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Galvan Week Ahead Including Wolseley results, Smiths pension fund deficit, Game Group outlook & Man Group report
Current State Of Play: The FTSE 100 has backed off 4-month highs above 5,600 after hints from the Federal Reserve that a new wave of quantitative easing will be required to stimulate the U.S. economy. The associated double dip recession fears (Eurozone PMI has hit a 7 month low), and an “expensive” Eire bond auction haven’t helped to alleviate the return of jitters either. This has fed into new highs for Gold off the weakening U.S. Dollar as the prospect of QE2 looks increasingly likely. In the UK the Business Secretary Vince Cable has delivered a scathing attack on “spivs and gamblers” otherwise known at bankers, undermining shares in the sector off the back of windfall tax fears.
Key Corporates Reporting: September 27th – October 1st
Monday – Preliminary Results Wolseley (WOS).
Tuesday – Trading Announcements Daily Mail & General Trust (DMGT), Man Group (EMG), Thomas Cook (TCG). Preliminary Results Close Brothers (CBG), Smiths Group (SMIN). Interims Game Group (GMG), JJB Sports (JJB).
Wednesday – Trading Announcements Babcock International Group (BAB), First Group (FGP), Thomas Cook (TCG)
Thursday – Trading Announcements Compass Group (CPG), Dairy Crest (DCG).
Friday – Preliminary Results Helphire (HHR)
Plumbing materials group Wolseley (WOS) should confirm the positive swing in its fundamentals via a transformation from a £766m loss in 2009 to a £242m profit this year. Adding to the general bullishness was the promise made at the time of the May update that the result for the year would beat analysts’ expectations. Interestingly, so far this month Wolseley shares have put on over £2, which in our view says that unless the update on Monday is very impressive the stock could be vulnerable to profit taking.
Although the bid speculation associated with technology / engineering group Smiths (SMIN) has long faded, moves to address its pension fund deficit in July have been well received in share price terms. Pre-tax profits are expected to be in line to slightly ahead of last year’s and after the recent bull in the stock, it remains to be seen whether this is enough to maintain the positive momentum. Indeed, there has been a pullback in the run up to next week’s announcement.
Shares in video games retailer Game Group (GMG) are still down over a third since key management jumped ship in April, an obvious fundamental negative. The battle since then has been to maintain market share, something which has been achieved but only at the expense of cutting margins. That said, if interim pre-tax profits come in at £52.7m as expected, versus £10.8m last time, we would expect to see post July support for the shares down to 60p held, and the aftermath of the update provide a high risk / high reward buying opportunity.
As far as the trading announcements are concerned traders will be looking at hedge fund Man Group to see whether the subdued sales reported in July have picked up, as well as the key AHL fund. Evidence of recovery will also be sought from tour operator Thomas Cook (TCG) as well as any indication of how willing consumers are to fork out for winter holidays. The group has already issued lower profit guidance for the year.
In contrast, newspaper publisher Daily Mail (DMGT) said that trading was ahead of expectations in Q2 2010, and judging by the September rally in the shares to date, the market is counting on this recovery to continue.
Major Economic Data September 27th – October 1st
Monday - Nationwide September UK House Prices last yoy +3.9%, mom +0.9%
Tuesday – Germany September CPI
Wednesday – UK Q2 Current Account last -£8.9bn, UK Q2 GDP last +1.2%, U.S. September Consumer Confidence last 53.5, UK September Consumer Confidence last -18.
Thursday – Germany September Employment last -17k
Friday – U.S. September University of Michigan Consumer Confidence, U.S. September ISM Manufacturing last 56.3
There are two key areas of the economy under the spotlight next week. The Nationwide will be casting light on the state of the housing market, especially noteworthy given this week’s news that mortgage lending has falling to its lowest in nearly 18 months. Otherwise a clearer picture of consumer confidence on both sides of the Atlantic will be provided by the University of Michigan confidence number, which in itself is enough to turn the financial markets by a significant degree.
Main Markets Outlook:
FTSE 100: The smart play for the FTSE100 since May has been to take profits / go short anywhere above the 5,400 level. However, given the heavy weighting towards resources stocks in general and mining stocks in particular it could very well be that despite economic concerns, next week will see the UK index make new 4 month highs. It helps that technically the chart for this market should show a 50-day / 200-day moving average golden cross buy signal, something which is by definition a rare event. The top of the recent price channel could stretch the FTSE100 through 5,700 provided August support at just over 5,400 is held.
Sterling / Dollar: The hint by the Federal Reserve this week that we may see a new round of fiscal stimulus has weakened the U.S. Dollar significantly in the sessions since the announcement. Given the recent base for Cable down to $1.55 and no significant chart resistance before $1.60, it would not surprise us to see a move down to this level before the end of next week.
Gold: The most obvious beneficiary of QE2 is Gold, where for many months, speculators have been looking for an excuse to take the commodity “over the top,” in this instance $1,300 an ounce. The likelihood now is that unless the Federal Reserve backtracks on its securities buying promise, or actually delivers it ahead of time, Gold will probably break above $1,300 sooner rather than later. As far as technical projections are concerned, there is little in the way of technical barriers in this market before $1,400 when and if $1,300 is broken.
