EQUITIES
The global equity recovery has stepped up a gear in the last twenty fours. The economic threat of the coronavirus has probably been overblown. Even it hasn’t, central banks have signalled they will come to the rescue anyway. Soothing words and actions from global central banks and the WHO saying there is no pandemic has juiced up markets enough to put coronavirus fears aside.
The recovery across Asia accelerated with Japan’s Nikkei up 2.2% and the Hang Seng up 2.7%. The announcement that China will cut $75bn worth of US tariffs propelled shares in Hong Kong higher. Hong Kong’s whole raison d’etre is as a gateway between China and the rest of the world. Lowered tariffs do Hong Kong the power of good.
The Dow surged 500 points and the S&P500 hit another record high even before Donald Trump was officially acquitted from his impeachment. A five-month high in US service sector activity showed the US economy has got legs and fourth-quarter earnings from big US firms like Disney have impressed.
Not for the first time, UK shares are participating but underperforming in the stock market rally. On Wednesday the DAX rose +1.48% while the FTSE 100 was up +0.57%. The event risk of Brexit is still holding back the FTSE despite much fairer valuations than other markets and visible signs of an improving UK economy.
Did the bubble finally burst in Tesla? We’re not holding our breath. The shares tanked 17% on Wednesday but the gains from Monday and Tuesday were so staggering that they are still up on the week. Some classic contrarian signals are there, including the deluge of retail investors on the Robin Hood platform jumping onboard.
FOREX
Noises from the major European capitals that there are plans to revise MFID II, the regulations that govern financial markets in Europe after Brexit hit the pound where it hurts. Sterling is lower by -0.5% against the euro this week and -0.8% against the US dollar, where it is just about clinging onto GBPUSD 1.30. One can only assume the point of the changes would be to cut out The City from as much financial activity pertaining to the mainland as possible. It just highlights how much there is to play for in the upcoming negotiations, and downside risks still overhanging Sterling. It might have been worse were it not for data showing a surprise acceleration in the UK service sector.
The dollar is making moves thanks to the best monthly private jobs growth in the US since 2015 and the highest service sector activity in five months. Perhaps the biggest short-term risk for the dollar is that all this blowout data has raised the bar for non-farm payrolls on Friday.
Opening Calls
FTSE 100 is set to open 49 points higher at 7531
DAX is set to open 98 points higher at 13580
S&P 500 is set to open 23 points higher at 3357
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