European markets to open lower amid US & UK political storms, bitcoin tumbles

Morning Note

Markets have taken a bit of tumble on fears US president Trump could be impeached, while the drama in Westminster is just as intoxicating as the Brexit drama rumbles on.

House Democrats have opened an investigation into the President and, while there have been calls to impeach the president since pretty much his first day in office, this looks decidedly more serious. The Democrats think they’ve got him on charges he enlisted a foreign power to support his re-election.

Markets won’t like the uncertainty it brings. In previous instances (Nixon, Clinton) there has been rockiness for equities and the dollar. Mr Trump says he’ll release transcripts of a call to show his innocence today. We shall see – fundamentally you can’t see this succeeding as the Republican Senate won’t touch Trump. If anything it’ll serve Trump’s cause well. Markets may not like it but ultimately it seems to have a very low chance of success. Probably a storm in a tea cup.

The S&P 500 fell 0.84% to 2966 on the news. We’ve also noted some rockiness in some the more frothy parts of the market. Consumer confidence in the US softened. House price growth was strong. China’s Beige Book shows real weakness in the economy. Trump’s address to the UN was a customary attack on globalists, China and Iran – nothing new.

Asia has taken the cue from Wall St and is broadly weaker. After a weak couple of sessions futures show European equity markets are having another rough day.  The FTSE 100 has been trapped in a very narrow range between 7350 and 7260, the 50% and 38% retracements. At send time the FTSE was looking to open a tad weaker at 7254. The breach of the lower Fib level could result in a move back to 7200. There is also a risk of sterling strength exerting an influence. The DAX is seen 50 points or so lower at 12250.

In the UK, Boris Johnson heads back to a storm of his own with MPs resuming their places in Parliament today following the Supreme Court ruling. Calls for resignation grow. But nothing has really changed. The only narrative that counts is that there’s elite out there frustrating Brexit at every turn. The court ruling only supports this story.

Sterling is the bellwether trade. For the time being the market is not terribly sure whether no deal risks have diminished or not. GBPUSD is holding around the 1.2460 level having touched 1.25 yesterday. Looking for a rally north of the last swing high at 1.2490 before the recent month-high at 1.2570. On the downside, look for support at 1.240 and past resistance at 1.2380. 

Bitcoin futures took a tumble and posted its biggest intraday loss for over a year. Prices sank below $8,000 for the first time since June. Lots of reasons being proffered – some technical, some to do with lacklustre demand on Bakkt on the first day of trading physical bitcoin futures. I’ve even heard it’s because of broader risk-off selling in the market…and I was led to believe bitcoin is a safe haven/hedge. Anyway $8000 has been recovered for now but look for a move to $7500 if this goes again.

Gold is up again, continuing its advance having consolidated at $1500. Declining yields and a broad risk-off mood in the market has helped. US 10s declined to 1.65%, while 10yr TIPS dropped back further towards zero. We now seem to have a fairly decisive break north of the resistance level around $1526, so bulls will look for a drive through to $1550.

Oil was weaker on the broad softening in risk appetite, with WTI slipping the $57 to trade around $57.83. A surprise build in inventories also weighed with the API estimating a 1.38m barrel build versus expectations for a  750k draw. EIA inventories are on tap today and forecast a 0.5m draw, however the API numbers maybe suggest we could see another surprise build. There is a real geopolitical risk premium still in play after the Saudi attacks, but the fundamentals for the market have not changed and remain pretty bearish – I.e. the world is awash with plentiful crude supplies and demand growth is heading south. If there is no trouble in the Middle East then oil has to fall, but assuming ongoing tensions and the threat of more attacks and escalation on the Iranian front then prices should be fairly supported.

Equities

Adam Neumann is resigning as CEO of WeWork but will remain on as chairman. The move is clearly aimed at addressing governance problems that have dogged its IPO process. Quite whether investors think that’s enough to get the stock listed is another matter. The financial cracks can’t be papered over so easily. They need to get this listing out the door to unlock $6bn of bank loans. At the last look it appears they could only muster $2bn of the $3bn they are required to raise to unlock the cash. And half of that is from SoftBank.

Sainsbury’s tries to move on from its Asda marriage being called off. Retail sales in Q2 rose 0.1%, while like-for-like sales fell 0.2%. Grocery total sales were up 0.6% but General Merchandise fell 2%. Management say they remain on track to deliver full year 2019/20 underlying profit before tax in line with consensus expectations. The most eye-catching announcement however was the store restructuring.  Sainsbos is planning 10 new supermarkets and 10-15 closures; (net -5) c.80 new Argos in Sainsbury’s and 60-70 Argos closures (net +10/20); c.110 new convenience stores and 30-40 closures (net +70/80). Management say the closures will boost net operating profit by about £20m a year, but will come with a one-off cost of £230m to £270m, of which the cash cost will be £30m to £40m. No word on Mike Coupe’s future…maybe he’s sticking around for longer.

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