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In markets, stocks keep on punching new all-time highs with the US and China trade deal signalling a turning point for global growth.

Friday capped a strong week for stocks as the S&P 500, Dow, Nasdaq and the Euro Stoxx 600 notched fresh record highs. The US big three each had their best week since August. European shares are up 20% in a year. Asia remains about 7% below all-time highs, with worries about Chinese growth, the trade war and unrest in Hong Kong weighing.

Economic indicators from the world’s two largest economies have provided encouragement in recent days. US data is solid – new home starts rose to a 13-year high, while manufacturing activity was stronger than expected. China growth numbers that met expectations also soothed nerves.

US markets are shut for a public holiday today so we may see somewhat reduced liquidity.

European markets are flat at the start of the week but we don’t expect things to stay completely unmoved all week. The FTSE 100 may be testing 7700 today. Asia has been broadly higher though Hong Kong is weaker overnight with rally organiser arrested after protests turned violent.

This week the focus shifts back to corporate earnings. So far so good in terms of S&P 500 earnings with c80% of companies reporting so far beating earnings expectations. About 40 are out of the traps this week. Our highlighted stock is Netflix. See note Netflix: Content to be primus inter pares?.

In FX, the pound remains on the back foot after weak retail sales on Friday only added to speculation the Bank of England will cut rates sooner rather later. The way the MPC members have been talking and the way the data is going, this month’s meeting is the window. GBPUSD has again slipped its 1.30 berth to take a 1.29 handle, trading currently at 1.2980.

Noting some concern expressed by businesses after the chancellor said Britain would not be a rule taker after Brexit and for companies to expect divergence from European rules and laws.

EURUSD is weaker just below 1.11, threatening to test trend support around 1.1060. Bulls are trying to hold the 50-day moving average at 1.11. We may see some volatility around the ECB meeting later in the week.

USDJPY is holding 110 and moving higher – the breach of the 200-week moving average was completed and now bulls may start to look to a push towards 112.

Oil took off amid supply disruption in Libya and Iraq. Production of 1.2m bpd has been completely crippled after forces loyal to Khalifa Haftar closed a pipeline. About 800k bpd of that figure has been taken out, although it could be higher. This is coinciding with disruptions to production in Iraq. We can expect both countries to provide ongoing supply uncertainty but these are relatively mild and likely to be shorter duration outages. I don’t think we are seeing a major disruption – certainly any spare capacity can simply be absorbed by other OPEC members gladly pumping a little more to compensate. And the global oil market just isn’t as exposed to shocks as it once was.

WTI gapped up to $59.70 but have since retraced to around $59.20. The gap could close back to the $58.60 area fairly quickly if this gets resolved. Failure to hit $60 shows bulls don’t have much appetite. The 50% Fib level of the rally from the Oct 2018 low to the recent high, sits around $58.30. Last week crude stocks fell more than expected, the build-up of products was huge. Crude inventories dropped by 2.55m barrels for the week through to January 10th vs -474k expected. But gasoline inventories were up 6.7m barrels vs +3.4m expected. Distillate stockpiles rose 8.2m vs +1.2m expected. CFTC data shows speculators trimmed their net long exposure to 530k contracts from 567k a week before.

Gold is steady around $1560 with some signs emerging that Tuesday’s hammer candle was maybe more than a near-term reversal. Speculators have slightly trimmed net long positions. Palladium keeps on jumping on tight supply and rising demand.

Aside from earnings and Davos this week it’s a central bank trifecta on the running order, albeit we do not see any major surprises in the offing.

The Bank of Japan will hold – data has picked up a touch and the trade war truce between the US and China should offer elbow room to sit on their hands for a while longer.

The Bank of Canada is expected to hold but pressure is mounting to cut as growth slows and the rest of the world has already eased.

The European Central Bank is also set to leave rates unchanged – Christine Lagarde will be more focused on Davos, her natural habitat. Strategic reviews will buy her time – no pressure to cut right now especially as Draghi slashed to the bone just before she arrived.


Beggars can’t be choosers: Sirius Minerals has accepted Anglo American’s low ball offer, surprise, surprise. As we noted at the time, the £386m bid forced Sirius into a corner as it was seeking cash and they had little choice but to accept what they were given. As we noted: The fact this offer is public could make raising cash for other sources very tricky now, if not impossible, forcing SXX into something of a corner – even if the price is not the best they will have to accept it. The market knows they need cash ASAP but with this offer on the table, it’s now the only show in town – they have to recommend it or it’s curtains. Anglo is picking up a distressed asset on the cheap.

Fevertree has not entirely lost its sparkle, but tough Christmas sales in Britain are a bitter tonic when it needs to be focusing on the key US market. The meltdown across the UK retail market left sales -1%. But USA sales – where the real growth is to be found – were up 33%. Europe (+16%) and Rest of the World (+32%) were also strong. Group revenue is expected to be £260.5 million representing growth of c.10%.

But the fact is the UK remains where the earnings come from so the softness here is a short-term drag on profitability. Management now expect earnings to decline by around 5% when compared to 2018. Margins are coming under more pressure. Fevertree also plans to continue to invest in the brand. The company is entering a different part of the cycle, but USA growth should start to really come through later in the year. Moderation in UK growth is entirely as expected – the key is the US and RoW segments. Shares have already significantly rerated to reflect slower UK growth but probably don’t fully reflect the potential in the US at present.

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