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The week ahead – Brexit, Brazil elections and US earnings

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Market overview

Chinese stocks have fallen 3% since traders returned to work from China’s annual ‘Golden Week’ holiday. This comes after the People’s Bank of China (PBOC), on Sunday, announced a one percentage-point cut in banks’ reserve requirement ratio that will be in effect from 15th October. Reserve Requirement cuts frees up money for banks to lend to each other and customers which is seen by analysts’ as a move to counter US trade tariffs that risks hurting the global economy.

Indexes around the world are down with; Europe’s, FTSE 100 and Stoxx 600 falling -25.7% and -2.51% respectively, led by poor performances in the auto and retail industries, US’, S&P 500 and Dow at -16% and -180.4% after the worst week in a month for US equities and a retreat in Treasuries, Asia’s, Nikkei 225 and Asia Dow decline of -191.9% and -20.91%, which has been impacted by the trade war happening between the US and China.

Unilever scrap plans to leave the U.K.

Food, beverage and personal care giant Unilever has decided to keep their dual headquarter set-up in both London and Rotterdam after it was reported that the company had plans to re-structure with their headquarters only in Rotterdam. For those investors that bought Unilever shares because they were in the UK and therefore in the FTSE 100, the proposed move was very off-putting. The move would have meant that Unilever would be removed from the FTSE 100, a globally significant index, and thus make many shareholders forced sellers at a time not of their choosing. Many analysts see the scrapping of this plan as a win for post-Brexit UK, as it highlights the power of London’s capital market and the importance of its leading index, FTSE 100, globally.

The week ahead – Brexit, Brazil elections and US earnings

Brexit negotiations are at the center of attention this week given the stated aim by Brussels and London to wrap up talks ahead of the 18th October summit of European Union leaders. On Wednesday, European leaders gather to discuss Brexit where EU’s chief Brexit negotiator, Michel Barnier, will present the draft political declaration outlining the bloc’s new partnership with the UK.

Brazilians head to the polls on Sunday for the 2018 presidential election. Former army captain Jair Bolsonaro is currently leading the polls. His main rival is Fernando Haddad from the leftist Workers’ party. The election comes at a time where Latin America’s largest economy is limping its way out of its worst recession on record.

Third quarter earnings reports will be released by 7 companies in the S&P 500 by the end of the week. Analysts are estimating earnings growth of 19.3% and revenue growth of 6.9% for the S&P 500 in the third quarter according to FactSet. The Energy sector is expected to report the biggest jump in earnings and revenue growth due to higher oil prices and year-on-year comparisons.

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

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