1. World Themes This week
Geopolitics is going to be the talk of the town this week. Who’s ready for another big week?
A sea of green washed over US markets on Friday as positive movements in the trade war saw volatility come down quite significantly. The volatility index (VIX) registered a multi-month low at 13.51% and equities got a considerable boost across the board.
This sentiment has filtered through into Asian markets this morning which opened stronger thanks to the announcement that President Trump would extend the March 1 deadline in order to finalise a trade deal. The subsequent summit with President Xi is one of the clearest signs of progress in the negotiations yet, and the equity markets love the good news! The Chinese CSI 300 is up 4.6% already during the Chinese session and the Dow Jones Industrial Index looks poised to open in the green too.
On the Brexit front, Theresa May piled more pressure on herself by delaying the latest vote on her plan until the 12th of March, leaving only 12 days until doomsday arrives. Even though there have been whispers of a possible 2 month extension this morning, investors are becoming more wary of a no-deal catastrophe with uncertainty rising swiftly.
BOE governor, Mark Carney, is set to discuss inflation today, but Brexit is likely to dominate the day with rate cuts coming into force in the event of a no-deal outcome and vice versa. For now, all we know is the clock is ticking and uncertainty is rising. Best of luck Mrs. May.
2. Oil Market Turns Bullish
The oil market seesaw seems to have finally resolved itself to the upside with OPEC’s supply-curbing measures finally winning the battle over rampant US supply. The Saudis must be chuffed!
The oil markets have finally managed to confirm a breakout from their sideways range to the upside, holding above the key $56 level and showing signs of under-supply in the futures market.
The situation, known as ‘backwardation’ to futures boffs, is when front month oil futures are more expensive than prices further out, indicating a near-term shortage of oil. The opposite is known as ‘contango’ and OPEC has been trying to shift from contango to backwardation since 2017. Eureka, they’ve finally done it!
Another sign that the bulls are returning is the 10% increase in long positions on oil registered in the fund management space. This is the highest bullish inflow since August 2018 while bearish bets declined by 5.5%.
Sanctions on both Venezuela and Iran have also helped buoy price optimism in the oil markets and solidify the global curbing of the oil glut that has been putting pressure on prices since October last year. Consumers may not be happy about the rise in oil prices, but the oil bulls are ready to graze on some higher prices!
2. Company Results Coming Up This Week
Monday – QBE Insurance, Bank Of Ireland, Bunzl, Centamin, CIE Automotive, Dechra, Etsy, Tenet Healthcare, McDermott International
Tuesday – Caltex Australia, Standard Chartered, Home Depot, Autozone, Sempra Energy, Morgan Advanced Materials, Range Resources, Tenet Healthcare, Pirelli, T Rowe Price, Mylan
Wednesday – OZ Minerals, Bayer, Best Buy, Campbell Soup, Chesapeake Energy, American Tower, Veloxis, Alteryx, Monster, Square Inc
Thursday – ABB India, Amadeus, Borussia Dortmund, Dell, Ebro Foods, GAP, Adecco, AmBev, Aston Martin, BAT, Rolls Royce, Mondi, CenterPoint Energy, Nielsen, PG&E, Nordstrom
Friday – Proximus, Essentra, Man Group, William Hill, Foot Locker, Astec Industries, Tegna, Marriott International
Today we are watching…
1. Tenet Healthcare (#tenet)
Ultra-deep ocean oil-rig producer, Transocean, is looking decidedly shaky ahead of its earnings call today with analysts unsure as to whether the company can beat expectations this quarter. The precipitous drop in oil prices from October-December caused a massive shift from offshore drilling to land-based drilling, impacting the company’s margins significantly. Operational inefficiencies and 37.5% higher expenses are also likely to filter through into a weaker performance for the early part of 2019.
2. Campbell Soup (#campbl)
Campbell Soup was the unfortunate victim of collateral damage on Friday as Kraft Heinz plummeted 27%, dragging the entire food sector down with it. Kelogg and Contra Brands were also part of the fallout, dipping a few percent lower on the day. The fear is that the food industry will follow Kraft Heinz lower with higher than expected costs forecast to impact profitability and growth going forward. This week will set an important tone for the industry. If these associated brands cannot recover from the sell-off there may be more downside in store for them!