The European market (Stoxx-600) closed around 375.08 Monday, inched up almost +0.22% on hopes & hypes of the US-China trade truce and Chinese stimulus. But the market also slips from the session high of 376.32 and closed near the session low of 375.04 on negative cues from the Wall Street amid renewed skepticism of the US-China trade deal coupled with fresh Trump probe by the US House Judiciary Panel, led by Democrats.
On early Monday, European market soared by almost +0.60% to 5-months high of 376.32 (Stoxx-600) on a report that the US-China is very close to clinching a trade deal, even without addressing some core structural issues like China’s SOE reform demand by the US. In the agreement, China would offer to lower tariffs and restrictions on US agricultural, chemical, auto, and other products. Specific to the car industries, tariffs on imported vehicles would be lowered from the current 15%. China would also speed up the removal of foreign ownership limitations on car joint ventures.
China’s offer for the US auto trade truce is especially positive for the auto export savvy EU/Germany as various German/EU auto subsidiaries are operating in the US, which in turn exports to China.
But European market slips soon after the Wall Street opens and slips into the red. As per some other reports the US reserves the right to re-impose tariffs on China if the US is not satisfied with the enforcement or implementation of structural issues by China, while China may not be able to apply any retaliatory tariffs under such scenario. Thus the market may be skeptical about the sustainability of the US-China trade truce in the present reported form as China will never accept such one-sided/monopoly trade deal with the US.
Overall, there was also some skepticism despite reports that the US-China trade negotiations are in the "final stages" as the two sides prepare for a possible summit at Mar-a-Lago, possibly around 27th March, after Xi finishes a trip to Italy and France.
As per another report, the US wants the ability to re-impose tariffs on Chinese goods if talks fail on enforcement mechanisms on alleged IP theft and related matters, which may not amuse China and it may be very tough for Xi to approve such trade/cold war deal by the party congress (NPC) this week. Another report suggested that the trade deal being discussed would do little to address key structural issues. These include assurances by China to curb alleged cyber theft and subsidies on SOE the Trump admin argues make it harder for the US companies to do business in China.
The risk-on sentiment was also under stress after another report that the US House Democrats unleashed a sprawling probe of the Trump family and his associates. The Democrats on the House Judiciary Committee on Monday launched a broad probe into possible corruption and obstruction by President Trump, seeking information from dozens of his associates. Rising US political jitters could be negative for any further fiscal stimulus as a result of possible policy paralysis.
Individually, IAG (LON:ICAG), the owner of British Airways and Iberia tumbled on guidance warning as its 2019 free cash flow (FCF) may be lower than 2018. Nordea, the largest bank in the Nordic region slid on an allegation of money laundering by Finnish news agency Yle. Baker surged after the resignation of its controversial CEO Kelvin amid misconduct allegation for “hugging colleagues without consent”. The UK’s Rotork tumbled after earnings miss, while Swiss utility Alpiq slumped after reporting its fourth annual loss in five years as its hydropower and nuclear facilities again struggled.
British Publisher Daily Mail & General soared after the Co. announced they are offloading their GBP 900M stake in Euromoney, with funds to be returned to shareholders, while perfumes maker Interparfums jumped on upbeat guidance after raising its full-year revenue forecast for 2019 following a strong start to the year.
Overall, the European market was helped by automobiles, miners, energies (higher oil) and media, while dragged by healthcare to some extent. Healthcare was underperformed by Germany’s Fresenius Medical Care, which stumbled after Trump admin has stated they are looking at value-based pricing to promote home dialysis and kidney transplants, designed to spur innovation and decrease in-clinic dialysis As the dialysis market is currently dominated by the Fresenius Medical Care and a US Company DaVita, both crumbled. Novartis also dragged as the scrip goes ex-dividend despite their positive update regarding psoriasis.
BAT (British American Tobacco (LON:BATS)) was under stress following a class action lawsuit against its Canadian unit. Elsewhere, Casino slumped after analysts’ downgrade. Julius Baer surged after the Co. increased their stake in NSC Asesores by 30% to 70% for an undisclosed amount.
On mid-Tuesday, the Stoxx-600 is currently trading around 375.48, edged up almost +0.11% on fading optimism of the US-China trade truce, growing US political jitters and the concern of slower China growth forecasts by its party congress (NPC).
The overall risk-on mood was subdued after Chinese Premier Li cut the government's growth target for this year to 6.0 to 6.5% as China facing ‘struggle’ and pledged more stimulus, including cuts in taxes (VAT), increases in infrastructure investment, and lending to small firms. On Tuesday, Li warned in his par NPC speech: “China will face a graver and more complicated environment as well as risks and challenges that are greater in number and size. China must be fully prepared for a tough struggle”.
China’s GDP growth target for 2019 is lowered to 6-6.5% as highly expected, but the lower range is notably down from 2018’s target of around 6.5%. The lower bound at 6% would be the slowest pace of growth in nearly three decades if it comes true, but it may be unlikely.
China has launched some fiscal stimulus to help the Chinese manufacturing sector, a 3% cut to the bracket of VAT was announced, from 16% to 13%. Also, there will be with 1% cut to the 10% VAT bracket for transport and construction sectors, down from 10% to 9%. It’s estimated the cuts are equivalent to as much as CNY 800B. Social security fees paid by businesses will be reduced to 16%.
The budget deficit for 2019 was set at 2.8% of GDP, larger than the 2018 target of 2.6%. The total reduction in tax and social security fees would add up to CNY 2T. The market is also concerned about China’s fiscal discipline amid increasing fiscal stimulus to fight “Trump trade war” and some domestic headwinds.
Overall, on mid-Tuesday, the European market was also affected by mixed earnings, while helped by some upbeat Eurozone economic data.
For technical view and trading ideas, please refer to our weekly analysis:
On Monday, Germany’s DAX-30 edged down -0.08% to close around 11592.66, almost at the session low of 11591.74; earlier it made a high of 11650.44. Germany was helped by techs (Infineon), selected pharmaceutical (Merck, Bayer (DE:BAYGN)), basic resources, while dragged by selected healthcare, financials (Wirecard), chemicals, foods & beverages and utilities.
Pivot: 11700 Support: 11500 11400 11265Resistance: 11780 11840 11955 Scenario 1: Strong above 11700 and sustaining above 11780/11840*-11955/12055, DAX-30 may further surge to 12105/12160-12205/12295 in the near term Scenario 2: Weak below 11675 and sustaining below 11500/11400*-11265/11190, DAX-30 may further plunge to 11080*/10970-10850/10750 in the near term Comment: Short term range: 10270-11700
France’s CAC-40 surged +0.41% to close around 5286.57, almost at the session low of 5283.35; earlier it made a high of 5310.64. France was helped by consumer services and goods and techs, while dragged by retailers and airlines. Overall, the market was helped by Saint Gobain (PA:SGOB), Technicolor, DBV Technologies, Eurofins Scientific Sanofi (PA:SASY) and WFD Unibail Rodamco, while it was dragged by Carrefour (PA:CARR), Air France KLM, Engine, Gecina SA Elior Group, and Bouygues (PA:BOUY).
Pivot: 5330 Support: 5240 5175 5100Resistance: 5385 5450 5525 Scenario 1: Strong above 5330 and sustaining above 5385*/5450-5525/5600*, CAC-40 may further surge to 5675*/5710-5775/5850 in the near term Scenario 2: Weak below 5315 and sustaining below 5240*/5175-5100/5050, CAC-40 may further plunge to 5050/4920-4870/4720 in the near term Comment: Short term range:4540-5330
Italy’s FTSE MIB-40 edged up +0.11% to close around 20718.30, near the mid-point of the session high-low of 20857.31-20633.20.
Pivot: 20950 Support: 20790 20730 20685Resistance: 21050 21285 21310 Scenario 1: Strong above 20950 and sustaining above 21050*/21285-21310/21355, MIB-40 may further surge to 21450/21525-21575/21635 in the near term Scenario 2: Weak below 20900 and sustaining below 20790*/20730-20685/20600*, MIB-40 may further plunge to 20540/20300-20225/20135 in the near term Comment: Short term range: 19220-21050
The UK’s FTSE-100 surged +0.39% and close around 7134.39, almost at the mid-point of the session high-low of 7166.19-7106.73 in a day of moderate volatility. The UK market was dragged by exporters/MNCs as GBP eventually plunged -0.45% after a rollercoaster day of trading amid hopes & hypes of a smooth Brexit.
The British pound was also under additional stress on soft construction PMI amid Brexit uncertainty and slowing housing market. The UK market was further helped by Asia/EM savvy banks and financials on hopes of the US-China trade truce, positive for the regional economic growth and stability. Energies also helped on higher oil amid China trade truce and OPEC+ cut (Saudi Arabia and Russia) optimism.
It now seems that the UK PM Theresa May is determined to exit the EU by 29th March with or without a deal and “may” not be interested in a request for an extension of Article-50. All eyes will be now on 12-14th March for further “meaningful/meaningless” debates and votes in the British Parliament for the fate of Brexit saga.
Pivot: 7250 Support: 7175 7110 7050 Resistance: 7310 7350 7450 Scenario 1: Strong above 7250 and sustaining above 7280-7310*/7350-7395/7450, FTSE-100 may further surge to 7525/7600-7715/7885 in the near term Scenario 2: Weak below 7225 and sustaining below 7175/7110*-7050/7000*, FTSE-100 may further plunge to 6940/6900*-6840/6785 in the near term Comment: Short term range:6465-7250