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Volatility low as traders await US-China interim trade deal, US banks kick-off earning seasons

The mood is muted as traders seem to be awaiting the signing of the interim trade deal between the US and China – it is tipped to take place tomorrow. 


The mood is muted as traders seem to be awaiting the signing of the interim trade deal between the US and China – it is tipped to take place tomorrow. The trade saga has been going on for over 18 months, and the first phase of the deal is expected to be signed on Wednesday. Yesterday, the Trump administration claimed that China is no longer a currency manipulator. The move would have helped US-China relations somewhat, and it left dealers feeling more optimistic about the situation.      

Boohoo are bucking the gloomy trend for retail seeing as the company had a stellar Christmas period – revenue jumped by 44%. The crucial festive period helped the company raise its annual revenue guidance to between 40% and 43%, which was a decent improvement on the old guidance of 33-38%. The earnings margin was nudged slightly higher too. Not many companies in the retail sector are raising their outlook, and that helped Boohoo’s share price hit a record-high today.

Grafton Group had a solid finish to 2019 as in the last two months of the year the company performed ‘better than anticipated’. UK political uncertainty in relation to Brexit hurt the company’s British division as the unit registered a 1.1% fall in revenue on a constant currency basis. The operation in Ireland ticked along as revenue rose by just over 1%, while the Dutch business saw revenue soar by over 37%. Even though the company is ‘cautious’ about the recovery in the UK merchant market as there is an absence of clarity in relation to Brexit, Grafton are ‘positive’ about growth opportunities.  

Taylor Wimpey shares hit a two year high on the back of the company’s trading update. The house builder expects full-year numbers to be in line with company forecasts – operating margins are expected to cool to 19.6% from 21.6%. Many firms operating in the house building sector have complained about higher costs, as skill shortages as well as material costs have been on the rise, but Taylor Wimpey confirmed that cost pressures are cooling.   


Like in Europe, the US major indices are experiencing low volatility. The trade story is still doing the rounds but it appears that dealers are keen to sit on their hands until the agreement has been signed.   

The CPI rate jumped to 2.3% from 2.1% last month. The reading was in line with economists’ expectations. The core reading is usually viewed as a better gauge of underlying demand, and it held steady at 2.3%. The latest jobs report showed that average earnings cooled to 2.9%, and given the tick higher in the cost of living, it might impact spending as workers are likely to have squeezed disposable incomes.    

JPMorgan had a strong set of fourth-quarter figures. EPS increased to $2.57, topping the $2.35 forecast. Revenue rose by 9% to $29.2 billion, and the consensus estimate was $27.94 billion. The bank’s trading operation performed well as equity trading and bond trading departments saw revenue increase by 15% and 86% respectively. The retail banking operation posted a 5% rise in final-quarter profit. It is worth noting that net interest margin slipped to 2.38% from 2.55%, but it managed to exceed the forecast of 2.37%.     

Citigroup’s quarterly figures were also well received. EPS were $1.90, topping the $1.84 forecast. Revenue for the three month period was $18.37, and the consensus estimate was $17.85 billion. The bank had a mixed quarter in terms of trading as the equity division undershot the consensus estimate in terms of revenue, while fixed income trading revenue was $2.9 billion, which smashed the $1.24 billion expectation.

Wells Fargo is very focused on mortgages and retail banking. The lower interest rate environment as well as legal costs hurt the company. EPS tumbled to 93 cents, and equity analysts were anticipating $1.12. The revenue metric disappointed too as it came in at $19.86 billion, and the forecast was $20.14 billion. The finance house incurred a charge of $1.5 billion – which was related to a fake account scandal in 2016. Net interest margin is a key metric for a major lender like Wells Fargo, and it cooled to 2.53% from 2.66%. The stock is in the red.   


It has been a quiet day on the currency markets as there were no major economic announcements from Europe. Neither the eurozone nor the UK posted any major economic announcements, so traders had little to get excited about. EUR/USD as well as GBP/USD haven’t much today. The US dollar index initially jumped on the back of the US inflation data, but it has since turned lower, and it is now below the pre-announcement level.


Gold has lost ground again as the fear of a US-Iran war has disappeared. The asset is deemed to be lower risk, so it tends to do well in times of economic and political uncertainty, but seeing as dealers are no longer worried about a conflict in the Middle East, the commodity’s demand has fallen. It has dropped to a level last seen in over one week ago, and should the bearish move continue it might target $1,520.    

WTI and Brent crude are showing modest gains as trades look ahead to the finalising of phase one of the US-China trade deal, which should be signed tomorrow. China is the largest oil importer in the world, and an improved trading relationship with the US should assist demand domestically. The energy market has dropped considerably on the back of the Iranian tensions fading, but the relatively small rebound in the oil market suggests that dealers are still nervous.  


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