Powell restores confidence

FTSE 100 Index called to open +35pts at 7660, off its overnight best but holding yesterday’s rebound having traded sideways 7650-7675 overnight.

Powell restores confidence

Bullish flag, pause pattern? Bulls need a break above 7675 overnight highs for another attempt on July 7717 highs. Bears require a breach of 7652 overnight lows. Watch levels: Bullish 7675, Bearish 7652

Calls for a positive open are supported by gains on Wall St (though Asia is mixed), investors reassured by Fed Chair Powell’s upbeat assessment of the US economy and confirmation that the Fed will continue its policy of hiking interest rates. Trading volumes in the US were below average, but sufficient to send Nasdaq to another record high, with the FANG-led tech sector celebrating Amazon’s Prime Day and shrugging off Netflix’s earlier disappointing numbers to close higher.

Further supporting the FTSE’s global stocks is GBP weakness after PM Theresa May narrowly defeated a pro-European customs union motion in Parliament. And while the corresponding USD strength is usually a hindrance to Energy & Mining shares, FTSE Miners could benefit from BHP Billiton (+3% Australia overnight) offering a positive outlook to help it and the sector outperform.

Oil prices are up, consolidating after plumbing a 3-month low on Tuesday, in spite of an unexpected build in API oil inventories last night. Gold trades lower amid USD strength (Fed chair Powell) and risk appetite denting demand for the safe-haven which also breached the significant 200-week moving average yesterday.

Corporate news this morning includes, BHP Billiton Q4 and FY iron ore production +3% in 2018 and ups 2019 guidance to +3%. Copper production +8%, 2019 expected in-line. GVC strong momentum across online continued, helped by World Cup; Q2 revenues +11% (online +22%, UK Retail +2%, Europe +19%; well placed to deliver against FY expectations.

easyJet ups FY pre-tax profit guidance (£550-590m vs £530-580m) despite disruption; now expects H2 revs per seat (at constant FX) up low-to-mid-single digits vs. “slightly positive” disclosed in May. Severn Trent reiterates guidance; no material change to business performance or outlook. Smiths Group back to revenue growth, FY +3% underlying. All divisions expected in-line with FY expectations, except Medical (-2%; suspension of some products ahead of new EU 2020 regulations).

Meggitt signs multi-million dollar sub-systems contract for MA700 with XAC; awarded contract with Textron Aviation for wireless tyre pressure monitoring. Hochschild Mining on track to meet full year production target within guided cost levels. Lamprell maintains revenue guidance range, although significantly weighted to first half of the year due to scheduling of contracts and timing of awards.

In focus today will be June UK Consumer Price Inflation (CPI; 9:30am), the Headline figure expected +2.6% YoY, up off 2018 lows of 2.4% (lowest since Apr 2017. The less volatile and thus more reliable Core metric is, likewise, expected firmer at 2.2% YoY, up off 2018 lows of 2.1%.

Ain inflation pick-up would please the Bank of England’s (BoE) Monetary Policy Committee (MPC), which relies on inflation targeting (2%) to formulate policy, and has been looking to – albeit unsuccessfully – start normalising UK interest rates from historic lows for several years now.

On the continent Eurozone CPI (10am) is forecast to show Headline improvement (2% YoY vs 1.9% in May), although Core may disappoint with economists anticipating just 1% growth, down from 1.1% and well off the European Central Bank’s (ECB) ~2% target. After talk about an ECB rate hike being delayed from Summer to Fall 2019, another disappointing Core print could pour more cold water on hopes of regional economic recovery and dent EUR.

US Housing Starts (1:30pm) are expected -2.2% MoM in June after robust 5% growth in May (close to 11-year high). Building Permits (1:30pm), meanwhile, could rebound +6% MoM after falling 4.6% last month.

In the afternoon, EIA Oil Inventories (3:30pm) are forecast to post another Crude draw (albeit smaller that last week’s huge 12m). This would be at odds with last night’s surprise API build of 0.63M, which was only a small increase and did come on the back of 6 consecutive weeks of draws. Potential for EIA to thus disappoint.

Fed Chairman Powell (3pm, centrist) continues his semiannual monetary policy testimony to US Congress, this time speaking before the lower chamber’s Financial Services Committee.

More household US names are expected to present their quarterly earnings reports today, most notably American Express, IBM, eBay and the last of the big banks Morgan Stanley.

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