Ankara and Washington have been strained all year by policy differences over Turkey’s incursion into northern Syria and its purchase of a Russian missile defence systems.

In European corporate news, London-listed NMC Health remains in the spotlight after a report from short-seller Muddy Waters on Tuesday wiped over 1.5 billion pounds off its market cap. The company said it would respond to the details in due course, but in the meantime it confirmed its 2019 and 2020 guidance.

The other big news is that the $50 billion merger deal between Fiat Chrysler and Peugeot has become binding, six weeks after it was agreed.

In other M&A, Pearson is selling its remaining 25% stake in Penguin to partner Bertelsmann, generating net proceeds of about $675 million. Isuzu Motors’ reported plans to tie up with Volvo to develop new technologies propped up shares in the Japanese truck maker yesterday and could also affect Volvo.

French bank Credit Agricole will also be watched after it booked a 600 million-euro impairment charge on its retail banking unit, LCL. A hit is expected for Bang & Olufsen after the company posted another profit warning.

France’s Ipsen could also be under pressure after announcing the departure of its CEO. And there's bad news for British American Tobacco, which has been told by the UK regulator to stop advertising its e-cigarettes from any public account on Instagram.

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