The European market (Stoxx-600) is currently trading around 362.58 in the early EU session Tuesday slumped by almost -0.25% on Italian budget jitters, reversing an earlier gain of almost +0.40% in pre-market futures trading. But the market is also trying to take some support on the Eurozone economic optimism after an upbeat EZ composite PMI and PPI data. The market is also under stress on some key earnings misses, subdued guidance and also turned cautious ahead of the US midterm election as a clear Trumpism may boost Trump’s trade war rhetorics more in the coming days.
An increasing number of companies are providing weak guidance on fear of economic slowdown, cross currency headwinds and higher raw material costs amid an environment of a trade war.
On early Tuesday, Pandora plunged on terrible guidance after the Danish jewelry maker slashed its 2018 sales outlook for the second consecutive quarter, saying it would review its strategy and launch a new cost-cutting programme. The British gambling firm William Hill tumbled on subdued guidance after it warned regulatory and tax changes would hit online profit this year and next. Supermarket giant Morrisons succumbed on below expected report card after its quarterly sales growth slightly lagged forecasts.
But there were also some positive report cards. Staffing firm Adecco (SIX:ADEN) surged on earnings optimism after its results met street expectations, despite some EZ economic slowdown. Postal and logistics firm Deutsche Post (DE:DPWGn) jumped after reported less than expected profit decline. The slump in PAT/earnings was due to the cost of restructuring its post and parcel division. Tobacco firm Imperial Brands (LON:IMB) soared after reported stronger-than-expected earnings.
Meanwhile, as per reports, the European businesses increasingly disappointed to China President Xi’s constant repetition of “empty promises” to open up the Chinese economy. The European Chamber of Commerce in China criticized Chinese President Xi’s Monday speech regarding opening up the markets that much of the content delivered by Xi just “repetition what was previously announced at Boao in April without sufficient concrete measures or times lines. And Xi has left the European business community increasingly desensitized to these kinds of promises”.
Elsewhere, the European Parliament Trade Committee approved EU-Japan trade deal on Tuesday signed back on July 17, 2018. The deal could now be sent to the full chamber for a vote in the December plenary session. And, if it’s approved, the deal could enter into force as soon as the Japanese Diet ratifies it.
In brief, the EU-Japan trade deal will create a trade zone of 600M people, covering a third of global GDP and around 40% of global trade. Eventually, the deal will remove almost all customs duties, worth roughly EUR 1B annually on European products and services exported to Japan. The European Parliament’s Trade Committee MEPs emphasized that the agreement “represents a timely signal in support of open, fair, values-based and rules-based trade, while promoting high standards, at a time of serious protectionist challenges to the international order”.
On Tuesday, “war of words” between the EU and Italy on its 2019 budget erupted again. EU's Moscovici said “A policy in Italy that entails higher public debt is not favorable to growth and sanctions can be applied if there is no compromise on Italy budget as the EU fiscal rules must be respected (if you want to be an EU member state). Although dialogue can continue, we expect a strong, precise answer from Italy on a budget by 13th November”.
Previously, the Italian FM Tria said: “We have some disagreements but we can still have a dialogue with the commission”. On Monday, the Eurozone finance ministers showed a united stance against Italy’s budget in their Eurogroup meeting in Brussels. In a statement, they said “we agree with the (European) Commission assessment on Italy’s draft budget plan (DBP). And, the group looks forward to Italy and the Commission to engage in an open and constructive dialogue and for Italy to cooperate closely with the Commission in the preparation of a revised budgetary plan which is in line with the SGP (Stability and Growth Pact)”.
At the post-meeting presser, the EU Commissioner for Economic Affairs Moscovici reiterated that “a new or revised DBP was requested by November 13, and that is a necessity”. However, Italian Economy Minister Tria said after the meeting that his government wasn’t in the process of changing the budget. Instead, he added, “We hope that the spread will narrow when the market understands our strategy.”
Earlier there were some reports that the EU could take some disciplinary action against Italy by 21st November if it does not rectify its 2019 budget plan by 13th November. But after a day of negotiation with other EZ finance ministers in a closed-door meeting, the Italian FM Tria seems to relent and signaled for a compromise solution with the EU/EC.
EZ finance ministers also expressed optimism that Italy will eventually plan the revised 2019 budget with the EC as per EU budget rules and Eurogroup head Centeno also expressed his optimism about an appropriate Italian budget/public finances, adding the Eurogroup won’t take any decision on the Italian budget and hopes that Italy will take steps on budget (of its own rather than facing EU disciplinary action/sanction).
As per some other report, the Eurozone FMs has agreed with EU commission assessment that Italy’s 2019 draft budget breaks EU rules. The EU’s Moscovici said the commission believes Italy will reply on a budget, while EU's Dombrovskis said Italy is openly acting not in line with EU rules. But Tria later dialed back some of his earlier comments and said the 2019 draft budget will not change, but the debt will fall. Italian PM Conte warned the EU’s Moscovici should not get into a political debate.
The market is concerned that if such Italian budget soap-opera continues for some more months, Italy could opt for an “Italexit” eventually and the EU could turn into 26 member states instead of present 27 (after Brexit).
On Monday early EU session, EURUSD was under stress on the T-LTRO debate, renewed concern on Italian banks & financials and made a low of 1.1357, but it recovered in late trading/US session and made a high of 1.1424 before closing around 1.1408, edged up by almost +0.18% on hopes of Italian budget compromise rather than confrontation.On Tuesday EU session, EURUSD is currently trading around 1.1397, edged down by almost -0.10% on Italian budget squabbling, better than expected EZ economic data (composite PMI and PPI).
Pivot: 1.145 Support: 1.135 1.12995 1.116Resistance: 1.157 1.162 1.172 Scenario 1: STRONG ABOVE 1.14500 Scenario 2: WEAK BELOW 1.14300 AND FURTHER BELOW 1.13700 Comment: NEAR TERM RANGE:1.12995-1.16200
Germany 30
Pivot: 11575 Support: 11425 11350 11250Resistance: 11725 11875 11960 Scenario 1: STRONG ABOVE 11575-11725 Scenario 2: WEAK BELOW 11550 Comment: NEAR TERMS RANGE:11035-11875
Amazon (NASDAQ:AMZN)
Amazon tumbled almost -2.27% on Monday. Amazon plunged to a low of almost 1596 after President Trump said his admin is looking into an alleged antitrust violation against Amazon and other tech giants. But it recovered to some extent in late-day trading and closed around 1628 on another report that the online giant is planning to split its second headquarters evenly between two cities, Long Island City in Queens and Arlington in Virginia in an effort to cut cost. As per the report, the need to hire tens of thousands of high-tech workers has been the driving force behind the plan. Amazon may land in a major East Coast metropolitan area for the same.
Pivot: 1685 Support: 1600 1560 1460Resistance: 1740 1800 1870 Scenario 1: STRONG ABOVE 1685-1705 Scenario 2: WEAK BELOW 1655 Comment: NEAR TERM RANGE:1460-1705
Gold
In commodities, Gold surged by almost +0.60% to around 1237 on the plunge in EUR, GBP as-well-as USD on their respective political risks (Brexit, Italexit and US midterm election). Trumpism in the US midterm election could fuel trade war more intensely and result in higher inflation, positive for the yellow metal.
Apart from geopolitical risk, Gold is also supported by higher physical demands from India and China amid festival/marriage season, although such demand is slowing down as the price of Gold in Indian rupee is surging towards lifetime high on fall in the currency. India imports almost 100% of its Gold requirement from the overseas, while it’s almost 80% for the oil.
Pivot: 1245 Support: 1220 1200 1180 Resistance: 1265 1280 1305 Scenario 1: STRONG ABOVE 1245 Scenario 2: WEAK BELOW 1235 Comment: NEAR TERM RANGE: 1180-1245