Stocks begin the week brightly

Summary:

• FTSE moves up to 5-week high

• GBP drifts lower as ZAR gains

• Saudi Aramco set for world’s largest IPO

There’s been a clear move higher in equities at the start of the week with the FTSE hitting a 5-week high and US futures pointing to a new record open for US benchmarks when the stock markets begin to trade this afternoon. The gains are really just a continuation of the moves seen last week with the US remaining the driving force after the Fed avoided being too hawkish in their latest policy communication and the October jobs report came in far better than expected.

The FTSE is moving firmly higher this morning with the market breaking up through prior resistance around 7320. The 7405 region remains a potentially pivotal area to keep an eye on. Source: xStation 

The Eurostoxx 50 has reached its highest level since January 2018 in recent trade despite the latest industry surveys from across the continent offering little to get excited about. The final German manufacturing PMI for October came in a little better than expected, but the reading of 42.1 was still the second lowest for this indicator in the past decade with only the prior month seeing a lower print! 

Lagarde set for German address 

A potentially key event for European stocks and the single currency is scheduled for this evening with new ECB president Christine Lagarde set to speak in Berlin in what will no doubt be a politically charged address given the recent resumption of additional stimulus measures from the central bank. The tone here will be key and any suggestions of pressure towards fiscal stimulus to accompany the current monetary policy will likely be seized upon.  

Farage not to stand

The announcement over the weekend that Brexit party leader Nigel Farage will not stand in the forthcoming general election made plenty of headlines, but the news is not really the main aspect to focus on as far as his impact is concerned. After failing in his 7 previous attempts to become an MP his effect on this election is likely to be far more keenly felt in what way his party work with, or against, the conservatives rather than his own personal pursuit of a seat. Farage’s announcement last week that the Brexit party will contest every seat in the UK, outside of Northern Ireland, poses a very real threat to the conservatives and threatens to split the Brexit vote. 

While the Tories have a sizable lead in national polls this is of little significance in reality, due to both the first past the post electoral system and the number of seats that were closely  contested last time and therefore considered to be up for grabs. There’s a good chance therefore that any gains made by the Brexit party will not only be losses for Conservative but could swing close seats into the hands of Labour and the Lib Dems.

GBPUSD is running into some resistance around the previous high of 1.3013 with wicks seen above the last couple of completed D1 candles. 1.2750 remains potentially key support. Source: xStation

GBP/ZAR reflects WC final   

For the markets this would obviously reduce the chances of Boris’s deal going through and therefore remove the main catalyst behind the gains seen in October for the pound - the best month in a decade for sterling. The pound is trading a little softer to start the week with the South African Rand a standout performer, while it would be nice to explain this away as a result of the Rugby World Cup final driving sentiment it is more likely down to the former slipping as political uncertainty ramps up while the latter appreciates after credit-rating agency Moody’s refrained from downgrading South African debt in their latest review.   

Saudi Aramco (finally) set for IPO

A story that has dragged on even longer than Brexit is the long awaited IPO from Saudi Aramco with the kingdom announcing that the state-owned Oil giant is finally set for a public offering.  Shares will first list on Saudi Arabia’s domestic Tadawul exchange in December, with float internationally expected to follow at a later date - with New York and London seen as frontrunners. The initial plan is to sell up to 3% of the firm and while there’s a large range of estimates as to what the company will be valued at, it will almost certainly see the IPO value exceed the current record of $25B held by Alibaba back in 2014.

More than two dozen banks are handling the IPO and the range of valuation estimates amongst them reveal a large degree of uncertainty with a spread seen somewhere in the region of $1T! Saudi Crown Prince Mohammed bin Salman’s hopes for a $2T market cap look just a tad optimistic but even the lower end of estimates would see this dwarf previous records for IPOs.  

Technically the Oil chart is still a bit of a mess with the large gap higher from the Saudi drone attacks ruining the structure. Having said that, things are starting to look a bit more positive for longs with price back above the $62 handle and the 8/21 EMAs in a clear bullish orientation. Source: xStation