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Galvan's Week Ahead

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.

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Galvan Week Ahead: Referendum delays and Tesco horseplay.

January 19 2013, 7:00am

This Week in the Markets  

Although the run-up to and aftermath of the fiscal cliff negotiations provided a bizarre backdrop to the financial markets, even with this issue now resolved the markets still appear somewhat ill at ease. Certainly, events stateside made last year's Eurozone bête noire appear rather more attractive as a risk reward proposition than many would have anticipated even a couple of weeks back. 

Indeed, it is not only the US which has been suffering at the hands of the revitalised Eurozone, this issue and the debate over EU membership is also starting to hurt the UK, as is the likely date of any referendum on the subject. Unfortunately, for sterling fans, the Prime Minister's latest intervention to delay such a vote could well backfire, as it will almost certainly keep uncertainty flowing and chip away at the U.K.'s so-called safe haven status. This is one issue where kicking the can down the road should not be considered as a strategy.

Away from the macro issues, the storm in a teacup over supermarket Tesco (LON:TSCO) and the apparent inadvertent sale of horsemeat has provided an equal mix of revulsion and chuckles for observers this week. Although this issue doesn’t in any way approach the equivalent of a Libor scandal for this particular area of the retailing industry, shares in the U.K.'s leading grocer did pullback, and it is to be wondered whether the series of bad luck stories have yet finished?

But sticking with the retailing space, there was rather better than expected newsflow from luxury goods group Burberry (LON:LON:BRBY). Any doubts over a possible slowdown in China and a consequential profits hit were quickly dispelled as the shares soared after the group reported a bumper Christmas sales period.

And those concerned at the crisis in the High St in the wake of the shock Comet, Jessops and Blockbuster administrations will be relieved to hear that electrical retailer Dixons (DXNS) delivered bumper Christmas sales numbers and gained market share, even if there may have been a disproportionate one-off boost from Comet’s demise. The acid test now is whether Dixons can retain the additional market share it now enjoys.

Those looking for drama among listed companies should look no further than the mining sector, where the merits of the Glenstrata consolidation have been thrown into focus on the back of the hard luck stories at Anglo American (AAL) and Rio Tinto (LON:RIO). In the case of the former we have seen protests against divestments from a troubled industrial relations zone in South Africa, whereas for Rio Tinto (LON:RIO) a $14 billion write-down has led to a change of management at the top. 

The Week Ahead

Key Companies Reporting: January 21st - 25th

Monday – Interims: City of London Investment Group (LON:CLIG).

Tuesday – Trading Announcement:  SABMiller (LON:SAB), Fresnillo (LON:FRES). 

Wednesday – Finals: Unilever (LON:ULVR). Trading Announcement: Close Brothers (LON:CBG), WH Smith (LON:SMWH), Hochschild Mining (LON:HOC). IMS: Britvic (LON:BVIC), Findel (LON:FDL), Land Securities (LON:LAND), Sage Group (LON:SGE). 

Thursday – Finals: Chemring (LON:CHG). IMS: EasyJet (LON:EZJ), Invensys (LON:ISYS). Trading Announcement: St James Place (LON:STJ), Carphone Warehouse (LON:CPW)

Friday – Trading Announcement: Anglo American (LON:AAL), William Hill (LON:WMH).

Even the most casual glances at the share price chart of no-frills airline EasyJet (LON:EZJ) show a near vertical takeoff in terms of price action since the summer, with a sharp move up from 500p towards 900p. It appears that the low cost carrier is certainly one of the winners in the post financial crisis era, a point underlined by the latest passenger numbers figures for December, which continue to show a improvement, alongside an 87.9% load factor, up over 2% since the same time last year. Few would bet against more of the same on Thursday.

Although we are in a period of the economic cycle where cyclical groups like household products group Unilever (LON:ULVR) are popular with investors, the broking community has yet to reach a consensus on how well current conditions suit profits generation. At least going into the end of December, broker Credit Suisse upgraded the blue-chip giant on the basis of revenue prospects, hiking it from underperform to neutral. Unilever’s promise to double its sales, without delivering a timeframe on such a call was enough for the broker to publish an upgrade, and certainly the share price has progressed since then.

As we head into the latest trading announcement from SABMiller (LON:SAB), it is worth remembering that the brewing giant reported a mixed picture at the end of November, with a slowdown in some of its key markets. Although the impact of the update was somewhat mitigated by a dividend hike, this still leaves the possibility that certain geographies could weigh on the fundamental performance, with no prizes for guessing the Eurozone is currently the main culprit. Nevertheless, any signs of stabilisation in this region could improve SABMiller’s standing with investors, even though the shares are already pushing well into record 52-week high territory.

Major Economic Data:  January 21st - 25th

Monday – Germany: December Producer Price Index.

Tuesday – Germany: January ZEW Economic Sentiment, U.S. December Existing Home Sales.

Wednesday – UK: November Unemployment, January Bank of England Minutes.

Thursday – Germany & Eurozone: January Manufacturing & Services PMI. U.S: Weekly Jobs.

Friday – UK: Q4 GDP. Germany: Ifo Business Climate. U.S: December New Home Sales.

Observers of UK data will be looking to see whether this week’s offerings can turn around the recently rather negative Sterling performance. Q4 GDP is expected in around 0.3%, while the Bank of England Minutes will reveal whether any further moves on QE and interest rates were discussed in the January meeting.

Germany reports readings for a couple of key barometers. The Ifo Business Climate and ZEW Economic Sentiment are both scheduled, which given the latest downgrade for economic growth from Germany to 0.4% in 2013 may not provide pleasant reading.

In the U.S, December New Home Sales take the lead, with last month’s figure of +377,000 to beat.

Main Markets Outlook

FTSE100: 

As we go into the second half of January it is clear that the initial burst of activity from leading equity indices like the FTSE 100 were not a flash in the pan, and could be a move that extends long enough to ensure the first month of the year sets the tone for the rest of 2013. 

The FTSE technicals show that support has come in higher and higher, with the latest area of support at better than 6050+. On this basis one would be looking for further gains towards 6200 and even 6300 as soon as the end of the first quarter.

Sterling / Dollar:

While this may be something of an oversimplification, at the start of 2013 Sterling’s reputation as a safe haven against the Euro as well as the dollar appears to be slowly but surely unravelling. 

The battle vs. the greenback continues near the $1.60 level, as the key to the bull argument rests with the holding of the 200-day moving average and support at $1.59 over the next couple of weeks. Should this happen, it will prove that the trend in this cross remains to the upside.

Gold:

The initial impetus at the start of 2013 for Gold fundamentals to start 2013 was certainly not a positive, as the Federal Reserve backtracked on the latest aspects of QE3, suggesting that its accommodative policy may be ending rather sooner than the market had previously expected.

However, for now Gold seems to have shaken off these doubts, and at least from a technical perspective a double bear trap from below the 200-day moving average at $1661 since November suggests that while there may be temporary moves towards $1600, at least for now this market is seriously attempting to build a base.

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