European cash equity markets are broadly higher ahead of the midway stage with the Euro Stoxx 600 touching a fresh nine-week high in recent trade (FTSE +1.4%, DAX +1.1%, CAC +1.0%, FTSE MIB +0.9%). Company earnings remain in focus and BP shares have surged over four-percent after they posted stronger-than-expected Q4 profit, leading to outperformance in both the FTSE 100 and European energy sector. At the other end, Apple supplier AMS have slumped over ten-percent after they lowered revenue guidance and suspended their dividend. In the bond markets, German 10-year yields are ahead but off their best levels despite an upward revision to Euro Zone service PMI – more attention may have been paid to Italy where the service sector entered contraction territory. In the UK, ten-year borrowing costs are slightly lower have retreated after UK service PMI fell to 50.1 (f/c. 51.0). Turning to currencies, the Dollar Index is up +0.1% to 96.0 while the Australian Dollar is the top performer among the G10’s after the RBA were less dovish than many had expected overnight. The Swiss Franc is the weakest, closely followed by Sterling which began to drift lower after the aforementioned PMI miss. Elsewhere, oil prices are ahead with Brent crude futures up around +0.7% while spot gold has added +0.2%. Looking ahead, futures are pointing to a slightly higher open on Wall Street with earnings still to come from Viacom and Archer Daniels Midland. On the data front, we await US Markit service PMI and ISM non-manufacturing plus Canadian trade data.
Key Headlines/Data:
* European Corporate News:
– BP (+4.9%): Q4 Adj. Profit $3.48 Bln versus $2.63 Bln expected | Q4 Revenue rose +9.8% to $76.9 Bln versus $77.2 Bln expected
– AMS (-12.3%): Expects Q1 Revenue to fall $350-390 Mln | Suspends dividend
– Infineon (+0.6%): Q1 Revenue fell 4%$ to €1.97 Bln versus €1.96 Bln expected | Lowered FY Revenue guidance
– Pandora (+10.9%): Q4 EBITDA 2.8 Bln DK versus 2.5 Bln DK | Targeting annual cost savings of 1.2 Bln DK
* Brexiteers reject EU concession on backstop (The Times):
– Europe’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was immediately rebuffed by Brexiteer MPs.
* Il Sole – The EU may lower their Italian 2019 growth forecast drastically.
* Swedish Service PMI (Jan) 54.1, previous 56.4 revised to 55.8
* Spanish Service PMI (Jan) 54.7 versus 53.0 expected, previous 54.0
* Italian Service PMI (Jan) 49.7 versus 50.0 expected, previous 50.5
* French Service PMI (Jan F) 47.8 versus 47.5 flash/expected
* German Service PMI (Jan F) 53.0 versus 53.1 flash/expected
* Euro Zone Service PMI (Jan F) 51.2 versus 50.8 flash/expected, previous 51.2
* Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone has started 2019 on flat note, with growth close to stagnation amid falling demand for goods and services. The PMI indicates that GDP is growing at a quarterly rate of just 0.1%, setting the scene for the region’s worst quarter since 2013. Such a weak start to the year would mean the current consensus forecast for 1.5% GDP growth in 2019 is likely to be revised lower, and hence lead to more dovish signals from the ECB.
* UK Service PMI (Jan) 50.1 versus 51.0 expected, previous 51.2:
– Business activity stagnates amid modest drop in new work
– Staffing levels decline for the first time since December 2012
– Strong input cost inflation persists at start of 2019
* Euro Zone Retail Sales Data (Dec):
– Retail Sales M/M -1.6% versus -1.6% expected, previous +0.6% revised to +0.7%
– Retail Sales Y/Y +0.8% versus +0.5% expected, previous +1.1% revised to +1.5%
