Reflect & Prepare (By Rajan Dhall)

Friday, 22nd February 2019 13:46 - by Reflect & Prepare

It has been a relatively quiet week on a variety of fronts.  While the US-China trade talks continue, the markets continue to price in optimism over an eventual resolution.  According to reports, the two sides are set to draw up multiple memorandums of understanding which will cover intellectual property, tech transfer, and currencies amongst others.  This has been a sign that progress is being made, though Beijing has yet to respond to what US media themselves call tight strictures.  Clearly, there is a long way to go, but China is making all the right noises in looking to co-operate with the US.

On the home front, we got FOMC minutes on Wednesday night, when it became clear that policymakers were in consensus overtaking a pause in the tightening cycle.  This had already been priced into the rates markets, with no hikes reflected in the short date curves despite Fed members still open to hiking at least once more later this year.  This will be data dependent as the FOMC through Jerome Powell have already communicated, though the minutes also revealed that they will be monitoring developments in the financial markets also.

Fed members were also in unison over the view that QT will end at some point before the end of the year, and this has also helped underpin the equity markets which have been trading sideways throughout the week.  

It has been a pivotal week in UK politics as MPs on both sides of the House have splintered from their host parties.  Labour MPs, disillusioned with the range of issues from ant-semetism to the leadership position on Brexit, resigned from the party to form The Independent Group, with high profile names such as Chuka Umunna, Lucianna Berger and Mike Gapes in the mix.  They were followed by defectors from the Conservative party, including Anna Soubry, Heidi Allen and Sarah Wollaston who have been frustrated by their party line, which they see as having been heavily driven by the pro-Brexit ERG.  

It is this resistance towards leaving the EU with a no deal outcome which has raised hopes that the UK will not have to suffer a disruptive Brexit, though the PM has been in Europe and Brussels this week to try and get changes to the backstop in the withdrawal deal.  The EU are keeping tight lipped on how the talks have been progressing, whilst maintaining they will not reopen the treaty.  The PM is under increasing pressure to come back with a deal next week in order for a motion to be tabled, but this is due to her insistence that the UK will leave on the 29 March. At the end of the week, reports were that the EU strongly believe that PM May will ask for an extension to Article 50 for a period of 3 months.

Movers and Losers

Sainsbury's -18%: The ASDA merger is now in doubt as the CMA are concerned about competition. 

Centrica -10.5%: The share price sold off as the market believes that the dividend will be cut. The Co. also warned that its profits and cash flow will be lower than anticipated this year.

Daily Crest Group +31%: Company is subject to a bid by Saputo. 

Acacia Mining +19%: Shares jumped after Barrick Gold said there had been progress in discussions to resolve the long-running dispute between the Tanzanian government.

Week Ahead

Monday - NZ retail sales

Tuesday - UK inflation report, US building permits, Fed's Powell speaks, US CB consumer confidence, Weekly API's

Wednesday - US ADP nfp, US core durable goods, CAD core CPI, US pending home sales, DoE's, Japanese industrial production, Japanese retail sales

Thursday - Chinese manufacturing PMI, UK nationwide house price index, SEK GDP, German CPI, US GDP, CAD current account

Friday - Chinese Caixin manufacturing PMI, German import index, German manufacturing PMI, German unemployment, UK manufacturing, EU CPI, US core PCE, Canadian GDP, USD ISM, US Baker Hughes.

Have a great weekend.

Kind Regards

Rajan Dhall