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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: UBS fines - New BoE Governor Carney has his work cut out.December 22 2012, 7:00am
This Week in the Markets
With Christmas only a few days away, most in the markets would have expected a typical wind down to the festive season. But with the fiscal cliff negotiations clearly going to the wire, there is little respite for traders and investors as the politicians on Capitol Hill enjoy basking in the media spotlight.
At the same time the festive season is proving to be an expensive one for the big banks. After HSBC’s (LON:HSBA) run in with the regulators last week, UBS confessed to not only Libor rigging, but to other associated fraud and bribes. Of course, in the old days such a toxic cocktail of activities might have been enough to close down this particular banking entity, but while profits roll in and cash can be extracted, the big names live to fight another day. In the case of UBS the cost of this privilege is £940m.
It is interesting to note that even though the retail client will effectively be bank rolling this fine via additional stealth fees and charges, there has been no great public or media uproar. Perhaps so much apathy exists over the never ending saga of bank scandals that the City and even investors now view the fines as part and parcel of the ‘fixed’ costs on bank balance sheets, which probably also goes to explain why the bank sector share prices have continued to rise regardless.
Nevertheless, all this could change in 2013 when the City welcomes new Bank of England Governor Mark Carney. This week the terms of his employment were made public, with a near half million pounds salary as well as £5000 week to go towards the cost of accommodation. The more cynical might conclude that with the U.K.'s finances supposedly not at 100% at the moment, how can money still be found to welcome those from overseas, not to mention a generous allowance for a ‘respectable’ standard of living accommodation.
Mr Carney will certainly have his work cut out though: this was the week that Bank of England once again warned of the economic troubles to be faced next year. On the menu will be a combination of higher-than-expected inflation, lower-than-expected growth and an ever-increasing risk of a triple dip recession. Indeed, the contraction could have started as early as Q4 2012, meaning that the halo effect of the Olympics and the Diamond Jubilee will be but a distant memory when Mr Carney takes office.
On the domestic corporate front, Petrofac (LON:PFC) shares perked up after the oil services giant said that operations were performing in line with expectations. Those following the company will no doubt take heart from chief exec Ayman Asfari’s comments that he is confident of achieving targets to more than double recurring 2010 Group earnings by 2015.
The Week Ahead
Key Companies Reporting: December 24th – 28th
Monday – No Significant Company Announcements Due.
Tuesday – Christmas Day.
Wednesday – Boxing Day.
Thursday – No Significant Company Announcements Due.
Friday – No Significant Company Announcements Due.
Major Economic Data: December 24th – 28th
Monday – U.S: November Durable Goods.
Tuesday – Christmas Day.
Wednesday – Boxing Day.
Thursday – U.S: Weekly Jobless Claims, November New Home Sales, December Conference Board Consumer Confidence.
Friday – U.S: November Pending Home Sales.
U.S. economic updates dominate the picture in Christmas week. The key numbers for comparison will be November New Home Sales, which came in at 368,000 last time and Pending Home Sales for November, previously up 5.2%.
Main Markets Outlook
It has been a measure of the sheer strength of the FTSE 100 that between November 21st and December 17th the index stayed wholly above its 10-day moving average. This statistic may not mean that much to many observers, but to technical analysts it is highly significant as it serves to underline the technical strength of this market.
As the index hit the best levels of the year on December 19th above 5,950, there were kneejerk cries of Santa Rally nearly a month after it began. Perhaps the reason the rebound towards 6,000 was so well disguised is that most in the market have been keen to avoid taking on the risk of the fiscal cliff. Nevertheless, with traders are now counting on a happy ending for the U.S. budget negotiations, the Greek bond buyback, S&P debt upgrade and stronger economic data from China have provided enough propulsion to drive UK blue chips towards 6,000 once again.
Sterling / Dollar:
Throughout 2012, Sterling Dollar has grappled with the relatively obscure $1.63 level as resistance, and so far this December, traders are trying to work out whether this cross will finally go over the top on the back of the Santa stock market rally. There have been factors in favour, with the uncertainty ahead of the fiscal cliff outcome favouring the UK currency as a safe haven.
But this week’s positive driver came from the latest minutes of the December MPC meeting that showed that the committee voted 8-1 in favour of no further QE. This provided a significant boost to the Sterling bull argument particularly as the notes suggested there would be no fresh stimulus at least until Spring 2013. Technically, traders should be looking to $1.66 plus resistance last seen in early 2011, certainly all the while support comes in at and above the 50-day moving average at $1.6035.
Dyed in the wool Gold bulls might still predict that the yellow metal will break above $2,000 an ounce in the New Year, but given this was the consensus call for 2012, with just a few days to go to New Year it appears that this is simply not going to happen. The Fed’s QE3 move, the stabilisation of the Greek debt situation and salvation of the Euro have all combined to ensure that Gold is not the flight to safety it has been in recent years. Added to this there has been a distinct decoupling of this market from both the Euro and mining stocks.
But with the yellow metal having already tested the $1,660 200-day moving average once in December, traders will probably know well before the end of 2012 whether the price action represents a final dip to buy into, or unthinkable at the beginning of this year – the start of a new downtrend?