1. Euro Bears Eye Up The ECB
The European Central Bank’s first rates meeting will take place today and all the bearish EU investors (Euro-bears) will be listening intently for signs of life and a softer monetary policy tone. Let’s hope Mario Draghi can provide the goods.
For the last few months, massive attention on the US Fed has allowed the ECB to skate under the radar, but now full focus returns to the EU and its myriad of economic and social problems. With the region’s star player, Germany, unlikely to able to support the entire bloc’s growth, and on the brink of a recession the realities of a more permanent and less reversible slowdown are becoming more evident.
Investors have been punishing the region wracked by political instability, economic uncertainty and social unrest which only looks set to escalate in 2019. The ECB is in somewhat of a pickle in terms of what to do next.
Raising rates in line with their normalisation policy would cripple growth almost beyond repair. And returning to quantitative easing (QE) would draw severe political opposition. So it would seem the middle ground of holding rates steady is the lesser of two evils with the optional of invoking QE in the future, should the economy fall into a downward growth spiral.
Holding rates may steady the markets temporarily, but the fundamental issues facing the region will continue to weigh on European stocks and likely send investors in search of safe haven asset classes, such as bonds.
2. US Butts Heads With Venezuela
The long-standing feud between the US and Venezuela escalated yesterday with the threat of sanctions, trade blockades and forced evacuations of diplomatic personnel being thrown into the mix. Whoa, that got out of hand fast!
After the Trump administration acknowledged opposition leader, Juan Guaido, as Venezuela’s interim President, acting President Maduro severed all relations with the US, giving all US diplomats 72 hours to evacuate. This simultaneously raised the possibility of debilitating full energy sector sanctions for the oil-dependent state.
The country’s oil production has slowed to its lowest level in 70 years, but sanctions could be the final nail in the coffin for the country wracked by economic and political instability.
The surprise flurry of activity weighed on the oil price yesterday, and throws a serious curve ball at OPEC whose sitting rotational president for 2019 is Venezuela’s oil minister.
Sanctions could limit the supply of Venezuela’s heavy grade crude exports which are not easy to replace and cause major operational headaches if the organisation’s president is indisposed. The rate of escalation will likely cause some short-term volatility in the oil market should global supply networks be affected.
So keep your wits about you in the oil markets, it could get bumpy!
Today we are watching…
1. Starbucks (#sbux)
Starbucks has been on an impressive run of form since July, rallying more than 20% from its 52-week low. Analysts are optimistic about the company’s prospects going forward thanks to some delivery innovation and strategic partnerships in the Chinese market. The Earnings per share estimate is $0.65 (Flat) and revenue is $6.49bn (+6.9%). Let’s see if the latte giant can beat expectations.
2. American Airlines (#amerair)
Recent earnings beats by competitor companies, Delta and United Airlines, have managed to buoy a struggling airline sector. However, analysts are still unsure about whether American can pull an earnings beat out of the bag and have been downgrading their earnings and revenue estimates in the lead up to today’s announcement. The earnings per share estimate is $1.01 (+6.3%) and revenue is $10.95bn (+3.3%).