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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 – Yellen speech reassures financial markets, while Sir Martin complains about Sterling strength.

August 30 2014, 7:00am

This Week in the Markets:

The chief of the International Monetary Fund (LON:IMF) Christine Lagarde has been placed under formal investigation by French magistrates for her alleged role in a long-running political fraud case, a source close to the former French finance minister said. The source said last Wednesday that Lagarde had been questioned by magistrates in Paris under her existing status as a witness and she would appeal against the allegation.

The Federal Reserve Chair’s comments in Jackson Hole lifted the UK’s leading benchmark index last Tuesday. The FTSE 100 ended 47.51 points higher at 6,822.76, also helped by stronger-than-expected US data. Janet Yellen said that “remaining slack in the labour market,” continued, which she believes needs to be “more nuanced” due to the “considerable uncertainty in the employment level.” Addressing her audience at Jackson Hole, Yellen gave what some analysts interpreted as a more balanced assessment of the jobs market and its impact on monetary policy, saying labour resources were underutilised, something she believes “remained significant” to economic growth.

In corporate news, global advertising giant WPP (LON:WPP) reported a 1.5% rise in headline pre-tax profits to £532m, but when currency movements were stripped out the rise was 15.6%. WPP announced a 2.7% increase in reported revenue to £5.47bn, but said it faced “strong currency headwinds” in the first half of 2014. “The strength of sterling has ravaged our revenue figures and profits figures on a reported basis,” said founder and boss Martin Sorrell. He added that the strength of sterling had reduced WPP’s overseas sales and profits.

Royal Bank of Scotland Group (LON:RBS) has been fined £14.5m by the Financial Conduct Authority (FCA) for “serious failings” in its mortgage advice to customers. The FCA said only two of the 164 sales it reviewed between June 2011 and March 2013 were considered to meet the standard required overall in a sales process. It found RBS and its retail arm NatWest failed to consider the full extent of a customer's budget when making a recommendation, while staff did not advise customers what mortgage term was appropriate for them.

Finally, recruitment giant Hays (LON:HAS) reported a 12% increase in annual pre-tax profits to £132.3m, with fees 5% higher at £724.9m. CEO Alistair Cox said he was confident that Hays was entering the new-year in a position of strength.

Key Companies Reporting September 1st – September 5th    

Monday –Trading Statement: Berkeley Group Holdings (LON:BKG). Interims: Falkland Oil & Gas (LON:FOGL).

Tuesday – Finals: Alumasc Group (LON:ALU), CPL Resources (LON:CPS), Kofax (LON:KFX), Mattioli Woods (LON:MTW), Redrow (LON:RDW). Interims: Hydro International (LON:HYD), Hydro International (LON:HYD), Johnson Service Group (LON:JSG), Smart Metering Systems (LON:SMS), Total Produce (LON:TOT).

Wednesday – Finals: Hargreaves Lansdown (LON:HL.), Mucklow (A & J) Group PLC (LON:MKLW). Interims: Ashtead Group (LON:AHT), Biome Technologies (LON:BIOM), Belgravium Technologies (LON:BVM), Goals Soccer Centres (LON:GOAL), Safestore Holdings (LON:SAFE). Trading Statement: Safestore Holdings (LON:SAFE).

Thursday – Finals: Go-Ahead Group (The) (LON:GOG). Interims: Betfair Group (LON:BET), Burford Capital (LON:BUR). Trading Statement: Aer Lingus Group (LON:AERL), Betfair Group (LON:BET), easyJet (LON:EZJ), SuperGroup (LON:SGP).

Friday – Interims: EMIS Group (LON:EMIS).

There are a number of major companies scheduling reports this week. Of note house builder Berkeley Group Holdings (BKG) will release its trading statement on Monday. Like many house builders it has benefitted considerably from the housing boom in London and the South East, but there is always the threat of an interest rate rise. Back in June, the company delivered impressive results – an 18% increase in revenues to £1.62bn in the year to April 30th and a 40.4% increase in pre-tax profits to £380m. Basic earnings per share (EPS) of 221p, 38.6% higher than last year, were a few storeys above consensus of 193.5p. Hitherto in the year, 149p of this has been paid as dividends, with another 90p now declared. Management intend to pay another 243p by September 2015 and, with an estimated value of gross margin in current land holdings is now in excess of £3bn and cash due on forward sales now approaching £2.3bn, the group is well on track to achieve this target.t

On Wednesday, financial services group Hargreaves Lansdown (HL.) will report full year results. Swiss bank UBS recently downgraded the company to a “Sell” saying that the “risk-reward [is] significantly skewed to the downside”. The bank set a 850p target price for the stock, which implies downside from the 1,081p recent closing price. It believes that at current prices, the market “significantly overestimates” the flow potential at Hargreaves Lansdown. Clearly the financial services giant has its work cut out to impress.

Online betting exchange Betfair Group (BET) reports interims on Thursday. Back in June, the company beat analysts’ full year forecasts due to tackling its cost base issues, and introducing more of a traditional sportsbook. Underlying revenue rose a modest 2% to £393.6m in the year to end-March, the new focus on efficiency saw earnings before interest, tax, depreciation and amortisation (EBITDA) jump 24% to £91.1m and basic earnings per share leap 57% to 49p, ahead of analyst consensus of less than 46p. The dividend was 54% higher at 20p, lifted by the proposal of a 14p final payout. Given the recent World Cup betting bonanza, few would bet against further growth.

Major Economic Data September 1st – September 5th 

Monday – UK: Manufacturing PMI. EU: German Final GDP, Spanish Manufacturing PMI, Italian Manufacturing PMI, Final Manufacturing PMI. US: Bank Holiday, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, ISM Manufacturing Prices.

Tuesday – UK: Construction PMI. EU: Spanish Unemployment Change, PPI. US: IBD/TIPP Economic Optimism.

Wednesday – UK: BRC Shop Price Index, Services PMI. EU: Spanish Services PMI, Italian Services PMI, Final Services PMI, Retail Sales, Revised GDP. US: ADP Non-Farm Employment Change, Final Services PMI, ISM Non-Manufacturing PMI, Factory Orders, Beige Book.

Thursday – UK: BRC Retail Sales Monitor, RICS House Price Balance, Asset Purchase Facility, Official Bank Rate. EU: German Factory Orders, Minimum Bid Rate, ECB Press Conference. US: Challenger Job Cuts, Trade Balance, Unemployment Claims, Revised Nonfarm Productivity, Revised Unit Labor Costs, Natural Gas Storage, Crude Oil. Inventories.

Friday – UK: Consumer Inflation Expectations. EU: German Industrial Production. US: Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings, Consumer Credit.

A veritable plethora of UK and EU manufacturing data is lined up for release this week. On Monday and Tuesday UK Manufacturing and UK Construction figures will be published. On Thursday, the Bank of England Monetary Policy Committee meet to discuss interest rates and the quantitative easing programme (QE). More house price data is scheduled, this time from the Royal Institute of Chartered Surveyors (RICS) with the release of the RICS House Price Balance. This reading is based on opinions about housing price trends of a sample size of surveyors based in the UK, covered by the RICS monthly Housing Market Survey. The house price balance figure is calculated as the proportion of surveyors reporting a rise in housing prices minus the proportion reporting a fall in prices.

Things are quiet in the US on Monday due to US Labor Day. However, Wednesday, Thursday and Friday sees key data out of the US. On Thursday there are Unemployment Claims and on Friday Non-Farm Employment Exchange data.

FTSE 100:

After the August Bank Holiday weekend, buoyed by the Fed Chair’s speech and stronger-than-expected US data, the FTSE 100 pushed higher. Although it fell in early Tuesday trade, the index remained above 6,800.

Technically, the FTSE 100 should shortly reveal whether or not it will again fail towards the May resistance line - now at 6,790. All it would take is an end of week close back above this level to initiate the next leg higher, but although we appear to be in a bull flag above the 50-day moving average at 6,744, the percentage trade still looks like an index short sell in the first instance.

Sterling/Dollar:

At the start of the August Bank Holiday, sterling suffered its longest losing streak against the dollar in six years. Reasons for its fall being, perhaps no UK interest rate rise until 2015 and poor wage growth in real terms.

From a technical perspective, the fall below the 200-day moving average (DMA) - the first break of the long-term technical indicator in a year suggests selling pressure on sterling against the dollar could persist, according to Reuters. “Following the latest and decisive break below the 200-DMA (now resistance at $1,6682) we see the bears in full control, shooting for a straight extension towards $1,6394,” said JP Morgan technical analysts in a note.

Gold:

The precious metal has not benefited from the easing in tensions between Russia and the Ukraine, and its outlook doesn’t look rosy either, thanks to the strong dollar.

IG’s Chris Beauchamp says: “Gold’s brief spike towards $1290 has been defeated, with the metal shedding its gains for the day despite optimism that the European Central Bank (ECB) is on a path to fresh easing. With the 200-day moving average capping gains it seems the metal is still fated to continue its fall from the August highs around $1,320.”

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