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Welcome to the Galvan Week ahead report with content supplied exclusively by Galvan. Here we preview the week’s events – both economic and corporate – drawing on the work of the broker’s experienced research and trading teams. It is a mix of fundamental data and technical analysis designed to provide Proactive readers an at a glance guide to what will unfold on the markets over the next five trading days.
Galvan Week Ahead: Politically incorrect Mitt Romney and Olympic seating fiasco relegate Libor to Bronze medal position
August 04 2012, 7:00am
This Week in the Markets
Just for a change, this week’s gaffes and clangers have come courtesy of the Mitt Romney ‘politically incorrect’ world tour, accompanied by the laughably shambolic seating arrangements at the Olympics, both of which leave the Libor crisis some way off in a 3rd place bronze medal position.
Stock markets have come off their lows on the back of assurances from ECB boss Mario Draghi that the heavy guns and bazookas will be brought in as and when needed to bail out Spain et al, although until the ECB Press Conference on Thursday 2nd August (or even later) the specifics of the ECB President’s ‘do whatever it takes’ pledge could still transpire to be little more than a cheap trick to stop the continued shorting of PIIGS nation bonds.
Meanwhile other omens on this issue are somewhat mixed. New French President Francois Hollande has promised to ‘save the Eurozone’ but Germany’s Bundesbank President and ECB member Jens Weidmann has reiterated that its vote on what happens next is worth rather more than anyone else’s – presumably on the basis that Germany will write the bulk of any fresh bailout cheque.
But while the EU crisis rumbles on, the UK economy is entering a new and somewhat turbulent phase, despite S&P reaffirmation of our AAA rating.
With Chancellor George Osborne’s head still on the chopping block after the shock Q2 0.7% GDP plunge, further economic data has come to light to indicate that this was not a one off. The main evidence comes with the contraction in UK manufacturing at it’s fastest rate in 3 years, probably as a result of a near 15% rise in the level of Sterling over the past few months, and enough to make it seriously uncompetitive vs. the ailing Euro.
The Markit/CIPS purchasing managers' index (PMI) fell to 45.4 in July, now down for three consecutive months. The housing market is also in negative territory, recording its fastest decline in three years. This should be perhaps taken with a pinch of salt given the ‘end of the world’ argument for real estate has been continuously banded about over the past 5 years, only for London prime property to squeeze the national average back up again. But for now Nationwide’s 0.7% July decline in house prices tells it’s own story.
An interesting stock market parallel with this supposedly ‘imminent’ property plunge is that of fashion group Next (LON:NXT), where the gravity defying bull run has caught the bears out time and time again over the past five years. But in raising full year guidance again, Next continues to be the exception that proves the rule as regards the challenging conditions for major High Street retailers.
The Week Ahead
Key Companies Reporting: August 6th -10th
Monday – Interims: Caitlin Group (LON:CGL), Morgan Sindell (LON:MGNS), Telecity (LON:TCY). Trading Announcement: Easyjet (LON:EZJ).
Tuesday – Interims: Greggs (LON:GRG), Intercontinental Hotels (LON:IHG), Meggitt (LON:MGGT), Rio Tinto (LON:RIO), Xstrata (LON:XTA), Legal & General (LON:LGEN). Trading Announcement: Bellway (LON:BWY).
Wednesday – Interims: Cobham (LON:COB), Old Mutual (LON:OML).
Thursday– Finals: Aquarius Platinum (LON:AQP). Interims: AMEC (LON:AMEC), Aviva (LON:AV.), Bumi (LON:BUMI), Randgold Resources (LON:RRS).
Friday– No Significant Corporate Announcements Due.
While mostly second line companies are reporting this week the bias among heavyweights tends to be from the mining sector. Xstrata (LON:XTA) is in focus over the still off-on and seemingly eternal merger with Glencore (LON:GLEN). Latest news is a postponement of any vote on the deal until September. In the meantime it would appear that with precious metals prices holding flat at the lower levels it could be up to fresh acquisitions to underpin growth.
The same hint of caution applies to fellow miner Rio Tinto (LON:RIO). Broker UBS reiterated its 'buy' recommendation on the stock despite a big Q2 iron ore sales forecast miss. The fact is that the overall performance was strong across most of the portfolio against production forecasts, and while iron ore shipments didn’t reach UBS's estimates, production beat sales over the quarter.
Still with mining, and West Africa focused group Randgold Resources (LON:RRS) is set to update the markets, which are seeking continued assurance over the political stability of Mali. Certainly the worst does seem to be over both for the country and the Randgold share price, now £10 plus back above the £45 levels of May. This update will be important though - the attitude of Investec in May as it put the stock under review is a typical reflection of current stock market perception.
Finally, Aviva (LON:AV.) will be worth watching this week in the aftermath the £1bn East European life business sale to U.S. firm MetLife. The move should bolster finances and change the perception of the group as a favoured bear proxy for EU debt chaos to a defensive financial sector play.
Major Economic Data: August 6th – 10th
Monday – No Significant Economic Data Due.
Tuesday – UK: June Industrial Production. EU: Germany June Factory Orders.
Wednesday – UK: Bank of England Quarterly Inflation Report. EU / Germany: June Industrial Production.
Thursday – UK: June Trade Balance. U.S.: June Trade Balance, Weekly Jobless Claims.
Friday – UK: July Producer Price Index. EU / Germany” July Harmonised Index of Consumer Prices. U.S.: July Import Prices, Federal Budget Balance.
A generally quieter week is in store on the data front, although there will be plenty of trading interest, and market moving cues from the UK July Producer Price Index, especially as a low number here will provide ample evidence to support any move by the Bank of England’s to deliver some economic stimulus without worrying too much over rising prices. Just what the BoE is thinking on the inflation issue anyway will come with the Quarterly Inflation Report.
On the Continent, German June Factory Orders (last at +0.6%) and the June Industrial Production figure, (last at +1.6%) are both key numbers.
Stateside highlights include July Import Prices, expected at -0.4% vs. -2.7% in June, and the Federal Budget Balance, which in June stood at -$129.4bn.
Main Markets Outlook
FTSE100:
Although the PIIGS nation woes and the UK GDP position over the past month have hit the fundamentals, technically the FTSE 100 is in a very similar position to start August as it was this time mid July. In fact, the configuration then looked encouraging, above the rising 200-day moving average, now at 5,623.
Currently if there is sustained price action above the 200-day line and at least a weekly close at that level, a retest of the May 5,800 plus resistance zone is the next logical target, although given the lack of visibility on issues such as the Eurozone and any fresh Bank of England / Treasury initiatives on the domestic economy, to call the UK index any high than 5,800 seems inappropriate.
Sterling / Dollar:
The continual negative domestic economic newsflow, especially the shock manufacturing PMI and the body blow to the international ‘safe haven’ housing market could mean that the fourth attempt by the cross to clear its 200-day moving average now at $1.5740 will be the last attempt for some time.
Support for Sterling is likely to come in no higher than last month’s bear trap support fractionally below $1.54. The worst prospect at this point would be $1.54 giving way to the one year support zone between $1.52 - $1.53 during August.
Gold:
After a rather dry period for physical Gold going into the summer, demand from India the world’s largest customer is finally mobilising ahead of the festival season. Closer to home though, the start of month revelations from the central banks – especially the ECB will determine whether a definitive breakthrough of June / July resistance towards $1,630 can take place.
The technical trigger to date is to buy on an end of day close back above $1,630 to target the 200-day moving average on the daily chart timeframe of $1,653. Aside from that, the recent range of $1,560 - $1,630 looks set to continue.
