Equities bounce from early weakness; GBP falls close to 2019 low

Summary:

• Equities recover from start of US session

• S&P500 remains in breakout territory

• BASF plunges on profit warning 

• GBP back near its lowest level of the year

• Crypto Newsletter: Will Ethereum dominate Bitcoin

The Asian and morning European session saw a little more weakness in equities with stocks continuing to pull back after Monday’s declines. All the US benchmarks began in the red, for the second day running, but they have since recovered to trade little changed by the European cash close. It should be stressed that these declines are still closer in nature to a natural pullback rather than an aggressive sell-off and to put things in perspective the S&P500 low of 2963 - was less than 10 points below Friday’s low.

As things stand it appears that the S&P500  is retesting the breakout region from which price jumped higher at the beginning of last week. The zone from 2958-2970 could be seen as pivotal going forward, with bulls still in control unless the market can move back below there. In terms of the EMAs, the market has today dipped below the 8 period for the first time this month but remains firmly above the 21 period - as it has been for over a month.  

Looking into the DE30 one may notice that two stocks that were standing out the most (negatively) this morning - Covestro and BASF - with both being down more than 6%. A sharp price decrease of BASF shares is a result of a profit warning released by the company itself. The world’s largest chemical maker cut its own EBIT measure forecast for 2019 (including special items) by 30% compared to the levels reached last year. The prime reason is the trade conflicts, the company wrote in its statement on Monday. The statement also added that global industrial production declined roughly 6% in the first six months of this year. These declines have been recovered somewhat as the day wore on, but both shares ended lower by around 3% still.  

There’s been some fresh weakness seen in the pound with the currency trading at levels not seen since the beginning of the year against the US dollar, while the GBP/EUR rate is also near to 6-months lows. These lows against the buck were seen during the flash crash overnight on the 2nd January and if that spike down is excluded then you have to go back to April 2017 to find a lower exchange rate. There’s not really any major new catalysts for this depreciation with it likely due to ongoing softening in economic data with tomorrow’s release of Q2 GDP expected to show the first quarterly decline in 7 years. Ongoing subdued activity in the global economy is taking its toll while the continued political uncertainty is providing a pretty persistent headwind to higher levels of growth. The raised diplomatic tensions between the US and UK after the recent email leaks is certainly not helping matters, and could also be playing its part in this latest leg lower with President Trump typically hostile in his social media response. 

Our latest Crypto newsletter focuses on Crypto miners in Iran, a partnership between the largest investment bank in Latin America and a Dubai asset manager and poses the question of whether Ethereum will dominate Bitcoin. The article can be read in full here.