Markets at the moment don’t like to stay risk-off for terribly long. Today, European shares rose in the early part of the session after yesterday the bulls rallied the troops late in the day despite broad risk-off moves in the first part of the session.

Monday morning hangovers are a sign of a good party. The Dow took the hair of the dog most easily and closed at a fresh record high despite earlier losses, helped by Boeing’s lift-off after an update on the MAX 737 which said deliveries could recommence as early as December. The S&P 500 was 0.2% lower at close of play, but well off the lows of the day. 

European equity markets were looking very groggy on Monday morning but bulls took a cold shower at lunch and staged an afternoon rally to pare a large chunk of earlier losses. The FTSE, which had been down as much as 1.25%, ended 0.4% lower. The DAX finished -0.23% and the CAC ended higher. The FTSE 250 rallied to finish up a quarter a percent on hopes of a conclusive election result in the U.K. (see below for FX).

Overnight Asia is broadly higher with Tokyo, Seoul and Hong Kong rallying, although Chinese stocks were a shade softer.

Nevertheless worries about trade remain – specifically will a phase one deal between the US and China be completed by Christmas. The White House has been careful to say it hasn’t agreed to roll back tariffs yet. But hope springs eternal, especially when the Fed has your back. 

If you worry about markets being complacent, the volatility trade will not do anything to persuade you otherwise. The Vix remains at super low levels, up a touch yesterday from Friday’s trough when it hit its lowest since July. And speculative short positions on the Vix have reached a record high. Looking at past cycles this short Vix trade looks susceptible to a short-term spike in volatility that crushes everyone. A regular theme in these notes – markets are lining up for disappointment. Having paused its cutting cycle the Fed may yet be goaded into further cuts. 

All eyes will on Donald Trump after markets close in Europe as the president is due to deliver a speech at the New York Economic Club later, expected at 17:00 GMT. This poses all kinds of risks – on everything from China and trade to the Fed and impeachment. Markets will be on tenterhooks. The president’s speeches are akin to throwing a dart blindfolded. We may get an update on planned US tariffs on EU autos, which are expected to be delayed for six months. The deadline for the president to kick this into the long grass is tomorrow.

Elsewhere, gold was still weaker as the respite from the early risk-off beat to the market gave way. Prices have found near term support around $1450 but momentum is with bears, with a test of $1440 looking on the cards. We await to see what bonds do as the US market reopens following a holiday. Crude caught bid as equities rallied to reach $57 moving back to the upper band of the rising channel since the start of Oct.

FX

USDJPY has broken through 109 again to trade above the 200-day moving average. EURUSD is in a tight range at 1.1030 ahead of the German economic sentiment data – resistance at the 50-day moving average on 1.1040 is proving the barrier. At send time it was weakening to 1.10250. We know Germany is in recession so these ZEW figures might be more optimistic than the market is assuming.

Sterling took a leg higher on Monday as the Tories were given an early Christmas present from Nigel Farage.

GBPUSD took off from $1.2830 to flirt with $1.29 after the Brexit Party said it won’t be contesting any of the 317 seats won by the Conservative Party in 2017. The pound (and domestic earning U.K. equities) rose since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.

This is a big boost to the Conservative Party as the Brexit Party had talked about fielding 600 candidates. It changes the electoral map. Mr Farage seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020. It would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.

At present the Brexit Party will contest seats held by Labour and other pro-Remain parties. However there is talk that Mr Farage will step aside in some key Tory targets..

Overnight, New Zealand inflation expectations fell, giving the RBNZ the green light to cut tomorrow. 

Equities

ITV third quarter numbers are broadly positive. Total advertising revenues rose 1% in Q3, which was at the top end of guidance. For the year ad revenues are seen declining 2% with guidance for Q4 to be flat to +1%. Studios is seen with a strong Q3 and Q4 but weaker in 2020 because of the phasing of deliveries this year. Organic growth in Studios has stalled, but management expect 5% total revenue growth medium term. Acquisitions will be important to deliver on this. Online revenues rose 23% in the nine months YTD. For the nine months YTD, external revenues were -2%, vs -7% after six months. The improvement in ad revenues in the third quarter is a plus point.

As Disney+ launches today, and in the spring in the UK, it’s a timely reminder of the threat posed by cord cutters to the ITV business model. Freshly-minted BritBox doesn’t look like it has the heft to compete in an increasingly crowded streaming space.

Advertising revenues are under a lot of pressure both cyclically and structurally. 2019 was always going to be tough but there are also structural problems in terms of the cord cutters taking market share and the shift towards digital ad spend over traditional TV. The rebound in the second half we are seeing is encouraging. Shares rose 2% in early trade to 138p.

B&M continues to show good LFL growth and highlight the strength in the value end of U.K. retail, but Germany is proving a tougher nut to crack. Group revenues (excluding Babou which was acquired after the half year in FY19) increased by +12.4% to £1.76bn. UK revenue was up +13.8%, or 3.7% on a like-for-like basis. Management says Q3 trading has been solid and is optimistic over the key Christmas quarter.

However, profits slumped 70% to £32.2m which included a £59.5m impairment charge relating to Jawoll, its German business. Management say they will carry out a strategic review of Jawoll in light of the poor performance. Shares were in the bargain bucket with a -9% sticker.

Vodafone raised guidance and put Indian troubles behind it. Adjusted EBITDA for FY20 is now seen at €14.8-€15.0 bn, up from the previous guidance of €13.8-14.2bn. Free cash flow is now seen around €5.4 billion (previously ‘at least €5.4 billion’) as lower cashflows from India and the sale of New Zealand offset the initial accretion from the Liberty Global acquisitions.