Financial Times Europe - 14.09.2019 - 15.09.2019

(Axel Boer) #1

14 ★ FTWeekend 14 September/15 September 2019


3 Global equities rally on hopes of trade
war detente
3 Wall Street stocks test record highs
3 Pound hits two-month peak as no-deal
Brexit fears ease

Investors swooped into riskier assets
yesterday with government bonds selling
off and stocks rallying following solid US
retail sales numbers and signs of
progress in the protracted trade war
between the US and China.
The shift in market mood helped lift
the FTSE All-World index 0.3 per cent, its
fourth rise in consecutive days.
Headline US retail sales rose 0.4 per
cent in August, the Commerce
Department reported, exceeding
economists’ expectations, although some
analysts issued words of caution.
“The one blemish in an otherwise
stalwart retail sales report was the 1.2 per
cent slide in restaurant activity in
August,” said David Rosenberg, chief
economist at Gluskin Sheff + Associates.
“And it is a bellwether-leading indicator
for cyclically sensitive spending.”
Nevertheless, Wall Street stocks tested
record highs following news that China
had exempted some US soyabeans and
pork from additional tariffs, the latest
goodwill gesture in the dispute between
the world’s two biggest economies.
Donald Trump, the US president, earlier
in the week had agreed to delay the
implementation of tariffs to October 15
from October 1 and said he would
consider an “interim” trade deal.
The S&P 500 index was up 0.5 per cent

yesterday, having been a mere 0.4 per
cent away from an all-time closing high
on Thursday. The Dow Jones Industrial
Average was up 0.2 per cent by midday in
New York while the technology-leaning
Nasdaq Composite index was flat.
The risk-on mood led investors to sell
off US government debt. The yield on the
10-year Treasury note rose 9 basis points
to 1.88 per cent, its highest since early
August.
Hopes of a breakthrough in global
trade relations helped Frankfurt’s export-
sensitive Xetra Dax index close 0.5 per
cent up. Elsewhere in Europe,the banking
sector continued to rally following the
announcement on Thursday of new
stimulus measures by the European

Central Bank that were set to aid lenders.
The continent’s banking sector closed
2.7 per cent higher, far outstripping the
0.3 per cent lift in the wider Stoxx Europe
600 index.
Across the Channel, the pound rallied
to a two-month high against the dollar to
around $1.24 after reports that the UK
government may have found a solution to
the contentious Irish backstop that has
thwarted Brexit negotiations.
In Asia, Hong Kong’s Hang Seng index
closed up 1 per cent while the Nikkei 225
was up 1.1 per cent, the Japanese
benchmark’s eighth back-to-back gain.
Markets in China, South Korea and
Taiwan were shut for the Mid-Autumn
Festival holiday.Ray Douglas

What you need to know


Global stocks rally as trade war fears recede


Source: Bloomberg

FTSE All-World index



















Aug  Sep

The day in the markets


Markets update


US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 3011.69 1537.85 21988.29 7367.46 3031.24 103973.
% change on day 0.07 0.23 1.05 0.31 0.75 -0.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 98.059 1.108 108.065 1.246 7.088 4.
% change on day -0.254 0.453 0.167 1.054 0.000 0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.874 -0.449 -0.160 0.683 3.080 7.
Basis point change on day 10.240 7.000 5.480 8.800 0.000 -7.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 348.29 60.15 54.87 1515.20 18.19 2840.
% change on day 0.29 -0.41 -0.38 1.65 0.14 0.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets


S&P 500 index Eurofirst 300 index FTSE 100 index

| ||||||| |||||||| ||||
Jul 2019 Sep

2800


2880


2960


3040


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Jul 2019 Sep

1400


1440


1480


1520


1560


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Jul 2019 Sep

7040


7360


7680


8000


Biggest movers
% US Eurozone UK

Ups

Freeport-mcmoran 5.
Cimarex Energy Co 4.
Svb Fin 3.
Avery Dennison 3.
Sealed Air 3.

B. Sabadell 7.
Caixabank 7.
Commerzbank 5.
Seadrill 5.
Unicredit 4.

- - - - - %


Downs

Progressive -6.
Centurylink -5.
Broadcom -3.
Marketaxess Holdings -2.
Altria -2.
Prices taken at 17:00 GMT

Atlantia -8.
Kerry Grp -2.
Pernod Ricard -2.
Edenred -2.
L'oreal -2.
Based on the constituents of the FTSE Eurofirst 300 Eurozone

-


-


-


-


-


All data provided by Morningstar unless otherwise noted.

Colby Smith


On Wall Street


At the Federal Reserve’s meeting on
monetary policy next week, Jay Powell,
its chairman, will face an unenviable
task: to appease a market that has
already priced in an aggressive easing
cycle, but avoid overcommitting to sub-
sequent rate cuts and buoying expecta-
tionsevenhigher.
Mr Powell failed to strike this balance
at the US central bank’s most recent
meeting in July, provoking criticism and
a volatile market reaction. Investors
should prepare to be disappointed
again.
A little less than seven weeks ago, a
phrase uttered by Mr Powell bewildered
investors. By framing the first interest
rate cut in 11 years as a “mid-cycle
adjustment to policy” in post-meeting
comments, the chairman muddied the
waters of what many had assumed was
thestartofafull-blowneasingcycle.
US stocks did recover somewhat after
Mr Powell clarified he did not mean
there would be “just one” interest rate
cut. But markets were already on the
back foot, struggling to read the mixed
signals.
Mr Powell has avoided that term in
the weeks since, and investors say he is
likely to do so again on Wednesday. But
few are convinced the Fed will be able to
striketherightmoodmusicforthecapi-
tal markets — something that holds just
as much importance as the quarter-
point rate cut already priced in for Sep-
tember, said Robert Rosener, economist
atMorganStanley.“Thepolicyguidance
and projection materials released will
be as much in focus as the rate cut, and
that is where the Fed has more scope to
underwhelm,”hesaid.
With all eyes on Mr Powell and mar-
kets clinging to every word, Wednes-


day’s announcement will be a “balanc-
ing exercise in communication”, said
Shahid Ladha, head of strategy for G
ratesatbankinggroupBNPParibas.
“They are trying to satisfy the market
without spurring them to price in
more,” he said, noting the central bank
must signal a cautious approach to
future rate rises while using slightly
moredovishrhetorictoavoidarepeatof
July’scommunicationsmishap.
Markets are pricing in a total of about
one full percentage point of cuts to the
Fed’s benchmark interest rate by the
end of next year, according to futures
pricescompiledbyBloomberg.

To walk this tightrope, the Fed must
emphasise a point it has repeatedly
made about the global factors clouding
the growth outlook, and at the same
time provide assurance that the US
economyisonarelativelyfirmfooting.
On the global front, making that case
is not difficult to do, given the German
economy is teetering on the brink of
recession and the industrial sector in
China is beginning to stall. And while
trade tensions between the US and
China have eased, a deal between the
tworemainsadistantprospect.
Domestically, a tight labour market
andstrongconsumerpointtoaUSecon-
omy in decent shape. Manufacturing
has suffered at the hands of the US-
China trade dispute —contracting for

thefirsttimeinthreeyearslastmonth—
as has business sentiment. But the serv-
ices side of the economy has continually
outpacedanalysts’forecasts.
In fact, Mr Powell himself painted a
rosy picture of the US economy this
month in Zurich when he said not only
was the central bank not forecasting or
expecting a recession, but also “the
most likely outlook for the US is still
moderate growth, a strong labour mar-
ket and inflation continuing to move
backup.”
ForthisreasonStevenOh,globalhead
of credit and fixed income at PineBridge
Investments,pointsoutthatthetwoFed
officials who dissented from July’s cut —
Esther George of Kansas and Eric
Rosengren of Boston — may have an
even better case to make to toe a more
hawkishline.
“If you’re a dissenter, you may even
more strongly dissent this meeting
because the economic data has not
changed at all,” despite a material slow-
down in global growth and a worsening
ofthetradewar,MrOhsaid.
Given the lack of consensus in the Fed
on the way ahead and the elevated mar-
ket expectations, Kathy Jones, chief
fixed-income strategist at wealth man-
ager Charles Schwab, said Mr Powell
lacked the scope to issue a “whatever it
takes” statement of the kind made by
Mario Draghi, European Central Bank
president,duringtheeurocrisis.
So while Mr Draghi was able to outdo
market expectations on Thursday with
his announcement of an ambitious
stimulus package, Mr Powell is unlikely
to be able to match his European coun-
terpart.

colby.smith@ft.com

Powell has to please a


demanding audience


but refuse an encore


Powell lacks the scope to


issue a ‘whatever it takes’
statement of the kind

made by Draghi


MARKETS & INVESTING


Freeport-McMoRan ed the US miningl
sector higher on the back of “buy” advice
from Jefferies.
With any US-China trade deal likely to
trigger inventory restocking, copper
demandwas a “coiled spring”, the broker
said. Freeport’s earningswere levered on
refreshed demand because itcould ramp
up production in Indonesia, whichmade
its shares the “valuation anomaly in
mining”, Jefferies told clients.
Broadcom aded after cautiousf
guidance took the shine off quarterly
results. The chipmaker said that while
demand had stabilised, growth would
remain low for the foreseeable future due
to trade uncertainty and inventory
reductions throughout the supply chain.
Apple as under pressure afterw
Goldman Sachs forecast a “material
negative impact” on average selling
prices and gross profitowing to the
company’s offer of a one-year free trial of
its TV service.
The offerrequired Apple to book a
discount on iPhone selling prices, with
the remainder deferred over the
12-month period, Goldman said.
Altria ell after CNBC reported that thef
value of its investment in Juul had
dropped sharply.
The recent crackdown on e-cigarettes
was said to have cut the value of Altria’s
35 per cent stake in Juul by a fifth
compared with its December purchase
price.Bryce Elder

Wall Street Eurozone London


Atlantia, the Italian infrastructure group,
was the Stoxx 600’s sharpest faller on
news that police investigating the
collapse of Genoa’s Morandi bridge
arrested employees of its Autostrade per
l’Italia division and alleged that safety
reports into other viaducts were falsified.
The Five Star Movement has been
demanding from withinthe coalition
government that Autostrade, which
provides about a third of Atlantia’s
operating profit, should have its highways
concession revoked. Beforeyesterday’s
arrests, local press reports had suggested
that its argument was losing traction and
that a full revision of the concessions was
the more likely outcome.
Financial stocks led the wider market
on a continued rotation into the year-to-
date’s weakest performers. Spanish
lendersSabadell nda CaixaBank ed thel
way, thanks in part to measures from the
European Central Bankaimed at damping
the effects of ultra-low interest rates and
reviving inflation.
Roche dged higher after Merrill Lynche
added the Swiss pharmaceuticals group
to its “buy” list. The broker cited Roche’s
valuation of 12 times 2021 earnings and
its attractive product pipeline, as well as
the prospect that the stock may re-rate
once the threat to sales from US
biosimilar clone drugsbecame clearer.
Merrill advised switching out of French
peerIpsen n the threat from generics too
its Somatuline franchise.Bryce Elder

Stagecoach as in demand on the backw
of a positive sector review from Exane
BNP Paribas, which favoured UK bus-only
operators over companies with exposure
to the US and rail franchises. “At current
ratings, we think the market is heavily
discounting their likely cash returns via
exposure to the robust London market
and projected solid growth in UK
Regional Bus, where Stagecoach has
market leadership,” it said.
Financial stocks and housebuilders led
the wider market higher in response to
sterling’s rally and the European Central
Bank’s stimulus measures, which buoyed
stocks includingBarclays nda CYBG.
Dollar earners such asBritish American
Tobacco ere the laggards.w
Centamin eakened after the goldw
miner used an investor presentation to
temper production guidance. Current-
quarter production would weaken
sequentially so the full-yearoutput would
be at the lower end of its previous target
range, the Egyptian group said.
Britvic limbed after Jefferies turnedc
positive. An investor day next month
should support growth forecasts as the
drinks maker winds down a restructuring
programme and starts harvesting the
benefits, it said. More innovation,
improved pricing and wider distribution
could support better than expected
medium-term revenue growth andwould
pave the way for increased cash returns,
the broker said.Bryce Elder

SEPTEMBER 14 2019 Section:Markets Time: 13/9/2019- 19:02 User:alistair.fraser Page Name:MARKETS2, Part,Page,Edition:EUR, 14, 1

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