Asian Markets

The region saw some pullback from yesterday’s gains.  Initially, the mainland Chinese manged to advance but gave ground later in the session.  In addition to profit taking, geopolitical risk may have taken some bid out of the region.  India launched air strikes upon what it described as terrorist camps inside Pakistan.

Most sectors ended in the red.  Financials slid by more than 1% followed by IT, real estate and consumer discretionary names.  Defensives saw buying interest with healthcare improved by 0.5% and utilities also to the upside.

Regarding geopolitics, Pres. Trump and Sup. Leader Kim Jong-un are both in Hanoi for the their second summit.  The two will continue to discuss “denuclearization” of the Korean peninsula.

Other Important Headlines

• Standard Chartered’s +2.4% results are reassuring compared to the recent release from HSBC -0.4%.  The bank’s FY adj. PTP $3.86b is just a touch light of consensus.  The CET1 ratio of 14.2% is inline.  It maintains the income growth target of 5.7%.  It expects expenses to grow but will aim to reduce them c. $700m in FY19 through FY 21
• Kubota -2.9% sees higher steel prices weighing upon OP by c. ¥11B.  To offset this, the company will increase U.S. prices by 2-3%.  Bank of America cut its rating to underperform.
• AAC Tech -14.0% collapsed following a profit warning.  The company sees Q1 profits lower by as much as 75.0% y/y.  Morgan Stanley notes competition will contract margins.
• Here is some macro related commentary.  The IMF said it sees Macau GDP up 5.3% this year adding gaming industry growth will be moderate.  Activity in the second half of last year moderated with trade tensions weighing along with weaker investment.  Regarding China, BoJ Gov Kuroda said China’s economy has significantly slowed since the second half of last year, evidence that President Trump’s tactics have brought the country to the negotiating table.

European Markets

Europe opened to the downside hitting lows about 90 minutes into the session.  It spent the better part of the day down small.  However, following better than expected U.S. consumer confidence and support comments from Fed Chair Powell, the region moved into the green.  Most of the major indices closed at or near their respective highs.  London and Stockholm ended the day lower, lagging the other regional markets.

The currency markets are seeing the £ higher.  Earlier reports indicate PM May is willing to delay Brexit and take the “no deal” scenario off the table.  She is currently presenting to Parliament.  The stronger currency was one of the reason’s for the U.K. down session.

Important Snippets

• The gains in the retail sector are driven by M&A news.  Mid-session Marks & Spencer +3.2% disclosed it is conducting talks with Ocado +11.7%.
• BASF’s +4.3% Q4 adj. EBIT of €630m is above consensus.  The company sees slight growth for both sales and adj. EBIT during FY 19.  It is raising its FY dividend to €3.20 which is just shy of the €3.21 estimate.
• Peugeot’s -2.9% FY recurring Oper. Income €5.69b is a touch ahead of consensus.  However, margin concerns weigh.  The company sees margins better than 4.5% in FY19 through FY21 but that is below current levels.
• Persimmon +1.9% is providing some reassurance to investors following yesterday’s drubbing. FY Revenues are better by 4% and underlying PTP of £1.1b is a mild beat.  Travis Perkins +12.5%, a key supplier to the U.K. building sector, had very strong results.
• It was the banking sector that took Stockholm lower.  Swedbank -3.9% disclosed its Estonian unit actively sought Russian clients.  This raised further money laundering concerns.

On the Markets Agenda for Tonight

• Watch for continued headlines and reaction to commentary out of the U.K. regarding Brexit.
• Macro items: Hong Kong will present its budget and GDP with various consumer confidence readings in Europe.
• Earnings due include Rio Tinto, Bayer, HK Exch. & Clearing, Safran, NC Soft and Beiersdorf.  Byd reported after today’s local close.

Markets and Macro