Markets Overview:

UK 100 called to open +15pts at 7370, extending Friday’s bounce, but already found resistance at the ceiling of last week’s falling channel. Bulls need a break above 7380 for the channel to prove a bullish flag towards 7600. Bears require a breach of that intersecting trendline at 7355 to revisit the 7300 channel floor. Watch levels: Bullish 7380, Bearish 7350

Calls for a positive start to the week come in spite of a mixed session in Asia. Investors maintain a cautious bias on trade tensions and Middle Eastern geopolitics as well as the build up to several central bank meetings (Fed, BoE) which have the potential to add to recent dovishness about policy/rates.

Gold ($1339) back from its 2-month highs despite USD weakness. Copper remains around recent lows, but UK Index Miners positive in Australia overnight. Brent Crude Oil flat at $62.7.

In corporate news this morning:

RBS says Alawwal bank and Saudi British Bank merger results in £0.4B income gain on disposal of shares, £4.7B reduction in risk weighted assets. Could boost by CET1 by 60bps.

Babcock confirms it received all-share merger approach from Serco in January, which it rejected. No further proposals received.

UK Index Banks may react to news of Deutsche Bank preparing an overhaul including a €50bn bad bank to hold tens of billions of euros of derivatives and a shift away from investment banking.

UK Index Airlines may be sensitive to Lufthansa cutting its 2019 profits outlook, citing intense price competition from low-cost rivals in Europe.

Kier Group to lay off more than 1,200 full-time employees (saving £55m/year), selling Kier living, property, facilities management and environmental services to focus on regional building, infrastructure, utilities and highways. Net debt to be higher than consensus. Dividend suspended

Tritax Big Box REIT enters new £200 million revolving credit facility.

AstraZeneca says Calquence significantly prolonged 88% of patients 12-month survival without disease progression in relapsed or refractory chronic lymphocytic leukaemia.

S&P upgrades Tesco outlook to Positive thanks to operating results improvements in recent quarters; Forecasts further improvement in credit metrics, excess cash paying down debt.

Fitch affirms Smurfit Kappa at ‘BB+’, Outlook Stable; reflects solid financial and operating performance, margins supported by favourable markets, and completed and potential acquisitions.

In focus today:

Data today is limited to Eurozone Labour Costs (and Wages), expected stronger in Q1, which would have an inflationary read-across that Draghi and Co would surely welcome.

The US Empire State Manufacturing (1.30pm) is forecast to pull back, smoothing out last month’s jump. The US NAHB Housing (3pm) may extend its climb higher with another small improvement.

ECB President Draghi speaks (6pm) at the ECB Forum on Central Banking 2019 “20 Years of European Economic and Monetary Union” in Sintra, Portugal where markets will be looking for any hints on policy, especially regarding more stimulus.

The week’s main events, however, include Tuesday’s second Conservative Leadership debate, this time including Boris Johnson, as well as the second vote by Tory MPs to decide on which two contenders will battle it out for the top stop/poisoned chalice.

The US Central Bank (Fed) meets on Wednesday, with a slight chance of a cut to interest rates to sustain growth in the face of slowing growth and trade tensions. The Bank of England meets on Thursday. No changes expected, but changes in voting as October’s Brexit deadline looms will be key. Thursday evening’s Mansion House speech also sees Chancellor Hammond and BoE Gov Carney speak.

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