PBoC reduces capital reserves- EMEA Brief 08 Oct
- Chinese stocks decline and the renminbi devalued overnight, despite the PBoC reducing requirements for capital reserves. China's central bank to cut down Reserve Requirement Ratio, releasing 1.2tn Yuan in liquidity, and putting 750bn Yuan ($109bn or £83bn) in cash into the financial system. CSI300 down 3.7%.
- The Australian ASX also saw sell offs moving the mining and finance centric index down 1.2%.
- US employment figures out on Friday caused a flurry of Treasury sell offs, however the coming weeks agenda is likely to remain dominated by bond market news.
- Brazilian Presidential Candidate Jair Bolsonaro wins first round of votes with 46% to Fernando Haddad with 29%. The second vote to be held on the 28th October.
- Oil drops as US considers granting some waivers on Iran crude sanctions.
- LME Week kicks off on the 08/10/2018
- Spot gold was down 0.2% at $1,200.31 an ounce, with US gold futures falling 0.1% to $1,204.40 an ounce
- Cryptocurrencies continue their range bound movements, with bitcoin priced at $6550 and ether maintaining $225
- Schroders in talks with Lloyds for wealth sector collaboration, with Lloyds putting £13bn into the new joint venture.
Asian overnight: Chinese markets were the big mover over the weekend, with a decision from the PBoC to cut the reserve requirement ratios for banks driving the Shanghai and Shenzhen composite markets roughly 3% lower. This should raise the amount of free cash flowing around the economy, yet also highlights that the government expects to see further economic impact from the ongoing trade war with the US. We also saw losses in Australian and Hong Kong markets, with Japan closed due to a national holiday.
UK, US and Europe: Looking ahead, it looks like a relatively stable start to the week, with holidays in the US and Canada meaning that volumes are likely to be relatively low. The one notable event from Europe has already occurred, with German industrial production falling unexpectedly to -0.3%, from -1.3%.
LME Week kicks off today, with the exchange hosting a number of events for representatives of the supply side chain to discuss macro events and trends. Today sees a host of high profile speakers and an interactive discussion panel look at market trends and issues facing the metal industry today. It comes at an interesting time for the commodities industry as metal markets have been whipsawed by trade war tensions, an emerging markets sell off, and a strengthening US dollar. Copper, a bellwether metal for global growth and a strong economy, has seen a 14% sell off whilst zinc sits at an even more significant 22%.
Those who are bullish on the broader asset class will be hoping the market focuses once more on true supply and demand fundamentals, agreement for which are still heavily weighted on the ‘strong demand’ side, rather than the political uncertainty. BMO Capital Markets stated “We have seen such disconnects before; [between fundamentals and price] however, they have tended to last only a few weeks. The current example has lasted several months, and every time it looks as though the macro headwinds have blown themselves out, they return once more.”
South Africa: The dollar is firmer, commodity prices trade lower and the rand is weaker this morning. BHP Billiton is trading 2.8% lower, suggestive of an initial decline for locally listed resource counters. Tencent Holdings is down 1.3% in Asia, suggestive of a weak start for major holding company Naspers.
Economic calendar - key events and forecast (times in BST)
Source: Daily FX Economic Calendar
Corporate News, Upgrades and Downgrades
- Schroders has confirmed that it has been in discussions regarding a possible merger with Lloyds Banking Group. No further details were provided.
- Dechra Pharmaceuticals has said that it has acquired Caledonian Holdings for £4.4 million.
- Daily Mirror and Daily Star publisher Reach reported a 7% drop in like-for-like revenues for the third quarter, although revenue rose 21% overall.
Axa upgraded to outperform at KBW
Henkel upgraded to buy at Goldman
Iliad upgraded to neutral at Macquarie
Intu upgraded to buy at Citi
Investec upgrade Vodacom to buy
Investec upgrade Mediclinic to buy
Boskalis downgraded to sell at ABN Amro Bank
Ceconomy downgraded to add at AlphaValue
IAG downgraded to neutral at Citi
Tesco downgraded to add at AlphaValue
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