LCG: Stocks fall, Alibaba, Swedbank, Leaders debate reaction & oil

November 20, 2019

European shares have opened lower on Wednesday with the retreat led by energy stocks after a drop in oil prices. US futures point to a weak start on Wall Street with Dow set to open below 28,000. Gold is making some headway as a haven asset while the dollar is seeing some strength before the release of Fed minutes.

Sanguine on trade

Views have turned a little more sanguine on US-China trade so the global equity rally is taking a rest. The friendly US approach to Hong Kong protestors is the negative swing factor for now. If Chinese sources are to be believed, Hong Kong only really becomes a major headwind in the trade war if the US passes the bill into law.

Swedbank

A Swedish public broadcaster has reported that Swedish banking giant Swedbank is being investigated for breaching US sanctions against Russia. It’s the kind of bombshell report investors can’t prepare for. Swedbank shares were down over 3% in early trading and leading the declines on the OMX Stockholm 30 index. Swedbank has denied any OFAC (Office of Foreign Assets Control) violations and that seems to have put a floor under share price declines.

Alibaba in biggest listing this year

Alibaba has set shares at around 176 HK dollars, making a valuation of $11bn – the biggest so far this year. Hong Kong eased its listing rules last year which has opened the doors to a secondary listing from Chinese tech darling Alibaba. The company has huge cash stockpiles so doesn’t need to raise the funds in Hong Kong. The advantage for Alibaba is twofold. It can diversity its shareholder base during the US China trade war and it can command a high price, in part because investors in HK are clamouring for something positive amidst the protests.

GBP: Leaders debate reaction

An underwhelming first leaders debate saw the British pound lose ground. Debates aren’t a good format for Jeremey Corbyn and Boris Johnson played it safe. Anecdotally the reaction reflects the general feeling directed at British politics, frustration. We said a strong performance from Boris could see GBPUSD break 1.30 but that didn’t happen and we’re seeing a pullback. The performances in this debate relate directly to the election polling. Corbyn has a low personal favourability rating and we saw why last night. Boris and his advisors must have felt strong polling for The Conservatives was not worth giving up for a good gag. We await a next possible catalyst for the pound to push higher.

Oil prices take a bad turn

A one-two punch of surging US stockpiles and more sanguine views toward the trade war have seen oil prices take a turn for the worse. Brent crude is down nearly $3 in two days, hitting its lowest level in two weeks. A 6 million barrel rise in US inventories is fuelling concern of oversupply, something OPEC seems unwilling to tackle at its upcoming meeting in December. Reports suggest Russia has ruled out further output cuts in its arrangement with OPEC nations known as OPEC+.

FOMC minutes preview

These minutes should be a reinforcement of the view that the Federal Reserve will keep interest rates on hold. The Fed are holding the line on a “mid-cycle adjustment”.

US opening calls

S&P 500 to open 14 points lower at 3,106

Dow Jones to open 132 points lower at 27,802