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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: Chancellor Osborne and BoE Governor King agree that UK economy is recovering.May 18 2013, 7:00am
This Week in the Markets
UK and European markets continued to digest the events of the G7 summit last week. The G7 countries showed support for Japan’s monetary policy, easing concerns that Japanese officials would come under pressure due to the recent weak performance of the yen – the currency broke above 100 against the dollar.
Chancellor George Osborne was also optimistic about the UK economic recovery, saying: “It’s a tough economic situation but we are making progress. The economy is healing and we are seeing evidence of that around the UK. We are confronting our problems head on.”
It looks like Osborne was not the only one optimistic about the UK economy. Last Wednesday, the Bank of England revised its economic forecasts, and said that inflation should fall faster than predicted. The Bank’s governor Sir Mervyn King told the BBC: “Today's projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. That's the first time I've been able to say that since before the financial crisis. This hasn't been a typical recession and it won't be a typical recovery. Nevertheless, a recovery is in sight.” Amid increasing corporate optimism, the FTSE 100 hit five-and-a-half year highs midweek, breaking through 6,700, a level last seen before the financial crisis.
The Cypriot aid package and the Greece bailout returned to the spotlight, when the Eurogroup met in Brussels and Eurozone finance ministers agreed Cyprus’s first instalment of a €10bn bailout package from international creditors. Another €1bn will be transferred before 30th June 2013, the European Stability Mechanism (ESM) said. Meanwhile, the Eurozone finance ministers are also expected to sign off the latest tranche of Greece’s bailout.
Shares in part-nationalised lender Lloyds Banking Group (LON:LLOY) broke through two-year highs of 60p amid increasing clarity over plans to sell off the government’s stake. Chairman Sir Winfried Bischoff’s departure before next year’s AGM – announced last week –is widely thought to signal the beginning of the privatisation process. Bischoff took the role on in 2009, and he said in the Guardian: “Lloyds Banking Group has, over the past four years, made significant progress in its goal to become a strong, efficient, UK-focused retail and commercial bank. Whilst clearly some challenges remain, the performance of the group is well on track. Indeed, in many areas, it is ahead of plan. This gives me every confidence in the future success of the group and it is therefore a good time to start the search for my successor.” The search for his successor will be led by a Lloyds’ director and is beginning just days before the bank’s AGM.
Key Companies Reporting: May 20th – May 24th
Tuesday – Finals: Bloomsbury Publishing (LON:BMY), Burberry Group (LON:BRBY), Big Yellow Group (LON:BYG), Chamberlin (LON:CMH), Hibu (LON:HIBU), Homeserve (LON:HSV), JZ Capital Partners (LON:JZCP), Marks & Spencer Group (LON:MKS), Telecom plus (LON:TEP), Vectura Group (LON:VEC), Vodafone Group (LON:VOD), Vertu Motors (LON:VTU). Interims: X5 Retail Group N.V (LON:FIVE), Greencore Group (LON:GNC), GW Pharmaceuticals (LON:GWP), Paragon Group of Companies (The) (LON:PAG), Renew Holdings (LON:RNWH), Zytronic (LON:ZYT).
Wednesday – Finals: Cable & Wireless Communications (LON:CWC), FirstGroup (LON:FGP), Great Portland Estates (LON:GPOR), HICL Infrastructure (LON:HICL), Hogg Robinson Group (LON:HRG), Intermediate Capital Group (LON:ICP), Shaftesbury [LON:SHB], SSE (LON:SSE), UK Mail Group (LON:UKM). Interims: Britvic (LON:BVIC), Future (LON:FUTR), Shaftesbury (LON:SHB).
Thursday – Finals: AVEVA Group (LON:AVV), Booker Group (LON:BOK), Dairy Crest Group (LON:DCG), Electrocomponents (LON:ECM), Halfords Group (LON:HFD), Investec (LON:INVR), Mothercare (LON:MTC), PayPoint (LON:PAY), Pennon Group (LON:PNN), Quintain Estates & Development (LON:QED), Group (LON:QQ.), SABMiller (LON:SAB), United Utilities (LON:UU.). Interims: Daily Mail and General Trust (LON:DMGT), Mitchells & Butlers (LON:MAB), Wentworth Resources (LON:WRL).
Friday – No companies reporting.
Flagship retailing giant Marks & Spencer (LON:MKS) will be reporting its finals on Tuesday. After a disappointing trading statement in April – group sales were only up 3.1% in the first quarter, chief executive Marc Bolland is under pressure to improve the group’s performance, and launch a successful autumn/winter collection. One analyst expressed “exasperation” at the speed of the M&S revival pointing out that competitors have continued to “up the ante, with more dynamic offerings – and widely available online so that the effect of poor weather is mitigated”. These retailers have continued to power ahead whilst M&S is in catch-up mode. There is little room for disappointment, and one senses that CEO Bolland will be on borrowed time if the results fail to hit the mark.
Luxury fashion retailer Burberry (LON:BRBY) is also reporting finals on Tuesday. Its second-half results in April were impressive – it reported at 9% underlying rise in revenues to £1.11bn , helped by a strong performance in its Retail division which now accounts for 75% of total group sales. Burberry will be hoping again for a strong interest from consumers in the Asia-Pacific region. Analysts at Nomura said that Burberry was “continuing to execute well, driving improved conversion, further elevating the brand and improving average unit retail selling price.”
Again on Tuesday, mobile phone giant Vodafone (LON:VOD) will be reporting its finals after announcing last week that it would be launching a carrier services business after its takeover and integration of Cable & Wireless Worldwide (LON:CW.). The group, which has over 150m customers worldwide, has been recommended as a “Buy” by UBS with a target price increase from 220p to 230p. Shares in Vodafone have risen 25.5% so far this year, compared with the start of the year when they were at a two-year low. This rise has come largely on the back of speculation that Vodafone will receive a bid for it’s 45% share in US mobile firm Verizon Wireless.
In what could be viewed as a goodwill gesture, last Tuesday, Verizon Wireless, said it will make a $7bn (£4.4bn) dividend payment that will hand $3bn to Vodafone. According to the regulatory filing, Verizon said it would receive $3.85bn of the dividend payment. Vodafone, owner of the rest of the business, will receive $3.15bn. Either way, there is a general air of bullishness around the stock at present.
Major Economic Data: May 20th – May 24th
All eyes will be on key UK data mid-to-end of the week with the publication of the Bank of England minutes, government borrowing data and UK retail sales. In the US, the Fed minutes will be of interest to the markets as well as a slew of home sales data. Analysts expect US new home sales for April to rise to 425,000 compared with 417,000 in the previous month; analysts expect existing home sales for April to rise to 4.98m compared with 4.92m in the previous month. The FOMC minutes might reveal a winding down by Fed of its QE programme, if this is the case then we could see some market volatility.
Monday – UK: CBI Industrial Order Expectations.
Tuesday – UK: PPI Input, CPI, RPI, Core CPI, HPI, PPI Output. EU: German PPI.
Wednesday – UK: MPC Meeting Minutes, Public Sector Net Borrowing (PSNBR), Index of Services. EU: Consumer Confidence. U.S: Existing Home Sales, FOMC Meeting Minutes.
Thursday – UK: Retail Sales, Prelim Business Investment, Second Estimate GDP. EU: French Flash Services PMI, French Flash Manufacturing PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Manufacturing PMI, Flash Services PMI. U.S: Unemployment Claims, Flash Manufacturing PMI, HPI, New Home Sales.
Friday – UK: BBA Mortgage Approvals, CBI Realized Sales. EU: German Final GDP, GfK German Consumer Climate, German Import Prices, German Ifo Business Climate, Italian Retail Sales, Italian Prelim CPI, Belgium NBB Business Climate. U.S: Core Durable Goods Orders, Durable Goods Orders.
Main Markets Outlook
Last week the UK index hit fresh multi-year highs not seen since 2007, lifted in part by a positive forecast from the Bank of England. On Tuesday the FTSE finished Tuesday's session at 6,686 after nine straight days in positive territory. The benchmark index's all-time closing high of 6,930 was recorded in December 1999, a mark which could be surpassed before the end of 2013, according to some analysts.
Technically, the FTSE 100 is heading towards the 6,700 level, however, the risk currently is that before heading higher the FTSE 100 will head back to retest the 6,640 - 6.650 zone.
The dollar has been advancing against the major currencies, (not just Sterling), due to strong US retail sales and speculation that the US Fed could soon wind down its $85bn a month bond-buying programme. On May 15th, sterling dropped to a fresh six week low against the dollar.
Technically the sterling/dollar rate fell 0.1% on the day to $1.51, breaking briefly below support and a stop loss order barrier around the $1.52 mark. If Sterling doesn’t recover the 50-day moving average at $1.523, the next stop is likely to be a retest of late March lows at $1.51.
Spot gold fell to three-week lows last week to $1,423 per ounce, due to the strength of the dollar and record levels seen in European shares. “Gold has been losing its ‘safe haven’ appeal in recent days,” says a note from German-based refinery group Heraeus. In spite of this, retail demand remains as strong as ever in Asia, with a glut of retail sales in India for the Akshaya Tritiya festival.
Technically, gold has been trying its best to rally, but there is stiff resistance at $1,450. One technical analyst said there was “no significant level of support between current levels and the $1,322 April 16 low.”