LCG: Trump Impeachment, Fiat Chrysler, Volvo/Isuzu, Gold

LCG: Trump Impeachment, Fiat Chrysler, Volvo/Isuzu, Gold

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INDICES: Trump impeachment today

Shares in Europe have opened in the red on Wednesday with caution taking hold on the region despite record highs across the pond. The DAX has failed to make much progress beyond 13,400 and election-day gains have stalled in the FTSE 100. Asian equities took a pause from the 5-day winning streak brought on by the US-China trade agreement.

Wall Street is set for a softer open on the day that the House of Representatives are expected to impeach US President Trump. There will be a debate of up to six hours before the vote takes places in the House today. The vote is expected to go down party lines, meaning Democrats will use their majority to impeach the President. The two risks from impeachment as we see it are a) impeachment happens, causing political instability or b) it doesn’t happen but the acrimony prevents progress on other policies. Today is only step one out of two to complete the impeachment – and it is well understood that step two (a vote in the Senate) will almost certainly fail. The concurrent passing of the USMCA trade pact and the 2020 budget would suggest impeachment doesn’t have to curtail cross-party legislation.

EQUITIES: Car industry mergers

The cratering demand for new vehicles has pushed auto executives into each other’s arms. Their joint interest in making progress on electric vehicles (EVs) is outweighing competitive spirits.     

Volvo shares are in the spotlight on Wednesday after Japan’s Isuzu announced a collaboration between the two rival truck makers. They will collaborate on electronification and autonomous driving. It looks like a similar arrangement to that of BMW and Jaguar Landover. These partnerships are a useful short-term alternative to mergers and acquisitions. We think this particular partnership probably has less scope to develop over time into a merger, but the chances are now clearly improved. Combining resources while keeping R&D costs lower and without the administrative headache of a merger makes sense to get ready for EVs.

Today the boards of Fiat Chrysler and PSA are set to sign off on their huge $50bn merger. Fiat Chrysler has been looking to merge for years- with Ford and GM both touted as possibilities- but finally decided on PSA. For Fiat it goes beyond EVs and falling demand to simply the strategy of having more global scale. The next hurdle is getting the deal through regulators. We think given the negative ramifications for European – and especially German economic growth from the downturn in the car industry – this deal has a good chance of passing the EU’s typically very interventionist regulators. The bigger challenge could come stateside if the Trump administration gets an any inkling that homegrown brand Chrysler is becoming European.

FOREX: Euro drops before data, Lagarde

The euro is down in early trading ahead of IFO sentiment data from Germany, Eurozone inflation and a speech from Christine Lagarde. We don’t suppose Lagarde will want to deviate too far from remarks in her maiden ECB meeting press conference. Lagarde seems determined not to cause any waves in the forex market, calling herself an owl rather than a dove or hawk. The selling for the moment is technical from the 200-day moving average but may be given some fundamental weight if the data today is soft.

An expected drop in UK consumer price inflation likely won’t help the fate of the pound which has come in for some newfound Brexit concerns this week. The way we are reading the price action in Sterling is that the law on preventing an extension to the implementation period has exaggerated  profit taking after a big up-year for the currency. Traders are now more keen than they might have been to lock in pre-election gains.

COMMODITIES: $1280 per oz important for gold

A shock US-inventory build some oil prices close off their highs yesterday, posting small initial losses on Wednesday. Forecasts for higher demand next year, in part because of better trade relations is limiting the damage.

Fed speakers Brainard and Evans could have some influence on gold prices today. The price has settled right beneath a confluence of the $1280 per oz resistance, the 50 DMA and a down-sloping trendline that connects the lower peaks that began in September.