Stocks remain soft but Brazil soars post election

Summary:

• ITA40 extends recent declines and weighs on European bourses

• Brazilian equities rally as Bolsonaro closes in on presidency

• Political instability weighing on the Rand

• Oil recovers from soft start

• Crypto markets rise as life science industry embraces blockchain

There’s been more selling in European stock markets today with the heaviest fall seen in Milan, where the leading Italian benchmark has declined by more than 2% to fall close to an 18 month low. Despite the European Commission announcing its concern with the recent budget deficit plans from the Italian government, it seems that Rome refuses to back down with deputy PM Salvini stating that they will not backtrack despite what he calls “market pressure”. This “market pressure” is clearly seen not just in stocks but also bonds, with the yield on the 10-year hitting a new 4 ½ year high while the spread for the same instrument over its Spanish equivalent has widened to levels not seen in two decades.      

Brazilian markets are in euphoria after a landslide win of pro-market candidate Jair Bolsonaro in the first round of presidential elections that will be concluded 3 weeks from now. Falling USDBRL is a reflection of appreciating Brazilian real and the pair is just above the key 3.70 support. The stock market is also in a bullish mood on this, with the BRAComp gaining in excess of 3.5%.

Rumours doing the rounds that South African Finance Minister Nhlanhla Nene had requested to be relieved of his duties after he admitted to visiting the Gupta brothers saw the Rand come back under threat, with the political situation causing investors concerns since President Ramaphosa replaced Zuma earlier this year. A spokeswoman for the President has said his office is not aware of Nene’s request but is coming under pressure to act after he failed to disclose meetings with the business family at the centre of the country’s biggest post-apartheid scandal. The rand dropped over 1% when the news was broke but the market has since recovered most of these declines and a longer term head and shoulders setup may be forming on USDZAR.

There was a negative start to the week for crude markets, with oil dropping down to its lowest level since last Monday after opening with a sizable gap lower. The cause of the weakness came after reports that the US may grant waivers to sanctions against Iranian oil exports, which are set to kick in next month. Saudi Arabia has also been cited as stating that the kingdom would replace any shortfall amongst OPEC members should there be significant disruption in Iranian production. These stories are important to the markets as the main fundamental premise behind the strong recent rally was that the imminent US sanctions on Tehran would take a large amount of supply off the table and therefore push prices higher.

Cryptocurrencies are rising today with all 5 markets in the green at the time of writing. Ripple is the biggest winner and up by just over 4% on the European close. Pistoia Alliance, a life science non-profit organization, published results of its survey concerning the blockchain technology in the life science industry. According to the poll around 60% of professionals in the life science sector are either using blockchain technology in their work or are experimenting with it. This number is almost three times higher than 22% in last year’s survey. The remaining part of the industry cited various reasons for staying reluctant towards implementing the technology.