Morning Editorial: G7 trades diplomacy for insults

Calls for a positive open today are supported by gains in Asia (Australia ASX closed for the holiday), the markets are back in positive territory after the earlier jitters regarding the geopolitical acrimony at the weekend’s G7 Summit in Canada.

Morning Editorial: G7 trades diplomacy for insults

FTSE 100 Index called to open +25pts at 7705, back at the mid-point of a 2-week 7640-7770 range in which it continues to consolidate after its retreat from May’s new record high. Bulls need a break above Friday’s 7715 overnight highs. Bears require a breach of 7685 intersecting rising support. Watch levels: Bullish 7715, Bearish 7685

Calls for a positive open are supported by gains in Asia (Australia ASX closed for the holiday), markets back in positive territory after early jitters regarding the geopolitical acrimony at the weekend’s G7 Summit in Canada. Sparks flew between President Trump and fellow leaders about the contentious issue of global trade and tariffs and he both left early, refused to endorse the group’s communique and attacked neighboring Canada.

Thankfully, there is more optimism about the US President’s meeting with North Korean leader Kim Jong Un in Singapore. The potential for a meaningful discussion about de-nuclearisation on the Korean peninsula could diffuse some of the tensions between the US and North Korea, improve the global mood and gain Trump some brownie points after this weekend’s events at the G7.

Sterling is off Friday lows (normally a hindrance to FTSE names) as FX markets start to price in tomorrow’s Brexit amendment votes in the House of Commons. Whipping is expected to result in the shooting down of most of the 15 House of Lord’s “soft Brexit” proposals, but with PM May lacking a parliamentary majority (DUP prop-up partners not happy about NI border and abortion) rebel Tories could side with Labour to make things difficult. USD index down against its basket of peers, helping FTSE Miners sensitive to dollar-denominated metal prices.

Oil prices off Friday highs as expectations build, about a meeting between Russian President Putin and Saudi Crown Prince Mohammed bin Salman, before the opening FIFA World Cup match on Thursday. The two are expected to discuss ending crude oil production cuts to make up for shortfalls from Iran and Venezuela, and following under-the-table US requests to OPEC about boosting output.

In corporate news this morning, Rolls Royce identifies more Trent 1000 engine problems. Additional costs but reiterates FY cash flow guidance. NMC Health to form JV (majority stake, operational control) with Hassana Investment Co. to create new private healthcare platform in Saudi Arabia.

Old Mutual says IPO range for wealth management arm Quilter set at 125-155p per share. Vodafone to reduce Vodacom stake to 60.5% from 64.5% after Vodacom’s plans to issue shares. BCA Marketplace rejects preliminary and conditional 200p per share all cash approach from Apax. HICL Infrastructure agrees to acquire a further 7.2% interest in France’s A63 Motorway concession. Sothic Capital (10.9% investor in Petropavlovsk) says strongly against replacing the board as requested by CABS and Slevin ahead of AGM.

In focus today – a quiet Monday for data – will be April UK Industrial & Manufacturing Production, and Construction Output (9:30 am). Manufacturing is expected unchanged at 2.9% YoY, plateauing after a 3-month rebound while Industrial Production pulls back to 2.7% (from 2.9%), its rebound likely having peaked last month. Construction Output is expected to remain in negative territory (-1.4%), albeit less so after that awful weather-impacted March (-4.9%).

The UK Trade Balance is expected narrower (£-2.5bn), normalising from March’s jump (£-3.1bn from -£1.2bn in Feb) to levels nearer to the average of that reported in Q4 2017. The UK NIESR GDP Estimate (12 pm) will be looked to for any change on April’s 0.1% QoQ/3M, holding close to breakeven since 0.0% in Feb (the slowest since Jan 2017) highlighting UK pre-Brexit woes.

All eyes this week on monetary policy updates from the US Federal Reserve FOMC (Weds, 7 pm) and the European Central Bank (Thurs, 12:45pm). Analysts expect the Fed to hike rates by another 25bp, taking its range to 1.75-2.0%, further normalising policy from crisis-era extremes. The ECB, however, is expected to leave rates unchanged.

Much attention will be on both central banks’ statements and press conferences, with the outlook from Fed Chairman Powell (Weds, 7:30 pm) about inflation expectations and further rate hikes being influential for many asset classes.  The bigger event, however, may be ECB President Draghi (Thurs, 1:30 pm) and any committee discussions about ending its QE bond-buying programme..

This will also be an important week for inflation data, with consumer price indices (CPI) released for the US (Tue, 1:30pm), the UK (Weds, 9:30am)and Eurozone (Fri, 10am), along with Retail Sales for the UK (Thurs, 9:30am) and US (Thurs, 1:30am), both important barometers of consumer confidence and economic health.

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Categories: Analysis, News
Tags: FTSE 100

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