Calm after Trump storms out

Calm after Trump storms out

Calm after Trump storms out…

FTSE 100 Index called to open +10pts at 7575, off overnight lows of 7565 but still hindered by falling highs resistance at 7580. Bulls need a break above 7585 to escape this week’s falling channel and allow for a rally back towards 7600. Bears require a breach of rising support at 7560 before a drop back towards 7540, and then 7530. Watch levels: Bullish 7585, Bearish 7560

Calls for a positive open come despite mixed trading in Asia, where main indices were mostly flat (In Japan, Takeda stock -2.5% as market took a negative outlook over its takeover offer for Shire), while Energy stocks rose on the back of President Trump’s controversial decision to withdraw from the JCPOA Iranian nuclear deal, despite pleas from European allies to stay.

Overnight data from the BRC showed UK Sales plunging 4.2% YoY LFL in April, which may impact Retailers, although this can to some extent be explained by the earlier timing of Easter this year.

Oil prices jumped sharply higher on the announcement ($70.61/76.66, +3.42%/3.44%) that restores sanctions on the third-biggest OPEC oil exporter. With the White House urging countries to immediately stop trading oil with Iran and a larger than expected drawdown in API Oil Inventories (-1.85M vs. -0.72M est.), supply concerns were pushing the oil market higher than its already 2018 highs.

Whilst other signatories remain onboard, Trump’s decision potentially turns the geopolitical instability dial up a notch, especially in the Middle East, while also driving a wedge between US and its European allies, who were united in opposition to US withdrawal. That said, Trump has clarified that he is willing to revisit the situation, should a better deal be on the table. Gold maintained its steady position at $1310 (+0.19%), while the Dollar Index rose to new highs of 93.206, suggesting no panic or demand for the safe-haven after Trump’s decision.

In corporate news this morning, keeping this week busy for M&A, Vodafone agrees to buy continental European assets (Germany, Hungary, Romania and Czechia) worth €18bn from Liberty Global, to help it offer quad-play services (cable TV, home phone, mobile phone and Internet).

HSBC commences recently announced a buyback of up to $2bn. Prudential unit  Scottish Amicable Finance to redeem £100m of 8.5% bonds on June 30. TUI says, based on good H1 performance and strong current trading reiterates guidance for FY2018 EBITDA growth of at least 10% on Sales +3%. Burberry placing entire 6.6% stake of largest shareholder.

Kingfisher says completed share repurchase programme. Compass Group H1 underlying revenues +4.8%, operating profit +4.5%, free cash flow -7.4%, div +9.8%. G4S says Q1 organic revenue fell 2%, as expected, due to a tough comparable, expects growth in H2. Provident Financial says on track to meet 2018 expectations. Greggs trading hit by cold weather; maintains a cautious outlook.

Imperial Brands results miss consensus: H1 total volumes -2.1%, growth brand volumes +6.3% (organic +1.6%), net revenues -5%, adj. Op profit -6.7%, dividend +10%, expects much stronger H2, looking at divestments of up to £2bn over 12-24 months to lower debt and boost shareholder returns. OneSavings Bank loans +5% in Q1. Wetherspoon 3Q sales +2.8%, sees FY 2018 in-line.

In focus, today will be digestion of the US decision to pull out of the Iranian nuclear deal and the House of Lords inflicting yet another Brexit defeat on the government’s EU withdrawal bill, this time backing the UK retaining key aspects of the single market and continued EEA participation.

This afternoon, US Producer Prices (1:30pm) may show an easing in inflationary pressures, albeit still above the Fed’s 2% target for price stability, and unlikely to have too much bearing on the Fed’s June policy decision (market already pricing in another hike).  In terms of speakers, the Fed’s Bostic (6.15pm) will be discussing monetary policy and economic outlook.

After last night’s surprisingly bullish API oil inventory data, and with oil so strong on the back of the US exiting the Iran Nuclear deal, DOE Inventories (3.30pm) will be looked to for fresh impetus on oil prices.

A few US companies are reporting Q1 results, including telco CenturyLink, pharma company Mylan, office supplies retailer OfficeDepot, as well as entertainment giant Twenty-First Century Fox, which is currently in bidding war with Comcast for UK news and entertainment group Sky.

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Categories: Analysis, News
Tags: news

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