HSBC Q3 beats; IBM&Eh? A 63% premium?

Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented this morning:

HSBC Q3 beats; IBM&Eh? A 63% premium?

FTSE 100 Index called to open +15pts at 6955, with an overnight sell-off from 7000 keeping it in a 1-week falling channel towards 2018 lows of 6838, which it flirted with on Friday afternoon. Bulls need a breakout above the falling highs resistance trendline at 6982. Bears require a breach of 6935 overnight lows to extend the overnight pullback. Watch levels: Bullish 6982, Bearish 6935

Calls for a positive open come in spite of a mixed start to the trading week in Asia, traders taking stock of last week’s losses, sentiment shaken by mixed US corporate results the continued war-of-words over Italian fiscal discipline, the US mid-term elections and, of course, Brexit.

China (-3%) is the standout underperformer after a weak read for industrial profits growth, which halved from 9.2% YoY in August to 4.1% in September, which compounds the slower GDP read of the week before last and only add to trade war fears exacerbating said trend.

Even some M&A (IBM buying Redhat for $34bn cash; 63% premium) is failing to help Asia, likely only adding to the worries that US Tech has peaked, with M&A tending to occur nearer the top than the bottom of the cycle, and often being overpaid for.

In corporate news this morning, HSBC Q3 results beat guidance (adjusted pre-tax profit +16% to $6.19bn vs $5.83bn est., revenues +6.3% to £13.8bn vs $13.6bn est.), benefiting from higher interest rates and tighter cost control. The shares trading up to 4.4% higher in Hong Kong. Standard Chartered’s Chinese subsidiary is the first foreign-owned bank approved for a domestic fund custody license, allowing it hold and transfer securities on behalf of local asset managers.

Rio Tinto’s sale of 45% stake in Simandou iron ore project in Guinea ($1.3bn) to China’s Chinalco has lapsed after 2 years of negotiations. The FT reports IWG held discussions with private equity Terra Firma this year about a spin-off of its WeWork-competitor Spaces.

Takeda confirms in discussions with EU regarding potential overlap between its Entyvio product (to treat IBS) and Shire’s SHP647 (Phase III clinical trial), with potential for divestment of the latter. Beazely to redeem $18m subordinated floating rate notes due 2034. St Modwen gives notice of early redemption of £80m 6.25% fixed rate bonds due 2019.

In focus today will be the UK’s 2018 Autumn budget (3:30pm). UK Chancellor Hammond will be outlining the 12-month spending plan in the midst of which the UK is set to leave the European Union. And he has admitted that any decisions today could be overturned in the case of a no-deal Brexit. Watch for changes to spending on public services and housing subsidies to move Housebuilders, construction and outsourcing stocks.

Investors in FTSE Banks should, meanwhile, keep an eye on September’s Bank of England (BoE) Consumer Credit and Mortgage Lending (9:30am) numbers, with the latter also having read-across for Housebuilders (a busy day for struggling UK Construction names).

In the US, the day’s key macro release will be the Personal Consumption Expenditure (12:30pm), the Fed’s preferred inflation metric and key monetary policy driver. Economists expect core PCE growth to pull back below the Fed’s 2% target, to 1.9% YoY in September (from 2% in August), helping ease the inflationary pressures which are pushing the Fed to keep hiking rates.

Elsewhere, the Dallas Fed Manufacturing Index (2:30pm) is projected at 28 (from 28.1 a month prior). Though still a strong number, it is another likely welcome sign of economic cooling. No major speakers are scheduled for today except UK Chancellor Philip Hammond (3.30pm), as well as the Fed’s Evans (1:45pm, non-voter, dovish), speaking at a regional business summit.

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Categories: Analysis, News, Trading
Tags: China, FTSE 100

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Accendo Markets

Accendo Markets is an online trading services provider, offering CFDs, spread betting and forex to retail (private) clients. Accendo Markets was established in 2007 and has since gone on to win various awards including ‘2018 Winner of Best CFD provider’ at City of London Wealth Management awards and 2017 & 2018 Best CFD Research Service in ADVFN’s International Financial Awards Accendo Markets Ltd. is authorised and regulated by the Financial Conduct Authority (FCA). For more information, visit www.accendomarkets.com