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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: Ukraine tensions dominate the markets.March 08 2014, 7:00am
This Week in the Markets:
The Ukraine crisis dominated newswires and the fortunes of global financial markets last week, starting on Monday, as the UK’s blue chip FTSE100 index fell over 1% to 6,745 in early trading, only to bounce back on Tuesday and close up over 115 points at 6,823. Russia’s MICEX index fell 10.7% initially, while Germany’s DAX fell 3.3%. After the initial shock over Russia’s hard-line stance, markets executed a sharp about turn and recovered losses as Russian forces were pulled back from the East Ukraine border. The “relief rally” was given added impetus by a press conference from Russian President Putin.
Economic data out of China added further weakness into the mix early last week. The HSBC/Markit purchasing managers’ index (PMI) for China’s manufacturing sector fell from 49.5 to 48.5 in February. While this was in line with expectations, it showed that the contraction in activity accelerated last month, all of which weighed heavily on the mining sector.
In corporate news, Barclays (LON:BARC) and bailed-out Lloyds Banking Group (LLOY) have handed bosses almost £1m in shares to sidestep the new rules from Brussels which are intended to clampdown on bankers' pay. Similar handouts, will be given to around 1,000 staff at Barclays and some 75 bankers at Lloyds. Barclays is facing outcry about its increased bonus pay-outs, which are being awarded despite a sharp fall in profits in 2013 and a subsequent rights issue.
Shares in silver miner Fresnillo (LON:FRES) fell nearly 10% last Tuesday after full year results revealed a shock 64% fall in profits, and expectations for flat silver production in the current year year. The company added that certain operational costs, including those for energy and labour were likely to rise by 7% this year. It vowed to offset that increase by improving efficiency at its mines to cut some $30m in costs.
Outsourcing company Serco (LON:SRP) reported a 62% fall in pre-tax profits to £113m in 2013. Serco expects a further 20% fall in profits this year following a series of mini-crises, most notably the Government tagging scandal. The company’s acting CEO Ed Casey described 2013 as “probably the toughest in Serco’s 25-year history.” Last Tuesday, the group reiterated that adjusted operating profits would fall to £220m-£250m in 2014, from £285m last year. Serco lost the now infamous £40m-a-year government contract for electronic tagging after it, along with G4S (LON:GFS), continued to charge for offenders who were dead or in prison. The company is also still under investigation by the Serious Fraud Office (SFO).
Key Companies Reporting March 10th – March 14th
Tuesday – Finals: Computacenter (LON:CCC), Empresaria Group (LON:EMR), esure Group (LON:ESUR), Foxtons Group (LON:FOXT), Hill & Smith Holdings (LON:HILS), Hansteen Holdings (LON:HSTN), Inchcape (LON:INCH), Stadium Group (LON:SDM), Tyman (LON:TYMN). Interims: Close Brothers Group (LON:CBG), Craneware (LON:CRW), KALIBRATE TECHNOLOGIES (LON:KLBT), St Ives (LON:SIV). Trading Statement: Fenner (LON:FENR).
Wednesday – Finals: Access Intelligence (LON:ACC), Cloudbuy (LON:CBUY), French Connection Group (LON:FCCN), Ferrexpo (LON:FXPO), G4S (LON:GFS), Glanbia (LON:GLB), Hikma Pharmaceuticals (LON:HIK), Hochschild Mining (LON:HOC), Kenmare Resources (LON:KMR), MirLand Development Corporation (LON:MLD), Servelec Group (LON:SERV), StatPro Group (LON:SOG). Interims: Brooks Macdonald Group (LON:BRK). Trading Statement: Kenmare Resources (LON:KMR).
Thursday – Finals: bwin.party digital entertainment (LON:BPTY), Costain Group (LON:COST), F&C Asset Management (LON:FCAM), Fairpoint Group (LON:FRP), Independent News & Media (LON:INM), Morrison (Wm) Supermarkets (LON:MRW), Nichols (LON:NICL), Plaza Centers NV (LON:PLAZ), Restore (LON:RST), SIG (LON:SHI), Salamander Energy (LON:SMDR), TT Electronics (LON:TTG). Trading Statement: Home Retail Group (LON:HOME), Northgate (LON:NTG).
Several companies of note report their results this week. On Tuesday, financial services group, Close Brothers (LON:CBG) will publish its half yearly report. At the end of January, the group painted a very positive outlook, saying that it expected a “strong performance” in the first-half of the financial year on the back of growth in its banking business. In a trading update for the six months to January 31st, the group reported a 4% rise in the banking arm’s loan book to £4.8bn year-to-date. While growth moderated slightly from the prior year, the lending business continues to see improved results. Assets under management (AUM) jumped 4% to £9.5bn, from positive market movements and net inflows. Broker JP Morgan has recently increased its target price from 1,242p to 1,357p and has reiterated its “Overweight” rating.
On Thursday, supermarket giant Morrison (Wm) (MRW) will report its finals. On the 19th February, the company’s shares soared over 4% due to buyout speculation. It has been widely rumoured in the supermarket sector that the founding family of Morrisons, which is thought to have a 9.5% stake, has spoken to private-equity firms to gauge their interest in taking the company private. Other than that, it is not good news for Morrisons, who along with other supermarket chains like Tesco (LON:TSCO) are losing their market share to upmarket rivals and discounters. According to figures from retail researchers Kantar Worldpanel, Tesco and Morrisons have struggled to boost sales as consumers continue to rein in spending (in the 12 weeks to February 2nd).
On Friday, popular pub chain Wetherspoon (J D) (LON:JDW) will report interims. In January the pub group reported a strong pick-up in underlying revenue growth for the quarter covering the key Christmas period, but warned that margins would be dampened by higher investment in new stores. The company said that like-for-like (LFL) sales during the 12 weeks to January 29th were up 6.7%, up from just 3.7% growth in the first quarter. 18 new pubs have been opened so far this financial year with a further 11 sites under development. The pub group maintained that a total of 40-50 new pubs will be opened during the year ending July. According to analysts at Numis Securities, like-for-like sales are expected to increase by 3% over the full year.
Major Economic Data March 10th – March 14th
Monday – EU: French Industrial Production, Italian Industrial Production, Sentix Investor Confidence.
Tuesday – UK: BRC Retail Sales Monitor, Manufacturing Production, Industrial Production, NIESR GDP Estimate. EU: German Trade Balance. US: NFIB Small Business Index, JOLTS Job Openings, Wholesale Inventories.
Wednesday – UK: Trade Balance. EU: French Final Non-Farm Payrolls, Industrial Production. US: 10-y Bond Auction, Federal Budget Balance.
Thursday – UK: BOE Quarterly Bulletin, RICS House Price Balance, Inflation Report Hearings. EU: French CPI, ECB Monthly Bulletin. US: Retail Sales, Core Retail Sales, Unemployment Claims, Import Prices, Business Inventories, 30-y Bond Auction.
Friday – UK: CB Leading Index. EU: German Final CPI, Employment Change. US: PPI, Core PPI, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations.
A raft of domestic economic data is scheduled this week, including the BRC Retail Sales Monitor on Tuesday, and the Bank of England (BOE) Quarterly Bulletin and Inflation Report on Thursday. UK retail sales rose 5.4% in January from a year earlier, and the BRC said the 2014 same-store sales number represented the strongest gain since April 2011. Online sales of non-food items grew 19% over the same period.
Moving Stateside, Thursday sees US Retail Sales data and Unemployment Claims data published. In January, the US economy added 113,000 jobs, falling well below Wall Street’s expectation of 185,000 jobs. The pace of job growth over the past three months slowed to 154,000. Meanwhile, the unemployment rate fell to 6.6% from 6.7% the month prior, hitting the lowest level since October 2008.
The UK’s leading benchmark index has been somewhat volatile of late, as tensions between Ukraine and Russia saw the index fall over 1% one day only to recover most of its losses the next.
Technically, factors such as the Ukraine crisis can skew the view somewhat, so probably the best call at this stage is to view any weakness towards the last two February support points around 6,730 as buying opportunities. Only an end of day close back below this level could delay or prevent the index recovering to the top of the September rising trend channel at 6,910 during March.
Last Tuesday Sterling edged up against the dollar, but struggled to break levels around $1.67.
According to Alvin Tan, a currency strategist at SocGen Sterling is running out of support. He estimates sterling could hit a ceiling between $1.69 and $1.70. “That's actually the upper band of the sterling range since 2009, so technically it's pretty strong resistance,” Tan said. Action Forex says that provided $1.6251 remains as support, any rally should target $1.7043 resistance and above.
The precious metal recovered on the back of recent tensions in the Ukraine. Investors once again returned to gold, seemingly appreciating its “safe haven” status.
But, according to Chris Beauchamp, Market Analyst, IG: “Gold’s failure to push through recent highs and on to the next resistance level of $1,360 will have disappointed many, and is indicative that the 2014 rally here has run its course for now.”