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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: FTSE100 unimpressed by OBR economic growth forecasts & Chancellor’s Autumn statement.December 07 2013, 7:00am
This Week in the Markets:
The Office for Budget Responsibility (OBR) upgraded the UK economic growth forecast for 2014 – from March’s 1.8% prediction to 2.4%. The OBR stated that Britain’s economic plan “is working” and “it is growing faster than any other major economy.” The news came as Chancellor of the Exchequer George Osborne delivered his Autumn Statement last Thursday. Measures mentioned in his Statement include: raising the State pension age to 70 - longer than people envisaged, a new charter for budget responsibility and imposing capital gains tax (CGT) on non-residents who sell residential property in the UK from April 2015.
The UK’s leading benchmark index failed to react positively to the Autumn Statement at the time of its publication, remaining in negative territory. The FTSE 100 hit a seven week low last Tuesday, to close down 62.9 points at 6,532.43, its lowest level since October 14th, when it closed at 6,507.65. The prospect of the US Fed commencing tapering this month is still thought to be the main drag on the index though, as the FTSE100 and other leading indices contemplate life without steroids.
In corporate news, the UK’s biggest supermarket delivered a poor set of results with bad news across all of its regions, including Europe. Like-for-like sales in the UK fell by 1.5% in the third quarter, excluding new stores and petrol, with Tesco blaming “an unprecedented period of declining incomes” and a “challenging grocery market”. The dip in sales represents a deepening of Tesco's woes, following a period of stagnant UK growth and a further decline on the 0.7% fall recorded over the same period last year. Retail analyst Dave McCarthy at HSBC said: “There was no good news in the statement, only confirmation that things are as bad as expected and worse in some instances.”
Shares in UK bank, Standard Chartered (LON:STAN) fell heavily after the Far East focussed bank updated on trading. The bank said a “challenging year” had resulted in a significant impact on its performance in the second half and as such income for the full year is expected to be broadly flat on 2012. Nevertheless, Investec highlighted that StanChart is still the cheapest UK bank on a fundamental basis, something which it sees as an “anomaly.”
Still with the sector, and the European Commission (EC) fined five international banks last Wednesday including Royal Bank of Scotland Group (LON:RBS), JP Morgan, and Citigroup for colluding to fix yen Libor and Euribor rates. Joaquín Almunia, the European competition commissioner, warned that further fines were in the pipeline as three more banks, including HSBC, and one broker have refused to settle the long-running investigation by Brussels. The latest fines – the first levied on a financial cartel by Europe since the banking crisis began – take the total penalties for rigging Libor and other key interest-rate benchmarks to £3.5bn.
Key Companies Reporting December 9th–13th
Tuesday – Finals: Litebulb Group (LON:LBB), TUI travel (LON:TT.), Victrex (LON:VCT), Zytronic (LON:ZYT). Interims: Ashtead Group (LON:AHT), Carpetright (LON:CPR), Iomart Group (LON:IOM), Photo-Me International (LON:PHTM). Trading Statement: Whitbread (LON:WTB).
Wednesday – Interims: Begbies Traynor Group (LON:BEG), Imagination Technologies Group (LON:IMG), Stagecoach Group (LON:SGC). Trading Statement: Carillion (LON:CLLN), PZ Cussons (LON:PZC), Senior (LON:SNR).
Thursday – Finals: Domino Printing Sciences (LON:DNO), Terrace Hill Group (LON:THG). Interims: SuperGroup (LON:SGP), Sports Direct International (LON:SPD). Trading Statement: Go-Ahead Group (The) (LON:GOG), Moss Bros Group (LON:MOSB), John Wood Group (LON:WG.).
Troubled carpet retailer Carpetright (LON:CPR) will report interim numbers on Tuesday. On October 4th the carpet retailer issued a profit warning saying its full year profits would be “significantly” below its previous expectations. It also announced the departure of its chief executive Darren Shapland after falling sales, with founder and chairman Lord Harris of Peckham taking over his role. Liberum Capital on December 3rd initiated a target price of 400p and a “Sell” recommendation. Analysts are not hopeful about the FTSE 250 company, whose shares fell almost 7% back in October when the profit warning was announced.
In contrast, Sports Direct International (LON:SPD) will be reporting its interims on Thursday. On October 23rd, the company said good trading this year had continued despite the relative dearth of major sporting events, putting it on track to hit annual profit targets. Group total sales for the nine weeks ended September 29th rose 15.1% to £463.7m against a year earlier and gross profit was up 19.4% to £199.8m. Broker Liberum Capital has initiated a target price of 850p and a “Buy” recommendation.
At the end of the week, UK house builder Bellway (LON:BWY) will be releasing its trading statement. Back in October the company lifted its final dividend by 50%, and reported a strong financial year to July 31st with revenues up 10.6% to £1.1bn boosted by government initiatives like Help to Buy. It will be interesting to see whether Bellway continues to benefit from this and the current UK housing boom, after the government announced curbs to its Funding for Lending scheme.
Major Economic Data December 9th–13th
Monday – EU: German Trade Balance, Sentix Investor Confidence, German Industrial Production.
Tuesday – UK: RICS House Price Balance, BOE Quarterly Bulletin, Manufacturing Production, Trade Balance, Industrial Production, NIESR GDP Estimate. EU: French Industrial Production, Italian Industrial Production. US: NFIB Small Business Index, JOLTS Job Openings, Wholesale Inventories.
Wednesday – EU: French Final Non-Farm Payrolls, German Final CPI, German WPI. US: 10-y Bond Auction, Federal Budget Balance.
Thursday – UK: CB Leading Index. EU: French CPI, ECB Monthly Bulletin, Industrial Production. US: Retail Sales, Core Retail Sales, Unemployment Claims, Import Prices, Business Inventories, 30-y Bond Auction.
Friday – EU: Employment Change. US: PPI, Core PPI.
There are a few items of note this week data-wise. In the UK on Monday there is the release of the Bank of England Quarterly Bulletin, while on Wednesday observers will be looking to see if France's Non-Farm payrolls number ties in with the shock -0.1% contraction in the economy in the three months to September. US Unemployment Claims and Retail Sales are scheduled for Thursday.
The UK’s leading benchmark index has been in the doldrums of late, reaching a seven-week low early last week. The FTSE 100 seems to be unfazed by a slew of positive UK economic data, seemingly focussed on the possibility of imminent tapering in the US.
Technically, the FTSE is in bearish mode. First the index ground to a halt in a 6,650 – 6,700 range, and now to start December a sharp breakdown has materialised. Indeed, the breakdown appears so sharp that it will be difficult to avoid not only the key 200-day moving average now at 6,508 but also the floor of a rising 2013 price channel towards 6,450 before a lasting rebound/end of year rally takes hold.
Sterling hit a five-year high last Tuesday on the back of stronger-than-expected factory output. The purchasing managers’ index (PMI) for UK manufacturing – where scores above 50 represent growth – rose from 56.5 in October to 58.4 in November. It was the eighth month of growth in a row, the highest level since February 2011. Sterling rose as high as $1.6442.
Technically, as long as any pullbacks stay above broader break out support at 1.6250, then momentum should remain positive for a move towards 1.6520. Pivot support remains at 1.6110, a break of which argues for a move back to the multi week support at 1.5880/90.
Demand for gold returned mid-week last week, as bargain-hunting set in amongst traders before the end of the year. Gold sank to its lowest level since July, hit hard by a strengthening US dollar and economic data that fuelled concerns about a withdrawal of monetary stimulus by the US Federal Reserve. The precious metal fell as much as 2.7% to $1,218 an ounce after a key gauge of US manufacturing activity expanded at its fastest pace in two and half years during November.
Technically, London market-maker Barclays said it was “looking for a push toward the range lows near $1180", pointing to the 3-year low gold hit at end-June. “It would take a break back above former range lows in the $1520 area to suggest any kind of a base developing...If equity markets remain firm and if prices breach $1200, the weakness is likely to be exacerbated.”