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The Early

21 Nov 2017 07:03

Markets: cyclical uptick

The early markdown to Eurozone equity indices yesterday, in response to a rare outbreak of political uncertainty in Germany, did not last long. Indeed, the move lower in the euro was viewed as a positive by investors who have become a little fretful about the corporate earnings outlook, and the day's bottom-up news was also broadly supportive (notably Roche, VW, RWE and Altice). By the close, nine of 10 Euro Stoxx industry sectors were safely in positive territory, topped by consumer goods +0.87%, basic materials +0.87% and technology +0.80%.

It was also a better day for the UK markets, albeit on typically modest Monday trading volumes. The cyclical sectors attracted renewed interest with construction +1.04%, chemicals +0.96% and engineering +0.96% prominent, as the defensive groups lagged. Media +1.31% and basic materials +1.08% led our PHySiCS sectors on a better day for the mid/small caps, with upward revisions again the most resilient style factor.

Overnight. Thanksgiving week began quietly in the US; it was the lightest volume day for more than a month with little market-moving corporate or economic news. A broker push for Verizon helped telecoms +0.97% top the sector performances but moves were in a narrow range. Semiconductor stocks were also firm and small caps outperformed, with the Russell 2000 leading modestly higher closes for the main indices. Asian investors were in more constructive mood, pushing the main regional equity benchmarks to a new ten-year high. The US dollar remained firm on all the major crosses, which helped the Nikkei in particular. Crude oil was flat. It looks like a cautious start in Europe with indications close to unchanged.

Early numbers. Dow +0.31%, S&P +0.13%, NASDAQ +0.12%, VIX 10.65; US 10yr 2.36%; Nikkei +0.70%, Hang Seng +1.14%, Shanghai Comp +0.43%; £=$1.3250, £=€1.1280, Brent $62.29/bbl, Gold $1280.40; FTSE 100 indication n/c (at 6.35 UK).

Macro: power vacuum

With little in the way of major economic data releases yesterday, the top-down news was dominated by the politics, notably in Germany and the UK. The failure of the German coalition talks poses little immediate threat to an economy that continues to power ahead; the Bundesbank's monthly report underlined the strength of the industrial sector in particular, and suggested the biggest potential threat to continuing that momentum may be a shortage of skilled labour.

In the UK, sterling seemed to take the weekend's Brexit developments as broadly positive, despite Mr Barnier's comments yesterday which gave little hint of any leeway from the EU over its demands about the Irish border, of the future loss of the EU 'passport' for UK-based financial services companies. In other news, the Bank of England confirmed a £25bn extension to the size of its Term Funding Scheme, reflecting greater demand from lenders; while a survey of SME manufacturing companies suggested investment and hiring intentions remain subdued.

In the US, Fed Chair Yellen confirmed that she will leave the Board of Governors after her successor Jerome Powell is sworn in next February.

Today's events. UK Oct PSNB (9.30) £6.6bn; UK MPC Inflation Report hearings (10.0); UK CBI Industrial Trends (11.0) orders +3; US Oct existing home sales (3.0) 5.42m, +0.7% MoM.

Ian Williams
Economics & Strategy
020 7418 8819

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