Markets Overview

UK 100 called to open -10pts at 7175, still in a 7140-7215 rising channel from last Thursday’s 7040 lows. Falling highs resistance (7192) remains a hindrance, however, since Feb’s mid-month 7260 peak. Bulls need a break above yesterday afternoon’s 7185 highs, to revive the post-Christmas uptrend (7000-7400 rising channel). Bears require a breach of 7140 if they are to see a retrace to last week’s 7040 lows. Watch levels: Bullish 7185, Bearish 7140

Calls for an negative open come after a negative close on Wall St and a mixed session in Asia as optimism about trade talks waned. China outperformed other markets after state planners said they would take steps to boost domestic consumption with yet more stimulus, having already announced tax cuts. Oil prices are holding steady in spite of a bigger than expected API inventory report (+7.3m vs. +0.6m est.)

In corporate news this morning;

Investors are suing RBS (and Bank of America) in a US class action lawsuit alleging spread widening on Euro government bonds, violating federal antitrust law. This follows an EU antitrust ruling (31 Jan) accusing eight un-named banks of cartel-like price distortion 2007-2012.

British American Tobacco may react favourably (US shares closed +1.8%) to the resignation of FDA Commissioner Scott Gotleib who was spearheading a ban on menthol cigarettes. That said, it could also mean uncertainty about the focus of his successor, who may want to make their mark.

Melrose to sell Waltherscheid Powertrain (previously known as GKN Off Highway Powertrain) to private equity and completed sale of SABCA (Belgian Aeronautics). Net proceeds circa £200m. Shareholder group calls on HSBC to restrict financing of Coal in emerging markets, aligning itself with Standard Chartered.

Legal & General 2018 op profit +10%, underlying net profit +7%; £10bn record annuity sales (gross written prems +3%), AUM +3% to £1tn, final div +7%; RoE normalises to 22.7% (25.6% in 2017, 18.8% in 2016; target 20%+), solvency II operational surplus +14%; largely unaffected by political/econ uncertainty; EPS growth to slow to 10% from 11%. Well placed for organic and M&A.

Just Eat FY orders +28% (UK +17%), revenue +43% (UK +27%, Intl +31%), underlying EBITDA +6%, swung to £101.7m pre-tax profit (from £76m loss), net op. cash flow -6%. Expects FY’19 revenue c.£1-1.1bn (implying +28-41% growth), adj. EBITDA c. £185-205m (+6-17%).

Paddy Power Betfair FY revenue +7% (+9% at constant FX), underlying EBITDA -5% hit by US investment (-3% ex-FX; +2% ex-US Sport Bet, upper end of guidance), Final div -1.5%. Proposes renaming itself Flutter Entertainment. 2019 trading in-line, good momentum across key divisions.

DS Smith agrees to sell Plastics division (£223m assets, £28m FY’18 pre-tax profit) to Olympus Partners for c. £450m. Trading strong and in-line, with good volume growth and market share gains.

UBS cuts Rio Tinto to Neutral; shares due a rest after 35% 3-month rally to 10-yr highs, trading at premium to net present value for first time in a decade; spot iron ore prices unsustainable.

Aggreko FY underlying revenue +8% (upper end of consensus range), pre-tax profit +10% (in-line), op. cash flow -6%, underlying ROCE +0.5pts. Final and total dividends flat. FY’19 outlook in-line with market expectations despite FX headwinds, but sees greater weighting toward H2 than last year.

Tritax Big Box 2018 EPRA NAV +7.4%, portfolio +31.1%, operating profit +21.3%; adj. EPS +8%; final div +4.7%; targets div +2.24% in 2019. Robust demand despite Brexit, helped by stockpiling.

Hill & Smith FY revenue +9% (+10% ex-FX), underlying pre-tax profit -3% (-1% ex-FX), final and total dividend +6%. Sees some short-term uncertainty, but also “reasonable expectations” of 2019 growth. Finance director Mark Pegler to step down end-April, search for replacement underway.

Provident Financial says resolved all regulatory issues with FCA and completed search for new MD and Chairman for Vanquis. Clear strategy for attractive shareholder returns. NSF offer flawed. Soco International responds to speculation; won’t make an offer for Ophir Energy.

In focus today will be the UK Parliament and the PMQs (12am) ahead of next week’s multiple scheduled Brexit votes (May’s deal? No-deal? Article 50 Extension?).

In macro data the focus will be on the US where we get ADP Employment Change (1:15pm), expected weaker in Feb. Could it  serve as a preview of Friday’s Non-Farm Payrolls?

The Fed’s Beige Book (7pm) is an influential summary of US economic conditions used by the FOMC to determine the course of stateside monetary policy.

The US Trade Deficit (1:30pm) is expected to continue widening, hitting a 10-year high (-$57.9bn est.) that could add more urgency to President Trump’s trade talks with China.

We have plenty of speakers on the roster, including three Bank of England MPC members, Cunliffe (12:15pm, dovish, “The Next Great Crisis”), Saunders (5:30pm, hawkish, speech at Imperial College Business School) and Haldane (6pm, hawkish, “Citizens Panel” in Hull).

From the US, comments from the Fed’s Mester (5pm, hawkish, non-voter, moderated Q&A) and Williams (5:10pm, hawkish, voter, “The Economic Outlook: The 'New Normal' Is Now") could move the USD, and thus GBP and UK Index futures..

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