Equities rise; EM currencies turn lower

Summary:

• Stock indices gain to start the week

• FTSE back at 200 day SMA

• Turkey leads EM currencies lower

• Pound lower on no-deal report

There’s been a broad risk-on feel to the first session of the new week with stocks in both Europe and the US rising along with bond yields as precious metals have pulled back. Equities ended last week with a flourish on reports of a significant fiscal stimulus in Germany and comments yesterday that the US was also set to ease policy on this front have provided a further boost. Furthermore, some positive trade remarks on social media from Trump have also contributed to this improvement in risk sentiment.

The German Dax and all major US indices are higher by more than 1% at the time of writing. German equities are catching a bid on Monday morning thanks to Finance Minister’s remarks on a possible stimulus. Lenders, including Deutsche Bank (DBK.DE) and Commerzbank (CBK.DE), as well as industrials like Thyssenkrupp (TKA.DE) are among the best performing stocks. Upbeat sentiment is strong enough to see almost every DAX member rising at the beginning of the session, even in spite of a range of downbeat analysts’ recommendations.

Analysts of the Goldman Sachs continue to be bearish about the automotive sector. The Bank  issued new recommendations for Continental (CON.DE) and Valeo (FR.FR) stocks. Recommendation for Continental was lowered from “buy” to “neutral” and the price target was cut from €142 to €118. Valeo was downgraded from “neutral” to “sell” and price target was lowered from €22 to €21. 

The FTSE has also gained steadily, adding over 70 points during its cash session. The UK benchmark is now back at the 200 day SMA and following a few sessions below this key long term trend identifier, the market is looking to close back above it.  

Strong sentiment usually favours emerging market currencies but that is not the case this Monday. While rumours of fiscal expansion in Germany and US license extension to Huawei led indices higher, EM currencies are clearly declining against the US dollar. The Turkish lira is down 1.2%, followed by Brazilian real (0.9%) and Mexican peso (0.8%). As a result USDTRY is at the highest level since 29 July, 4% up from its low from 8 August.

Sterling is trading lower against all its peers today after a good week last time out, with a leaked no-deal Brexit report in the weekend press doing little to aid a recovery. The so-called Project Yellowhammer document differs from previous forecasts in that it is not focused on the worst-case scenario - as was the BoE report - but rather is what Whitehall see a likely to occur should the UK leave the EU under a no-deal. The government has been quick to dismiss the report as outdated, claiming that provisions for additional spending since it was drafted will mitigate some of the concerns, but there’s no escaping the fact that the most contentious issues can not be solved simply by throwing more money at it; IE a return to a hard border in Ireland, chaos at ports etc