Bitcoin rollercoaster, focus on G20, pound higher

Forex
Morning Note

Markets turn higher in Europe amid talk of a trade truce between the US and China ahead of the G20.

All eyes on the G20 in Japan and we’ve not had the most auspicious preamble – Trump has criticised the US-Japan defence pact, saying the Japanese would watch the US being attacked on a Sony TV.  

SPX marginally lower at 2913. It started as a more risk-on day, but the rally fizzled out. Defensives were the drag as growth sectors rose. Looks like bond proxies came off a little with diminished expectations for Fed rate cuts. We’ve got this strange balance between risk-on and risk-off right now that makes it a tough market to be in.

Asia was higher across the board. European markets are on the foot front, with the DAX leading the way. The FTSE 100 is close to the flat line around 7240. A stronger pound in early trade appears to be keeping the lid on the FTSE’s gains. 

Forex

GBPUSD drove up to 1.270 – look for a break above 1.2710 to suggest a sustained push higher. Dollar is coming off a touch this morning with a similar move in favour of the euro. But the yen back at 108 – looks like broadly risk-on environment ahead of the G20.

We can now expect an awful lot of news flow on trade and tariffs over the next two days so it’s wise to be cautious about reading too much into statements.

Cryptos

Bitcoin endured a tumultuous session, but bulls are regaining control of the situation. Bitcoin pushed higher towards $1,400 before it crashed around 21:30 last night, with futures dropping a staggering $2k in a few minutes.  

It looks to have been down to problems with the cryptocurrency trading platform Coinbase. These technical glitches have been resolved and Bitcoin was last trading around $12,500, still some way short of yesterday’s highs.  

Flash crashes like this can happen anywhere to just about any major market, but bitcoin seems particularly susceptible to them. This indicates that there is yet not the maturity or liquidity in this market than many of the crypto evangelists would like to think. Still volatile, still very risky – still Bitcoin. 

We’ve talked a lot about the catalysts for this rally and we have now another positive for Bitcoin – LedgerX has won CFTC approval to offer physically-settled futures and swaps contracts in Bitcoin. 

Commodities

Gold lower but holding the $1400 level. At send time it’s testing key support around that zone. Risky-looking head and shoulders for bulls. With the dollar creeping up and yields basing for now, we could gold pull back further. Ultimately if the Fed follows through with rate cuts and we a further depression in nominal and real yields we could yet see gold topping $1500 and even $1600. 

Oil – steady with little in the way of new news on Iran and uncertainty about the G20. Prices spiked yesterday after a big surprise drawdown in US inventories. EIA showed a 12.8m barrel draw, well ahead of forecast and coming after the API figures also showed a large draw on stocks. However bearish fundamentals are not abating and we need to see what the G20 brings, specfically the meeting between Trump and Xi. Brent holds $65, with WTI at $59. 

Equities 

Kingfisher – A new hand on the Kingfisher helm. Carrefour veteran Thierry Garnier is taking over from Veronique Laury. Removing management uncertainty may offer a modicum of support to shares in the near term but ultimately investors will want to see what new, if any, strategic direction the new CEO is planning. There should be scope for new management to drive change and carry out disposals that are necessary to make this a leaner business. Splitting up the business into smaller parts is an option. 

The entire ONE sourcing strategy was suspect from the off given that, for instance, the fittings and fixtures in Poland and Germany are not necessarily the same that are needed in France or the UK. Unification of the supply chain and joint sourcing has been the cornerstone of the Kingfisher turnaround strategy but has not delivered. Will there be an overhaul or will Garnier press on? 

Serco – more good progress as it bucks the outsourcer trend. Management today reporting 20% growth in underlying trading profit on 4% organic revenue growth. Order intake looks strong and FY19 revenues are seen at the top end of the £2.9-£3bn guidance. Underlying Trading Profit guidance is maintained at around £105m. The good work by Rupert Soames and co is paying off.  

Order intake boosted by £1.9bn in UK asylum accommodation and support services. It’s also enjoying greater profitability from the Carillion healthcare acquisition, which it bagged at a big discount in 2018. Nothing on Babcock but watch for more acquisitions.