Adidas pulls the DAX higher, euro weakens

Super Thursday:Energy Sector drags the FTSE lower
By Brenda Kelly

It’s Super Thursday and following yesterday’s upside moves in global equity indices, the FTSE is underperforming its European peers. The euro continues to head lower, mostly on dollar strength but also on the fairly dire German factory orders this morning which may spur some additional stimulus from the ECB

In the aftermath of Yellen’s semi-commitment to a rate hike in December stating that it was a ‘live possibility’ before going off on a tangent that negative rates could be employed if economic conditions worsened , the markets are really no better informed than before.

Once again we have been left with a hawkish FOMC with a dove as its chair. The markets are pricing in a 58% probability of a rate hike nevertheless but macro data and the outlook for inflation will still be closely watched.

Given that the Bank of England tends to lag the Federal Reserve by 3-6 months in tightening cycles, today will be mostly about inflation outlook and any changes to the voting structure. There is a good possibility that Kristen Forbes will add her name into the hawk’s hat which would leave it at 7-2. For now cable is trapped beneath solid resistance at $1.55 and trading in a fairly narrow range unable to make any headway above $1.54 buy the 2 year bond yield has witnessed quite a surge over the past week to 0.722% - a level not seen since September of last year.

Recent macro data form the UK has been fairly good, the outlook for the three tenets of the economy are all in expansion so it really will come down to wage growth now. If this doesn’t cut the mustard, and it’s been a long time getting to present levels, then we can probably expect to see a ‘wait and see’ approach from the BOE. The ‘turn of the year’ – Carney’s initial hint seems a little premature at this juncture.

Earnings and updates abound and these have been soft overall. 56% of European companies have missed sales forecasts but a combination of increased dividends and the feeling that results could have been worse coupled with the usual lack of alternatives are keeping the wolf from the door for now.

AstraZeneca (+3.05%) increased its full-year forecast for revenue and earnings despite the decline in sales of some of its top-selling medicines. The group now expects 2015 revenue at constant currencies to be in line with 2014, after previously predicting a low single-digit percent decline.

RSA (+2.07%) the insurance firm increased written premiums by 1% in the first 9 months of this year – rising to £4.4bn. Following the withdrawal of the Zurich deal in September, the company has still managed to book profits ahead of those in 2014 but some of this is down to gains from disposals.

EasyJet (+0.75) passengers were up 9.7% in October. During October the airline carried 6.4 million passengers, compared with 5.84 million passengers a year earlier. Full year profit before tax guidance continues to be within a range of 675 million pounds ($1.03 billion) to GBP700 million for the year ended Sept. 30, as guided in September. The launch of three new routes to include Milan and Paris helps the bull case for the stock and with the majority of brokers holding a buy rating, the average price target to 1983p implies additional upside of 11% from current prices.

Morrison (-3.55%) If there is a single sector in the UK that has failed to recoup its stance prior to the global financial crisis it’s the UK supermarkets which continue to drag their feet when it comes to rising from the ashes. Morrison has reported yet another quarter of falling sales as falling food prices and fierce competition in the space have led to a fall of 2.6% in like for like sales. The supermarket also said profit in the second half of the year should be higher than the first, when it made a pre-tax profit of £126m, while net debt would be lower than its previous guidance of £1.9bn-£2.1bn.

Anglo American (-5.03%) having risen in concert with other mining stocks yesterday, the stock has reversed its gains. Very few brokers are advocating a buy on the company. The mining firm is set to close its Mongolia office amid a global cost cutting move. China’s iron ore industry continues to be problematic with fixed asset investment in ferrous down 20.8% from this time last year. A lower price target from Investec to 588p from 773p is also probably a little generous.

Glencore (+0.48%) an upgrade from Deutsche Bank this morning has done little to influence any real upside in the stock which is trading fairly flat following yesterday’s 5.4% gain.

We are calling the Dow flat at 17873. Unemployment claims are expected to rise to 263,000 from last week’s 260,000 and with several FOMC members speaking later this afternoon, the market as usual will be looking for clarity on the next rate hike.

Adidas pulls the DAX higher, euro weakens
by Ipek Ozkardeskaya

German factory orders disappointed deeply for the second consecutive month in September. New orders dropped another 1.7% in month of September, following a 1.8% contraction last month. On a yearly basis, Germany has seen a 1% decrease materialise in its factory orders while the market expected 1.9% y/y expansion. The Eurozone’s growth engine is suffocating.

The DAX reversed the early losses in Frankfurt. Adidas is up by 5.80% as its 3Q results beat analyst estimates. Adidas sales increased to €4.758bn in Q3 from €3.907bn last quarter; the operating profits increased by 14.5% compared to the same period last year, the adjusted net income improved by more than 25%. Despite the economic slowdown, China remains the best growth potential and the depreciation in euro is expected to increase Adidas’ competitive advantage versus its leading US competitors to grasp more market share in China and across the globe.

Utility stocks are leading losses in Germany this morning alongside with Volkswagen (-2%) trading below €100.

The euro weakened to 1.0834 against the US dollar and legged down to 0.70417 versus the pound. Euro traders are clearly crystallising profits before the Bank of England’s QIR and Fridays’ US nonfarm payrolls data. The euro now nears the oversold market conditions against both the US dollar and the pound. The corrective upside moves are expected to remain capped as traders will certainly chase to sell the rallies to strengthen the short-euro positions walking toward the ECB’s December meeting.

Yellen hints at December rate hike.

FOMC Chair Yellen’s speech outweighed the mixed ADP figures yesterday. The USD strengthened across the board as Yellen said ‘At this point, I see the US economy as performing well […] Domestic spending has been growing at a solid pace and if the data continue to point to growth and firmer prices, a December rate hike would be a live possibility.’ The probability the market gives for a December rate hike surged to 58%.

The ADP employment report showed the US economy added 182,000 private jobs in October (vs 180,000 exp), while last month’s 200K read has been revised down to 190K. Although the last 12-month correlation between the ADP and the NFP reads is only 52%, the ADP data generally triggers some position adjustment before the Friday jobs figures. A soft NFP read on Friday could cool off the appetite in USD although anything above 120,000 would (according to some FOMC members) be sufficient to keep them on track to hike interest rates.