Marks, get set, Tesco

Marks, get set, Tesco

Mike van Dulken & Henry Croft at Accendo Markets commented to clients this morning:

FTSE 100 Index called to open +5pts at 7753, challenging yesterday’s fresh record 7756 highs, retaining its bullish bias and long term uptrend. Bulls need a breakout beyond 7760. Bears need a breach of rising support at 7730. Watch levels: Bullish 7760, Bearish 7730
Calls for a cautiously positive start come despite mild weakness on Wall St that flowed through to Asia overnight, amid fierce discussions about where a rise in bond yields represents an multi-decade inflection point that could signal the end of a post-financial crisis, QE-fuelled bull run incorporating multiple asset classes.
FTSE buoyed by a USD bounce that has sent GBP to its lowest since end-17. Once again, amid reporting season, FTSE focus will be on the Retail sector and Housebuilders following a flurry of trading updates from the likes of big guns Tesco, Marks & Spencer and Barratt Developments (see below).

In UK corporate news this morning: Barratt Developments H1 completions and forward sales both +2%, selling prices +6.5%, focused on margins, expects modest growth in FY18 completions. Tesco Q3 sales miss consensus for UK growth (2.3% vs +2.4% est) but Ireland strong (3-4%), food stronger. Maintains FY guidance. Marks & Spencer Q3 like-for-like sales fall, but not as much as consensus (Food -0.4% vs -1% est; Clothing & Home -2.8% vs -3% est). FY Guidance unchanged.

Weir Group sees initial one-off non-cash tax credit in 2017 from US tax reform. Bunzl buys two businesses, sells a third. Rio Tinto drops out of bidding for Chilean lithium producer. AO World Q3 revenues +11%, Europe +58%, Group +17%; Expects FY perf within range, cautious given uncertain UK economic outlook. Boohoo ups revs guidance again. Now expects +90%, ahead of prev 80% guidance (was 60% pre-Sept). EBITDA margin range narrowed to 9.25-9.75% from 9-10%.

US equity markets closed lower across the board for the first time in 2018, with the S&P 500 and Nasdaq snapping a 6-day win streak to notch their first losing sessions of the new year. Utilities and Real Estate proved a weight on the former, while the Tech-focused Nasdaq underperformed. The Dow Jones finished closest to break even as losses for UnitedHealth overpowered yet more Boeing strength.

Crude Oil benchmarks have continued to consolidate overnight, failing to notch fresh highs as the US dollar recovers from yesterday’s lows after a session of heavy selling. This recovery has negatively impacted dollar-denominated commodities, however bullish sentiment has kept both Brent ($69.4) and US crude ($63.5) within touching distance of Wednesday’s 3-year highs ($69.7 and $63.65 respectively).

Gold has further retreated from yesterday’s fresh 3-month highs overnight as the US dollar bounces from its lows. The precious metal, having touched $1327 for the first time since September yesterday morning, now consolidates between $1316-$1320. Watch ECB minutes later today for any hawkish tinge in sentiment that would potentially impact the non-yielding safe haven asset.

In focus today will be ECB Minutes (12:30pm). The central bank can point to strengthening regional growth and declining unemployment as evidence of successful policy implementation, which could push the central bank to taper its QE programme even more quickly. However, sub-par inflation means this is unlikely, meaning markets more focused on measures to stoke price growth back towards the hitherto elusive 2% goal.

Data-wise, German 2017 GDP growth (9am) is expected at 2.3%, accelerating from 2016’s 1.9%, although having seen the quarterly growth rate accelerate throughout the year (Q1 2.1%, Q2 2.3%, Q3 2.8%), this likely implies a drop in Q4 to around 2%.

Eurozone Industrial Production growth (10am) is expected at its fastest in 3 months in November, despite annual growth retreating to a 5-month low. This afternoon, US PPI (1pm) is seen cooling in December, breaking four consecutive months of growth, while the Core print holds largely firm.

Speakers today are limited to outgoing Fed member Dudley (8.30pm, centrist, retiring mid-year) delivering keynote remarks at the Securities Industry and Financial Markets Association “U.S. Economic Outlook: What’s In Store For 2018” with a Q&A.

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