Nestlé, Swatch pressured by appreciating franc

Equity markets lose steam.
by Brenda Kelly

The FTSE is treading water this morning with only the healthcare and energy sectors looking up. Once again the materials sector is dragging its heels with Anglo American the worst performer (-2.13%) and BHP, Antofagasta and Rio Tinto also underwater as metal prices continue to look heavy. The surprise cut from China’s central bank on Friday is being eyed cautiously. It’s the sixth time since November that Beijing has cut rates in a bid to temper the slowing growth in the wake of the change of focus from exports to the consumer. While the move should (and has been in the past) positive for European equities, it seems that for now, markets are questioning the divergences in various central bank policies and digging deep for some positive fundamentals in order to put momentum in a forward gear.
Cheap money can only do so much yet one would expect that any extension on behalf of Mario Draghi to the current QE programme would likely be taken as a positive.

Equally, Mark Carney’s remarks on monetary policy to the Daily Mail over the weekend have done little to help confusion. Forward guidance should essentially provide some clarity but it seems the BOE’s brand of guidance is anything but clear. The market now prices in a rate hike some 16 months down the line. Despite this, house builders are under pressure this morning with Barratt Developments 1.45% 0. The adverse effects of stamp duty changes is impacting the volume of transactions. Persimmon is also off 1.8%.
Travis Perkins (-1.91%) is usually a very useful indicator of the health of the UK housing markets – the company has recently stated that sales growth has fallen amid declining demand. The firm was upgraded to buy last week by Citi.

AstraZeneca (+0.6%) the FDA has recommended approval of Lesinurad (gout drug). UBS have a buy rating on the stock and sees the drug as a ‘wild card’. Average broker target price is 4917p.

Aberdeen Asset Management (+5%) : The company has denied the reports that it is up for sale. With the backdrop of ongoing net outflows in the eye of challenging market conditions, there have been claims that the CEO had approached rivals. It will be a case of watching this space for the time being.

Peugeot (-1%) Peugeot said third-quarter revenues were up 3.2 percent year-on-year but sales volumes fell 4.3 percent, with a 17 percent decline in Asia. Quick to ensure investors know that it has not been involved in any emissions scandals however.

Deutsche Bank (-1.33%) The US probe into the bank’s activities in Russia has heightened. Money laundering operations and possible sanctions violations are likely to be examined.

Standard Chartered (-0.75%): The bank is closing its convertible bond and equity derivatives operations – this area has been something of a drag on the performance of the bank and has withered the profits of the emerging markets focused lender.

Randgold +0.52% The company is continuing its search into multimillion ounce deposits on the Ivory Coast. It has used loans to part fund capital investment of $580m. It now moves into a dividend paying position. The present price of 4633p is not too far from the consensus 12 month target price of 4674p and with the price of gold consolidating for now, we may well see some profit taking.

WPP (-3%) Third quarter like for like sales of 3.3% were ahead of estimates with revenue increasing 5.9% on the back of increased business in America and Latin America, Africa and the Middle East. The company does not expect any major changes to FY estimates. The stock had climbed 4.3% last Friday so an element of profit taking is taking hold today. Majority of brokers have a buy rating on the stock and the average 12 month price target is 1630p. Decline global GDP may well take its toll.

Nestlé, Swatch pressured by appreciating franc
by Ipek Ozkardeskaya

The Swiss National bank is left with an unpleasant aftertaste amid the ECB President Draghi decided to speed up the monetary expansion through more QE and / or even deeper negative rates.

Euro has slipped below the 1.08 mark against the franc. A fresh wave of weakness in the euro will certainly force the SNB to get up to the speed on its monetary conditions. Following January 15 damages however, there is little chance for the SNB to set an explicit target on its exchange rate. The SNB will be tempted to defend the franc within 1.07/1.05 zone depending on how strong the pressure for cheaper euro will be to the end of the year.

SNB total sight deposits increased to CHF 467.0bn from 465.9bn as of October 23rd data.

The euroswiss futures advanced to 100.84 as a rapid euro slide could bring back the possibility of a rate action back on the table.

Nestlé and Swatch Group made a grouchy start to the week as investors don’t see light at the end of the tunnel yet. Franc appreciation, combined with deepening slowdown in China, could well keep investors’ optimism contained.

Money doesn’t buy happiness.

By a surprise action on Friday, China cut its interest rate by an additional 25 basis points and removed the deposit rate ceiling for banks to further foster growth amid GDP slipped below 7.0% in 3Q. Shanghai’s Composite gapped higher at the open yet failed to gain above 3457.5 mark. Looser monetary conditions across the board lend support to stock prices, while rising concerns on economic slowdown injects a half-hearted cheeriness in the market.
FTSE and European stocks are subject to some profit takings following the ECB’s power boost last week.

The BoJ could add further stimulus at its meeting this week. USDJPY rallied to 121.56, Nikkei stocks gained 0.65%.

The FOMC is expected to remain on hold this week, the market gives 6% probability for a rate hike to happen as soon as this week. According the latest CFTC report, the speculative USD longs retreated to lowest in more than a year. USD is weaker against all of its G10 peers. The broad USD weakness presently gives support to EURUSD above 1.10 and USDJPY above 120.00.