EU Morning: Respite

A glorious day

The day has finally come for the UK to leave the EU and turn the page on a very long chapter of Brexit that’s taken parliament a little over four years. Once it ends, however, the UK will embark on another tricky and equally fatiguing process of trying to transition away from the EU with a comprehensive free trade agreement that minimises the economic damage of Brexit.

For Sterling, gains were held on to overnight after the BoE’s highly divisive decision, which saw MPC members vote 7-2 in favour of a rate hold – unchanged from December. Going forward, markets are no longer pricing in a full rate cut into 2020 with only a 97% chance the BoE cut by the end of year. Though, we’d caution that August could serve as the next “live” meeting given data could deteriorate in the lead-up to an increasingly busy H2 Brexit Calendar. The UK may look to be in an ostensibly better position post-election, but sentiment could deteriorate just as quickly as it turned in January.

Edgy sentiment

Equities are moderately higher but once again lack conviction on the way up; a repetitive story that’s played out right through the week. The Coronavirus, a key source of uncertainty that continues to subdue risk sentiment, hasn’t abated and now stands at 9,776 confirmed cases and 213 deaths.

Some might argue the situation has gotten somewhat worse, with the World Health Organisation finally classifying it as a global health emergency and the first confirmed case just announced in India – one of the world’s most densely populated countries in the world. A contagion in India would be infinitely more difficult to stop, and therefore, presents itself as a significant risk.

What’s transpired has exceeded our start-of-the-week expectations in which we hypothesised nCoV was primed to surpass the figures associated with 2003 SARS. We don’t see any plateau in the infection level just yet, but remain cautious that risk sentiment is likely to jump on any signs of improvement.

Selective movers

A strong result delivered by Amazon (AMZN) managed to prop up US equities in late NY trading, leading Nasdaq back to within reaching distance of all-time highs. It helps when every one-point move of Amazon drives the index ~0.4pts higher, and Amazon surges 10% in extended trading. Investors looked on optimistically as the global e-commerce giant reported $87.4bn in 4Q revenues (up 21% pcp), and said one-day deliveries had more than quadrupled compared to Q4 last year.

There was some positive spillover into S&P futures and ASX cash, but gains drifted lower late. Walking into Europe, futures have FTSE poised for a moderate start – while DAX needs to best 13,374 in order to break out of a multi-week downtrend. Asia indices, a major victim of Coronavirus fears, continued to struggle in the red, though Taiex was able to recoup a tiny portion of yesterday’s losses. Not so fortunate were PSI (-2.3%) and Kospi (-1.4%) which finished heaviest down.

USD remains heavily favoured especially against EMs but only saw marginal moves in a relatively quiet FX session. USDTRY aims for a meaningful weekly close above January highs. While the bulk of Asia currencies look marginally softer. AUDUSD at 0.671 levels is a whisker away from multi-month lows and should continue to fight that battle given domestic challenges as per our outlook.

Aon to watch

The UK listed, 51bn market-cap stock is due to report earnings from 11am GMT. The insurance powerhouse is already 5% up YTD and will look to sustain its strong form that’s seen shareholders relish gains of over 50% since the beginning of 2019. Should Aon deliver another earnings beat against consensus EPS ($2.47) and revenue ($2,853) like in many of its previous quarters, then expect sentiment to keep the share price at all-time highs and the investor community to maintain a keen interest.