LCG: Equities rally as IMF cuts global growth outlook, US-China prepares to talk. ITV in focus.

24 juli 2019

Global equities rallied after the IMF cut the global growth outlook to 3.2% in 2019, which would be the lowest growth rate in a decade, and to 3.5% in 2020. News that US and Chinese officials will meet face-to-face next Monday helped.

IMF’s downside revision boosted the expectation that the Federal Reserve (Fed) could lower its interest rates by 50-basis-point in its July meeting. The S&P500 (+0.68), the Dow (+0.65%) and Nasdaq (+0.58%) closed the US trading session in the green. Mining and industrial stocks rallied in New York. US tech stocks (+0.55%) lagged after the US Department of Justice opened an antitrust investigation on US tech giants, such as Amazon, Google and Facebook to examine whether they have acted to reduce competition in their sector and muffled innovation.

Hang Seng (+1.0%) and Shanghai’s Composite (+1.16%) gained and technology stocks jumped 2.66% in Shanghai on hopes of seeing a progress in US – China trade discussions, and more specifically on Huawei sanctions. All sectors advanced in Sydney.

Oil rebounded. WTI crude recovered to its 50-day moving average, $57, and Brent crude traded past $64 a barrel.

But with US officials accusing China to ‘steal its way’ to economic dominance, and Chinese officials blaming the US’ ‘black hand’ behind the Hong Kong protests, the negotiations may happen in quite a tense environment. The possibility of a comprehensive trade deal remains low in next week’s US-China meeting.

Gold gained in tandem with the global equities. The unusual positive correlation between gold and equities is mostly explained by the prospects of lower US yields ahead of the FOMC’s critical July meeting and the need of safety net if the FOMC doesn’t deliver a sufficiently dovish policy stance. Hence, downside corrections near and below the $1400 mark are interesting dip-buying opportunities for investors seeking to strengthen their long positions and gold hedges before next week’s FOMC meeting.

Euro-dollar to test 1.11-support

The EURUSD extended losses to 1.1144, as dovish European Central Bank (ECB) expectations handed the market to the bears ahead of Thursday’s monetary policy meeting.

Due today, Markit’s PMI figures could confirm another month of contraction in Euro-area’s manufacturing activity in July. Expansion in services may have slowed as well. Soft PMI data will likely enhance the selling pressure on the single currency. Euro-bears are preparing to test the 1.1100 mark, which has acted as a solid support year-to-date. The 1.1100-support could crumble if Mario Draghi delivers a sufficiently dovish accompanying statement at tomorrow’s press conference.

Dude, this will be a real challenge.

The pound gave a limited kneejerk reaction to euro-skeptic Boris Johnson’s appointment as the new Conservative leader and the UK’s next Prime Minister. Cable rebounded to 1.2480 following the announcement. But the pound’s relief rally remained capped below the 1.25 mark.

Now, it’s time for Boris Johnson to deliver what he promised: a Brexit – any Brexit. The worry is that the UK could rush out of the European Union without a deal if Johnson fails to negotiate a Brexit deal that could satisfy both parties, a challenge that his predecessor Theresa May couldn’t overcome in more than three years. Johnson takes over an economy on the brink of recession and a divided government faced with an unsatisfactory European deal proposal. Britain’s Parliament will be closed from next week. When the ministers return from their holiday in September, the clock will be ticking loudly until the October 31st deadline. This means more downside pressure on the pound.

Only good news is, Boris Johnson ruled out the possibility of an early general election. This is one less political uncertainty for pound traders. But Cable is exposed to decent put option expiries at 1.25, 1.2450 and 1.24 today, following yesterday’s failure to rebound past the 1.25 mark.

UK blue chips remain in demand, however, as cheaper pound gives investors the opportunity to purchase British stocks at advantageous prices. The FTSE 100 index tested the 7600p on Tuesday and closed the session 0.56% stronger.

FTSE is expected to open 3 points higher at 7561p.

Earnings focus

ITV’s first half results may not inspire investors, as ‘Love Island’ ratings will certainly fall short of last year’s World Cup euphoria.

In fact, the first quarter sales slumped by 7% on Brexit uncertainties, and advertisement revenues in June will likely drop by a significant 20% compared to last year’s exceptional 22% jump in TV ads during the 2018 World Cup.

On the other hand, TV is a vanishing business, as the organic demand wanes due to rising competition from other forms of visual content providers, such as Netflix, YouTube and Apple TV. The launch of new BritBox streaming service could give a boost to ITV revenues in the coming quarters, but the negotiations with BBC remain intense and we may not hear enough details about this matter.

Elsewhere, Facebook, GlaxoSmithKline, Boeing, Ford and Deutsche Bank will release second quarter results.