LCG: Investors brush off Trump’s impeachment talks

26 september 2019

US equities gained along with the US dollar on Wednesday, as investors threw Trump’s impeachment drama to the winds and focused on the progress made in trade discussions with Japan and the rising possibility of a trade deal between the US and China amid the world’s most populated country announced it would buy soybeans and pork from US farms earlier this week. President Donald Trump said that there is a ‘good chance’ of reaching an agreement, following China’s commitment to purchase big amounts of US farm products. But Donald Trump remains the major risk to the conclusion of any agreement. A tweet would suffice to shatter the market sentiment, again.

Now, it is unsure how the ongoing impeachment inquiry would impact Trump’s mood in October trade negotiations, but we believe that he may concentrate his efforts in sealing a much-desired trade deal with China to divert the market’s attention from his impeachment inquiry and get the stock markets racing higher. There is no such thing as a market rally to brush off the impeachment talks and to regain Americans’ appreciation into the 2020 presidential election year.

Nippon carmakers gain, Hong Kong stocks lag into the crucial October 1st ‘celebration’

Japanese equities traded in the green, as Nippon automakers gained on news that the US duties on Japanese industrials would ease or end. Investors bought Toyota (+1.02%), Mazda (+2.54%), Subaru (+1.93%), Honda (+1.01%) and Mitsubishi (+1.01%) shares, while Nissan (+0.21%) and Suzuki (+0.18%) lagged in the morning trading session in Tokyo. The Japanese yen eased against the US dollar, giving a brighter smile to Japanese exporters.

Gold tumbled more than $30 an ounce since yesterday to $1503. The US 10-year yield settled near the 1.70% mark.

Hang Seng (+0.29%) recorded timid gains; Shanghai’s Composite (-0.73%) remained offered as the trade optimism was overshadowed by a rising anxiety regarding the situation in Hong Kong as China’s Communist Party prepares to celebrate its 70th anniversary on October 1st. Investors could further trim their exposure to Hong Kong stocks, as October 1st celebrations are expected to fuel the anti-China protests in the city’s streets and further weigh on the business sentiment.

US dollar and US futures edge lower before GDP data, as DoJ announces parallel investigation on Facebook

In what could be a fragile recovery, the S&P500 and the Dow Jones advanced 0.62% and 0.61% respectively on Wednesday. Nasdaq gained 1.05%.

US tech stocks led gains in New York, as Facebook, Amazon, Apple and Alphabet bounced higher on improved sentiment.

Meanwhile, the US Department of Justice (DoJ) threw a parallel investigation on Facebook, on top of a Federal Trade Commission’s (FTC) probe already underway. Earlier this year, the FTC and the DoJ began a wide antitrust investigation on US’ four tech giants to examine whether they acted in a way to harm competition in the tech industry. According to an agreement, the FTC would concentrate on Facebook and Amazon, while the DoJ would crack its brains on Apple and Alphabet. But now, Facebook is targeted by both entities. The latter news could weigh on Facebook’s share price in the short-run, but overall, investors remain highly attracted to the US’ most popular growth stocks. According to a Bloomberg survey, 87% of investors advise investing in Facebook with a twelve-month average target price of $231 per share, compared to the actual price of $182.80.

On the macro front, the US GDP is expected to have grown 2% in the second quarter, down from 3.1% printed in the first quarter of this year, as the negative impact of the trade frictions with China start showing up through a visibly weakened economic data.

US stock futures edged lower as the US dollar gave back gains in Asia, but that could change quickly. A soft GDP read could encourage Donald Trump to show more willingness to reach a trade deal with China besides fueling the expectations of another rate cut from the Federal Reserve (Fed) and support a further upswing in US equities.

Cable to reverse bullish trend on Brexit debacle

The pound fell to 1.2348 against the US dollar, the major 38.2% Fibonacci retracement on September rebound, on failure to clear the 1.25 offers on Supreme Court’s decision to reconvene Parliament. This means that investors expect nothing to change over the past couple of weeks in the UK’s political debacle regardless of suspended or unsuspended Parliament. In contrary, the pound will likely start feeling the pinch of snap election talks that could bring more uncertainty to the mix, though the Labour Party will likely reject an early vote before the October 31st deadline is off the table.

From a technical standpoint, a move below the 1.2348-support should send the pound to the bearish consolidation zone and encourage a further decline to 1.2273 (50% retracement) and 1.2198 (major 61.8% retracement).

On the other hand, cheaper pound wets investors’ appetite in British blue chips. The FTSE 100 remained immune to the sell-off that hit other European indices on Wednesday. The index rebounded off its 200-day moving average, 7224p, and closed a touch below the 7300p level.

FTSE futures hint at a flat start on Thursday.

Opening calls

FTSE to open 12 points lower at 7278

DAX to open 6 points lower at 12228