Good morning everyone,
So the results are in and as widely tipped by the polls, the Conservatives have secured a significant majority in the UK Election. It now appears very likely Boris Johnson will follow through on his promise to take the UK out of the EU by the 31st January deadline. Markets have reacted favourably to the result with the UK benchmark FTSE100 up 1.5% this morning, and the more domestically focused FTSE250 up 4.3%, hitting a new record high. It is in fact the ‘Brexit-sensitive’ sectors such as banks and house builders that are performing the best this morning, despite leaving the EU not being the preferred scenario for these industries, the alleviation of uncertainty has allowed them to rally. Royal Bank of Scotland is up over 10% and Taylor Wimpey is up nearly 15%
Sterling has also rallied as a result, even acquiring a $1.35 handle at one point overnight. This is the highest level since May 2018 and we also saw a 3-year high against the Euro at over €1.20
Trade war boost
A US-China trade deal, the other proponent of uncertainty during which markets had reacted in erratic fashion to any new headlines, appears to be almost over the finish line. US stock indices closed higher on Thursday after news of progress, including a tweet from President Trump, and later on it was reported by multiple outlets that a deal has been agreed in principle and is awaiting signatures. In broad strokes, China will agree to purchases of US goods in exchange for a reduction in tariffs on Chinese imports. The news comes ahead of a Sunday deadline, when the US had threatened to impose further tariffs on Chinese imports. A phase one deal will only address a minority of the issues of contention between the two countries but will be a welcome respite for several sectors where trade friction has been a weight on share prices (read more below).
Facebook runs into the Federal Trade Commission
The three major stock indices rose together on Thursday, with the S&P 500 the biggest winner at 0.86%. Wynn Resorts topped the table, climbing 9.5% following a piece of China news separate to the trade deal. It was reported that China will announce a number of new policies next week aimed at diversifying casino city Macau’s economy and establishing it as a financial hub. Wynn makes the majority of its money in China. Other top 10 share price climbers in the S&P 500 on Friday included digital storage firm Western Digital at 5.2% and Advanced Micro Devices at 7.9%. At the bottom of the pack, social media giant Facebook’s share price closed 2.72% down after it was revealed thatregulators may block its plans to merge some of its brands.
S&P 500: +0.86% Thursday, +26.4% YTD
Dow Jones Industrial Average: +0.79% Thursday, +20.6% YTD
Nasdaq Composite: +0.73% Thursday, +31.38% YTD
Financials, miners lead way in election rally
The FTSE 100 and FTSE 250 indices both rallied towards the end of Thursday as the prospect of a large Conservative Party majority in the general election became clearer. Polls were still open as UK markets closed, with the result not clear until far later in the evening. Amongst the election noise, the Royal Institution of Chartered Surveyors reported that UK house prices fell at their fastest rate in seven months during November. Financials and miners led the way in the FTSE 100, with names such as M&G, Prudential and Glencore gaining more than 3%. In the FTSE 250, Tullow Oil led the way with a 15.19% share price pop. The company’s value collapsed earlier on Monday after it reported a slate of bad news, and even after a partial recovery its shares are trading close to 60% lower.
FTSE 100: +0.79% Thursday, +8.11% YTD
FTSE 250: +0.71% Thursday, +18.8% YTD
What to watch
There are no earnings reports of note to watch on Friday, but there will be plenty of action thanks to major post-market close political news in both the US and UK.
Trade deal reaction: If reports of a US-China phase one trade deal really do come to fruition on Friday, there are likely to be some significant market movements. It is worth bearing in mind that the scope of the deal is likely to be limited, but the relief of trade tensions would almost certainly be a boost to several US sectors. Tariff headwinds have been a feature of countless Q3 earnings calls, with some firms cutting earnings forecasts as a result. Retailers such as Best Buy, technology firms, logistics companies such as FedEx, clothing firms, automakers, agribusiness companies and more will all be ones to watch on Friday.Here’s a list produced by Goldman Sachs of the 12 US listed companies that have the most riding on a successful deal.
ING, the Dutch multinational bank, is reportedly working on technology to help its clients safely store digital assets, in a move that will further legitimise cryptocurrencies. While the project is in the early stage, ING said it “sees increasing opportunities with regard to digital assets on both asset backed and native security tokens”.
Over $600 million in Ethereum locked up in DeFi, more than a 200% increase from this time last year
Latest figures from the decentralised finance analytics platform, DeFi Pulse, shows that the amount of funds locked in the DeFi market is near its all-time high of more than $650 million. This is more than a 200% increase from the same time last year when it was roughly $220 million. In 2017 this value was around $10 million.
According to defipulse.com the current amount of ETH locked in DeFi is at an all-time high of over 2.7 million.
Dai (the decentralised stablecoin of the MakerDAO ecosystem) is also at a peak with 30 million locked away.
Industry advisers Blockchain Capital have predicted that DeFi will continue to grow in 2020. Watch this space!
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