Can Trump solve the Chinese puzzle box?

Artjom Hatsaturjants at Accendo Markets, commented this morning:

Can Trump solve the Chinese puzzle box?

FTSE 100 Index called to open +35pts 7050, maintaining the 4-day uptrend and bounce from November lows. Bulls need a break above 7084 overnight highs to continue the rebound. Bears require a break below 7010 rising support to partially reverse this week’s gains. Watch levels: Bullish 7100, Bearish 7000

Calls for a positive open come after positive overnight price action on Wall St and Asia, where optimism was riding high ahead of the crucial Trump-Xi meeting in Buenos Aires at the end of the week to resolve the turbulent trade conflict.

While the White House economic advisor Kudlow signalled a possibility of a “breakthrough” in talks, with discussions continuing “at all levels”, and Chinese officials also appeared to be open to a compromise, the markets were unsure if we’d be looking for some sort of temporary truce or a full-blown Sino-US trade agreement.

Oil prices are rebounding from overnight lows, continuing the 2-day bounce even after overnight API Oil Inventories showed another larger-than-expected build in crude oil (+3.45m vs. +0.77m est. vs. -1.55m prev.). The official DOE oil reported later today (3pm) is also expected to post another, albeit much smaller, inventory build to keep oil prices and Energy shares under pressure.

In corporate news today, Unilever is in discussions to acquire GlaxoSmithKline’s India-focused nutrition business, Horlicks, with the deal valued as high as $3bn, beating the rival bid from Swiss competitor Nestlé.

UK’s CMA says the merger of credit score firms could impact competition, hurting chances for Experian’s takeover of ClearScore. Experian expressed disappointment, but plans to continue discussions with the regulator. Takeda’s ex-chairman Kuniko Takeda criticized the planned takeover of Shire, pointing to the deal’s high risk.

RPC Group H1 like-for-like revenue +7% YoY, adj. pre-tax profit -2%, free cash flow +2%, dividend +4%. Increase in polymer prices resulted in a £10.2m profit headwind (up from £2.7m a year ago). H1 trading encouraging and company continues to target organic growth ahead of GDP.

Telford Homes H1 revenue +30.4% YoY, pre-tax profit +15.7%. Secured £40m out of £50m FY profit target, though Brexit uncertainty makes it challenging to accurately predict forward sales rates. On the Beach FY revenue +24.5% YoY, adj. pre-tax profit +17.9%, dividend +17.9%. International revenue -5.9% after hot summer in Scandinavia. Q1 2019 early trading in-line despite challenging consumer environment.

Softcat Q1 trading and demand strong across all segments, with growth in revenue, profit and customer numbers, in-line with strategy. Q2 trading started well, FY guidance is unchanged. Brewin Dolphin FY total income +8% YoY (core +9.9%, other -31.1%), adj. pre-tax profit +10.7%. Total funds +6.7% to £42.8bn, with net fund inflows of £2.3bn, matching previous year. Total dividend +9.3%

Senior Q3 trading in-line, with Aerospace benefiting from positive commercial aircraft sector activity. New facilities construction proceeding well and scheduled to be operational in H2 2019. Frextronics trading in-line. FY guidance unchanged at current FX rates.

LondonMetric Property H1 pre-tax profit flat YoY, with the rise in revenue offset by a swing to a loss in profit-share from Joint Ventures. Net Rental Income +5.8% YoY, EPRA NAV +4.1%, dividend +2.7%.

In focus today will be the Bank of England’s (BoE) Financial Stability Report (4:30pm) that will cover stress tests on the UK’s high street names, as well as the Bank’s report on Brexit impact scenarios. As with most recent Brexit headlines, watch the usual suspects of Banks, Housebuilders and Airlines for reaction.

In the US, Q3 GDP 2nd est. (1:30pm) is expected to confirm the preliminary 3.5% annualized growth rate (down from Q2’s 4.2%). Quarterly PCE Prices are also expected to confirm 1.6% QoQ est. (vs 2% prev.). While the Trade Balance deficit is projected wider in October, New Home Sales rebound after a September slump.

In terms of speakers, we have Fed Chairman Powell (5pm) discussing “The Federal Reserve’s Framework for Monitoring Financial Stability”. Elsewhere, we’ll hear from ECB’s Cœuré (12:05pm, FX meeting, opening remarks), Vice-President de Guindos (1pm, opening remarks at Investment, Technological Transformation and Skills conference) and Chief Economist Praet (3:20pm, chairing the “Investment finance in Europe – a system fit for growth?” conference).

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