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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's Week-Ahead: Mysterious Market Movements Meet Q2 Earnings

July 23 2011, 9:50am

 

This Week in the Markets:

The week started off in logical fashion with equities falling sharply as the markets waited for a solution to both the Greek / EU zone crisis, and the raising or not of the U.S. debt ceiling. But despite the former issue looking considerably more complex than the riddle of the Sphinx and the latter as easy as raising the Titanic, after the initial markdown traders seemed satisfied that either they had factored in the worst, or had decided to wait on the sidelines. 

But just how the Dow managed a 200 point one day rise, (one of the largest spikes of the year so far) without the big problem areas being resolved remains a mystery. Only those in tune with the perverse nature of the markets may know the answer, despite rumours that a deal on the U.S. problem was close. In fact, away from the two big fundamental bogeymen, the EU and the U.S. Debt Ceiling, it has been a positive business-as-usual situation for stocks, with the U.S. Q2 reporting season now in full swing. iPhone maker Apple (NASDAQ:AAPL) stole the show, as it’s shares hit an all time high over $400 off the back of doubled profits and a mind boggling 20 million iPhones sold over the quarter. The tech giant’s UK chip designer ARM (LON:ARM) also saw its shares gap sharply higher, along with sector counterpart Imagination Technologies (LON:IMG). Even Yahoo! (NASDAQ:YHOO) managed to raise profits although the internet giant saw its shares struggling to maintain the recent recovery.

But it was financial stocks on both sides of the Atlantic that struggled to gain traction after Bank of America (NYSE:BAC) unveiled a $9bn legacy mortgages loss, and Goldman Sachs (LON:GS) missed earnings targets as difficult trading conditions prevailed. However, as is so often the case, it was the UK banking stocks that really came under the cosh due to the perceived exposure of Barclays (BARC), Lloyds Banking (LON:LLOY) and RBS (LON:RBS) to the fallout from EU debt contagion. Barclays in particular suffered from a nasty case of the jitters with the shares at one point losing as much as 7% of their value in a day due to concerns over the bank’s exposure to Ireland.

But it wasn’t all doom and gloom for investors, as the latest debt concerns once again pushed Gold to record all time highs above $1,600 an ounce and put a floor under the mining sector, (at least for now). Also helping underpin sentiment was the latest deal making by one of the largest players BHP Billiton (LON:BLT), as it announced a $12bn offer for U.S. oil & gas group Petrohawk (LON:HK).

The Week Ahead: July 25th – 29th

Monday – Interims: Domino’s Pizza (LON:DOM), Reckitt Benckiser (LON:RB.)

Tuesday– Interims: ARM Holdings (LON:ARM), BG Group (LON:BG.), BP (LON:BP.), GlaxoSmithkline (LON:GSK), Q4 Aquarius Platinum (LON:AQP)

Wednesday – Finals: Renishaw (LON:RSW), Interims Autonomy (LON:AU.), BAT (LON:BATS), CSR (LON:CSR), Morgan Crucible (LON:MGCR), Q3 EasyJet (LON:EZJ). Trading Announcement: Carphone Warehouse (LON:CPW)

Thursday– Finals: Misys (LON:MSY), Interims: AstraZeneca (LON:AZN), BAE Systems (LON:BA.), Centrica (LON:CNA), Reed Elsevier (LON:REL), Rolls Royce (LON:RR.), Royal Dutch Shell (LON:RDSB), Shire (LON:SHP)

Friday – Finals: BSkyB  (BSY) Interims Anglo American (AAL), Charter International (LON:CHTR), Rentokil (LON:RTO), Travis Perkins (LON:TPK).

The big oil & gas groups are in focus this week with keen interest over how BP (BP.) is shaping up a year after the Gulf of Mexico oil disaster. Earlier this month the group announced it was putting measures in place to improve safety procedures, which followed hot on the heels of a £3bn investment to develop Shetland Isles assets. Royal Dutch Shell (LON:RDSB) has suffered no such gremlins with a bumper Q1 update in April, and reporting a farm out deal with Petrolatina in Columbia in July. Completing the big three oil & gas sector trio is BG Group (LON:BG.) where Q1 profits were knocked back by higher North Sea taxes, although the company bounced back in June by doubling its offshore Brazil reserves. 

Household goods group Reckitt Benckiser (LON: RB.) reports final results on Monday, and with a number of acquisitions including condom maker SSL International under it’s belt from the last year, the markets will be looking to see how these have been integrated into the company. Added to this, observers will be looking to see whether there is any revival in the admittedly rather speculative story that sector counterpart Unilever (ULVR) is interested in making a bid approach. If there is anything here it would more realistically be a merger. 

Other FTSE 100 giants reporting include pharmaceuticals pair AstraZeneca (LON: AZN) and GlaxoSmithkline (LON: GSK). Astra has been in focus lately after an FDA panel rejection of dapagliflozin, and a wobble in the run up to the FDA’s verdict on its heart treatment Brilinta which according to Citi has a 60% - 70% chance of approval – an event which could rake in billions. In the meantime rival Glaxo has been developing its exposure to key emerging markets growth, with the latest move a joint venture to develop flu vaccine in China

Major Economic Data: July 25th – 29th

Monday – UK: June BBA House Purchase Loans. U.S.: June Chicago Fed Nat Activity Index 

Tuesday – UK: Q2 Gross Domestic Product, June Nationwide House Prices. EU: June German Retail Sales. U.S.: June New Home Sales, July Consumer Confidence.

Wednesday – UK: CBI Business Optimism. EU: July Consumer Confidence, German GfK Consumer Confidence. U.S.: June Durable Goods Orders, Federal Reserve Beige Book.

Thursday – UK: July CBI Reported Sales. EU: German Consumer Price Index, Unemployment Rate.  U.S.: June Pending Home Sales.

Friday – UK: Net Consumer Credit, June Mortgage Approvals. EU: Consumer Price Index Estimate. U.S.: Q2 GDP, Personal Consumption, July Michigan Uni Consumer Sentiment.

UK GDP is the big domestic data event this week, with high hopes for an end to “bumping along the bottom” between 0% and 0.5% which has characterized much of the past year. Of course, those hoping that the Bank of England will maintain the status quo on interest rates will be hoping for a lower figure than 0.5% for Q1 2011 and 1.6% year on year. Across the pond, Q2 GDP data is in focus, and after the shock small rise in June non farm payrolls, the number will indicate the start of a new downtrend in growth or otherwise. The previous annualized figure was 1.9%. Also providing an insight into the economic position Stateside is the University of Michigan Consumer Sentiment number for July, which is unlikely to be any worse than the June decline to 63.8, the worst since March 2009. In the EU both German Unemployment and the German GfK Consumer Confidence figures take centre stage, as does keeping Greece in the monetary union.

Main Markets Outlook: 

FTSE100: 

An uneasy peace looks to be in place as regards the price action of the FTSE 100, as it tries to bounce back off the floor of what has now become a 5,700-6,000 trading range. Apart from the optimism on a Greek bailout and the U.S. adjusting its debt ceiling, a charting line of support exists for the UK index from last September rising through 5,700, which compares to the July support so far at 5,750 intraday. Few would argue a further test of the 2011 uptrend line during the rest of July is likely, so for those concerned that the move could be a dead cat bounce, waiting on a weekly close back above the still rising 200-day moving average at 5,873 is probably advisable. A resolution of the big EU / U.S. problems could herald a swift return, although without any positive drivers, we could wait some time another test of the recent range. 

Sterling / Dollar: 

Sterling / Dollar action either side of $1.60 has given traders plenty to talk about - hardly surprising as the cross has its key 200-day moving average running through $1.6050 currently, and the floor of a rising December price channel on the chart at $1.60. The implication is that after nearly a month of consolidation the UK currency is ready to break to the upside, with only a weekly close well below the $1.5781 intraday low of July so far really threatening progress here. Clearly the fate of the U.S. debt ceiling, (reportedly close to agreement) will have the biggest near term influence, and it would be understandable if would be buyers hold off until then. But at least technically, it appears that the uncertainty has been priced in, ready for the long promised push towards a sustained $1.65 plus target, also equating to pre May resistance. 

Gold: 

The new all time record high for Gold during July, (something which has been achieved once every couple of months in the past couple of years) will have come as little surprise to most observers, with the perceived drivers for the price to the upside on this occasion the inflationary / devaluation impact of the Western credit crisis. With continuing question marks over the real value of paper currencies, speculators are hungry as ever for Gold’s attraction as a store of value. So far this has meant that the July record stands at $1,610 intraday, and while there is no daily close back below the former May record at $1,576, progress towards the top of a rising trend channel from April at $1,630 looks likely before the end of next month. What helps is that following the $1,610 spike the low so far has been above former resistance at $1,581

 

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