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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 – The Carney rate hike dilemma

August 16 2014, 7:00am

This Week in the Markets:

The governor of the Bank of England (BOE) Mark Carney said last Wednesday that there was no chance of an early rise in UK interest rates. Hitherto it had been widely believed that interest rates would rise as early as November this year. Carney’s comments came as data showed that that average earnings have fallen for the first time in five years. Brenda Kelly of IG said in a note: “Overall the BoE is still fretting about the lack of wage growth in the economy, which is preventing them from hitting the rate-hike button. Ultimately however, the pressure to act may become too much, at which point Mark Carney may go for the ‘symbolic hike’ option, with a very minor rise designed to demonstrate the bank’s willingness to act without compromising its policy direction.

Data from the Centre for European Economic Research (ZEW) showed that German economic growth will be weaker this year than previously thought, as geopolitical tensions and the sluggish Eurozone recovery weighed upon on Europe’s largest economy. The lead indicator fell to 8.6 in August from 27.1 July. Experts polled by the Wall Street Journal (WSJ) ahead of the release had forecast a reading of 18.0. The indicator has now reached its lowest level since December 2012 and suffered its strongest drop since June 2012. “The decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy by now,” said ZEW. The data adds to a growing picture that shows the German economy slowing sharply after an artificially strong first quarter, according to Marketwatch.

In corporate news, online takeaway service Just Eat (JE.) has seen first half profits almost treble after it expanded the number of restaurants it has tie-ups with. Pre-tax profit rose to £8.6m from £3.1m, while revenues jumped 58% to £69.8m in the six months to the end of June. The company added 4,400 new restaurants to its books and now has 40,800 in total. Shares rose over 8% on the news.

Bookmaker Ladbrokes (LAD) revealed a sharp fall in profit last Tuesday, despite reporting a “good World Cup” performance. Pre-tax profit fell 49.7% to £27.7m in the first half of the year ending 30th June. The company said its focus for the period had been operational improvements, which meant its “financial performance would inevitably lag behind”. However, Ladbrokes boss Richard Glynn said it was now “well positioned for growth”. “We have made substantial progress. We now have the products, the platforms, the people and the brand in place to deliver,” he added.

Finally, further evidence of the improving global economy came with interim results from Michael Page International (MPI), which raised its interim dividend by 5.2% after a rise of 11.1% in half-year pre-tax profits. Revenues rose a further 1.8%, while basic earnings per share rose 8.6%. The company experienced strong growth in its major markets of China, US and UK.

Key Companies Reporting Aug 18th – Aug 22nd

Monday – Interims: Amlin (LON:AML), Bovis Homes Group (LON:BVS), Clarkson (LON:CKN).

Tuesday – Finals: BHP Billiton (LON:BLT). Interims: Cairn Energy (LON:CNE), CRH (LON:CRH), Mears Group (LON:MER), Menzies (John) (LON:MNZS), Persimmon (LON:PSN), TT Electronics (LON:TTG), John Wood Group (LON:WG.). Trading Statement: Imperial Tobacco Group (LON:IMT).

Wednesday – Interims: ADVFN (LON:AFN), Afi Development (LON:AFRB), Carillion (LON:CLLN), Frutarom Industries (LON:FRUT), Gem Diamonds (LON:GEMD), Glanbia (LON:GLB), Hikma Pharmaceuticals (LON:HIK), Hochschild Mining (LON:HOC), UK Commercial Property Trust (LON:UKCM).

Thursday – Interims: Kazakhmys (LON:KAZ), New World Resources (LON:NWR), Primary Health Properties (LON:PHP), Premier Oil (LON:PMO), PV Crystalox Solar (LON:PVCS), Quindell (LON:QPP), Skyepharma (LON:SKP), Sportech (LON:SPO). Finals: Provexis (LON:PXS).

Friday – Finals: Allergy Therapeutics (LON:AGY). Interims: Rangemaster Group (LON:AGA), Boot (Henry) (LON:BHY).

Several companies of note report results this week. On Monday, UK property developer Bovis Homes Group (LON:BVS) will report interims. Bovis, along with its rivals has benefitted from government initiatives and historically low interest rates, which look set to continue in the near term. Broker Liberum recently named Bovis Homes as a “top pick” and maintained a “Buy” rating for the stock. Barring disasters, we should see progress maintained.

Global mining giants BHP Billiton (LON:BLT) will report finals on Tuesday and Kazakhmys (LON:KAZ) will report interims on Thursday. Broker Canaccord Genuity recently highlighted “strong volumes and more to come” at BHP Billiton but kept a “Hold” stance on the mining giant. The broker said that the stock’s current valuation was trading slightly above its historic average and maintained its 1,935p target price. Nevertheless, Canaccord said that BHP’s second-quarter production numbers came in slightly ahead of its estimates “with the biggest beat in the coking coal unit (14% ahead) followed by the iron ore unit (11% ahead)”.

At the end of July, Kazakhstan-focused copper miner Kazakhmys gave a mixed production update for the first half, with copper production in line with forecasts but by-product output weak. Kazakhmys said it remains on track to hit the full-year production guidance of 285,000-295,000 tonnes, with output benefitting from a planned reduction of work in progress in the second half. The stock seems to have turned a corner after its well-publicised problems, so provided the results are in-line, it is not unreasonable to expect further progress for the shares.

Major Economic Data Aug 18th – Aug 22nd  

Monday – UK: Rightmove. EU: Trade Balance. US: NAHB Housing Market Index.

Tuesday – UK: PPI Input, CPI, RPI, Core CPI, HPI, PPI Output. EU: Current Account. US: Building Permits, CPI, Core CPI, Housing Starts.

Wednesday – UK: MPC Asset Purchase Facility Votes, MPC Official Bank Rate Votes, CBI Industrial Order Expectations. EU: German PPI. US: Crude Oil Inventories, FOMC Meeting Minutes.

Thursday – UK: Retail Sales, BBA Mortgage Approvals, Public Sector Net Borrowing. EU: French Flash Services PMI, French Flash Manufacturing PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Services PMI, Flash Manufacturing, Consumer Confidence. US: Unemployment Claims, Flash Manufacturing, Existing Home Sales, Philly Fed Manufacturing Index, CB Leading Index, Natural Gas Storage.

Friday – No economic events scheduled.

There is fair chunk of UK economic data scheduled for this week. Highlights include the latest housing data from UK property portal/website Rightmove on Monday. No doubt, first time buyers and existing homeowners will be relieved over the latest comments from Bank of England Governor Mark Carney. On Thursday, mortgage approvals data is scheduled for release by the British Bankers Association (BBA).

Stateside, Unemployment Claims data is due on Thursday, while the FOMC (Federal Open Market Committee) Meeting Minutes are published on Wednesday.

FTSE 100:

The UK’s leading benchmark index has been knocked back by geopolitical tensions: Iraq, Gaza and the Ukraine. Weak economic data out of Germany last Tuesday also sent jitters through the European financial markets.

Technically, the FTSE 100 needs to prove the credibility of the latest rebound from the sub 6,550 zone with a recovery of the former support zone of last month. If this cannot be achieved in the near term then it can only fall further this week.


Sterling was somewhat muted against the dollar before the release of the Bank of England Inflation Report last Wednesday. It hit a two-month low against the dollar last Tuesday.

A technical view is provided by Michael Hewson at CMC Markets. “Sterling has managed to stay fairly resilient edging up towards the resistance in the $1,6820 area. This rebound now needs to get above $1,6820 to retarget a move back towards $1,6920 and then $1.7000. Support remains at $1,6755, while below that we also have support at the May and June lows at $1,6700, a break of which could see further losses.”


The precious metal has benefitted from woes in the Ukraine and the crises in the Middle East. But according to IG, gold seems to be “stranded around the $1,312 mark.”

IG’s Brenda Kelly said in a note: “One hope for gold bugs would be a situation in the US similar to that in the UK, where the central bank finds itself unwilling to raise rates thanks to an uneven recovery in the economy. If rates don't rise as fast as expected then gold could once again find itself a favoured destination for money driven from US Treasuries. All this lies in the future, however, and so for now gold is condemned to languish around current levels.”

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