27.06.16 Monday Morning

With the Brexit set to cast a long shadow over this week’s proceedings, how will the global markets fare moving forwards?

UK
Where to start? With sterling hitting a 31 year low and the FTSE at points dropping 500 points, it is safe to say the markets weren’t happy with Britain choosing to leave the EU. The violent reaction to the referendum results, and David Cameron’s subsequent resignation, is likely to ripple into this week, despite a decent chunk of UK data trying to vie for investors’ attention.

With little on offer Monday will likely see the most acute continuation of Friday’s drama, something that could stretch into Tuesday given all the UK can produce then is the CBI realized sales. Wednesday picks up slightly with the net lending to individuals, before Thursday and Friday bring the real meat of the data week. The former sees the current account and final first quarter GDP figures, while the latter sees the Chinese manufacturing and services PMIs in the early hours (something to watch for the commodity sector) ahead of the UK manufacturing figure later in the morning.

As the second quarter comes to a close the UK earnings agenda is beginning to get a bit busier. Braving the post-Brexit landscape this week is cruise company Carnival and Amazon-fearing Ocado on Tuesday, and Dixons Carphone, Stagecoach and Greene King on Wednesday.

Eurozone
Like the UK the Eurozone will still be dealing with the aftermath of last Friday’s referendum this week. However, the region also has its own issues to deal with, namely the reaction to the weekend’s uncertain Spanish election, something that could introduce a fresh batch of volatility when the markets need it the least.

Monday will likely be dominated by the results of the election in Spain, alongside the continued reaction to Britain’s decision to say bye-bye to Brussels. Wednesday then sees the Gfk German consumer climate number joined by the Spanish and German inflation readings, before Thursday brings German unemployment change, the ECB meeting minutes and region-wide and Italian inflation to the table. Finally Friday wraps up with a bevy of manufacturing PMIs across the region, alongside the Eurozone-wide unemployment rate and the Italian monthly employment change.

The EU as a whole will also assess its future without Britain, meaning any dispatches from Donald Tusk, Mario Draghi and the region’s other key players could impact sentiment as the week continues.

US
Standing out of the spotlight the US indices will still be dealing with the same issues as their European cousins, even if the region produces a hodgepodge of data for those investors interested in something else beyond the Brexit.

Monday sees the goods trade balance and Markit flash services PMI, while Tuesday lets investors get a peek at the CB consumer confidence figure and the final GDP reading from Q1. Wednesday brings with it the core PCE price index alongside personal spending, personal income and pending home sales numbers, before the Chicago PMI joins the usual jobless claims on Thursday. Friday ends focused on manufacturing, with both the Markit and ISM PMIs coming in alongside the latest construction spending figure.

Earnings wise there are a few biggies this week, namely Nike’s fourth quarter figures on Tuesday, and Bayer-target Monsanto’s third quarter update on Wednesday (see below).

Stock of the week: Monsanto Co – Q3 2016 Earnings Release
After a limp start, complete with disappointing Q1 and Q2 reports, Monsanto’s year completely changed on May 12th, as it was revealed that German giant Bayer was exploring a $40 billion bid for the company that would create the world’s largest supplier of seeds and farm chemicals. This sent Monsanto shooting up over 10% to $103, a price the stock hadn’t seen since August 2015, before climbing even higher as Bayer revealed a super-sized $62 billion bid. Interestingly Monsanto continued to rise even as it rejected that $122 per share offer, eventually hitting a 2016, and 12 month, peak of $113.17 by the end of May. In terms of Monsanto’s third quarter report investors will likely be more interested to hear about any progress with Bayer (with the two companies still open to talks) than they will the company’s actual figures. However, the stock may still be in for a bit of a fall if it sees yet another update that misses estimates, especially since its sales decline has shown no sign of slowing down.

(Source: IT-Finance.com 27/06/2016)