Equities steady with Brexit vote, key US data ahead

Morning Note

There was more Christmas cheer in London as the FTSE 100 broke higher again to finish up at 7573. European equities are looking a touch softer without investors offered little to focus on as the Christmas wind-down commences. However we could yet see more upside to the FTSE on positive flows.

It was the same story on Wall Street as the S&P 500 ground out another record high to close at 3,205. Impeachment, what impeachment? The markets have totally shrugged off the proceedings against the President. It only further delineates the two partisan camps ahead of the presidential election next year.

USMCA trade deal has been backed by the House of Representatives and should pass the Senate soon. China situation looks ok – nothing new to rock the ship. Mnuchin says phase one will be signed in January.

Asia has been mixed overnight with no real momentum from the slow steamroller in the US. Japanese inflation was 0.5% year-on-year, in line. Tokyo closed 0.2% lower. 

Sterling is still on the defensive with GBPUSD briefly taking a 1.29 handle and looking a tad shaky here at 1.30. Looking to consolidate around this round number but the trend remains bearish. 

The Brexit vote takes place in Parliament today – GBP crosses may be sensitive to some of the headlines but by-and-large there ought to be no surprises with the bill expected to pass easily. 

Today sees some pretty important US data in the shape of the Fed’s preferred gauge of inflation, the core PCE numbers. If this ticks up a bit then it will only add to the sense the Fed is right to pause its rate-cutting cycle and could push up yields and the USD. EURUSD looks vulnerable to a downside move should the PCE number beat – that 1.12 level looks increasingly distant and a 1.10 handle may come first. Cable could also be susceptible to pressure if the core PCE emerges as firmer than expected. Core CPI was strong in Nov and suggests core PCE could beat the 1.5% expected. 

UK GDP later expected at 2.1% – secondary to feelings about Brexit and the Boris Bounce for UK assets though. Andrew Bailey of the FCA reported as the new Bank of England governor after Mark Carney. Not an unblemished record but likely a safe pair of hands.

Crude oil continues to roll higher in the uptrend past $61 as it just keeps on making new highs. Gold is static at $1478. 

Equities 

Shell has delivered an update on the fourth quarter. It expects post-tax impairment charges in the range of $1.7-2.3 billion for Q4, with capex at the lower end of the range. 

Upstream production narrowed, now expected to be between 2,775 and 2,825 thousand barrels of oil equivalent per day, vs 2,650 – 2,800 thousand boe/d guided on Oct 31st. Downstream oil products sales volumes are expected to be between 6,500 and 7,000 thousand barrels per day, vs 6,650 – 7,050 thousand boe/d previously guided. Gas guidance is unchanged – Integrated Gas production is expected to be 920 – 970 thousand boe/d. LNG liquefaction volumes are expected to be 8.8 – 9.4 million tonnes. 

Also watch BATS and IMB after Congress approved a bill to ban tobacco and e-cigarette sales to anyone under the age of 21 in the US. The move is a long time coming but there may be a slight negative reaction. Some 19 states and 500 cities had already raised the minimum age to 21 but it’s indicative of the squeeze on big tobacco. Quite whether making something illegal for youngsters stops them trying it and becoming hooked is another matter, but the pressure to combat marketing aimed at young people ought to help.  

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