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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. 
Galvan's Week-Ahead: The January Effect Kicks In
This Week in the Markets:
There has certainly been plenty for traders to chew on as the first month of 2012 draws to a close. Not least the so called January Effect, a stock market saying which suggests that if the first month of the year ends higher, the year as a whole will follow. With just a few sessions to go it does appear that January 2012 will be a positive month, one of the strongest starts to any year for over two decades as far as the FTSE 100 is concerned and certainly rather at odds with the real world. Logic dictates we should all be holding our breath as we wait for the outcome of the EU / Greek crisis, to find out what degree of default is on the cards. What we do already know is that the austerity measures proposed in the ailing country have not done their job, and if you believe the Austrian Finance Minister, the measures never got past the drawing board stage.
The question now is how much of a haircut will bondholders be willing to accept? And how much will the IMF and EU intervene should a full-scale default materialise, and / or a break up of the Eurozone is triggered.
On the subject of the IMF, it laid the foundation of the week’s gloom when it delivered its latest verdict on the outlook for the world economy. The IMF suggested that we are on the verge of a global slump, one that would be made far worse should the EU crisis escalate from present levels. This was timely for the UK zombie banks Lloyds (LLOY) and RBS (RBS), which are both still massively geared to the downside on the back of EU toxic deBT exposure. News that this country fell into recession with a GDP contraction of 0.2% will therefore have come as little surprise in the aftermath of a profits warning earlier this month from Tesco (TSCO), one of the UK’s principal corporate bellwethers. To make matters worse, the troubles of the EU seem to have distracted British politicians from issues such as domestic austerity and economic stimulus measures. News that UK deBT had broken through the £1trillion mark came hot on the heels of the Q4 2011 GDP number, and while this was instantly blamed on the excesses of the previous administration, no douBT questions will be asked given that the initial deBT figure when the Coalition came to power was said to be less than £900bn. Somewhere along the line we have acquired £100bn in additional deBT over the past 18 months or so, in the midst of all the austerity.
The Week Ahead:
Key Corporates Reporting: January 30th – February 3rd
Monday – Finals: SThree (STHR).
Wednesday – No significant corporate announcements due.
Thursday – Finals: AstraZeneca (AZN), Royal Dutch Shell (RDSB), Smith & Nephew (SN.), Unilever (ULVR).
Heading the corporate news bandwagon this week is Royal Dutch Shell (RDSB), a leading stock price performer, arguably helped out by the unfortunate PR associated with rival BP’s Gulf of Mexico 2010 oil spill. Broker Credit Suisse has waxed lyrical in its coverage of the oil & gas giant, praising the Q3 update on the basis that it was not the one-off earnings jump that the market had imagined. The broker predicted that Shell would be able to deliver the best free cash flow among European oil groups and that on this basis it should be regarded as an “outperform.” With the stock now around £1.50 off its £25 zone year highs it may very well be the case that there is an opportunity to buy weakness here on position squaring ahead of the Finals.
Another FTSE 100 giant reporting this week is drugs company AstraZeneca (AZN). The situation here is rather more complex than Royal Dutch Shell, with extensive press coverage of the recent disappointment over the new drugs pipeline to deal with. In December Astra warned earnings would come in at the lower end of expectations after spending $381.5m on failed drug tests such as its ovarian cancer treatment and Olaparib, anti-depressant compound TC-5214. The New Year didn’t get off to a good start either as the FDA probed the group over its Dapagliflozin treatment for type 2 diabetes. Interestingly, the share price remains only just off year highs suggesting that for many in the market such issues come second to a relatively defensive play in times of economic uncertainty.
Another giant universally regarded as a safe port in a financial storm is household products giant Unilever (ULVR). The Bank of America downgrade from neutral to underweight on January 11th has certainly weighed on the share price, and arriving after the November update from the consumer goods specialist, came as something of a surprise. Unilever said that turnover was reaching a peak of €12bn while underlying sales growth came in at 7.8%. Presumably Bank of America forgot about Unilever’s growing exposure to emerging markets - or at least temporarily.
Major Economic Data – January 30th – February 3rd
Monday – EU: Jan German Harmonised Index of Consumer Prices, EU Jan Business Climate, Economic Sentiment. U.S.: Dec Personal Income, Personal Spending
Tuesday – EU: Dec Unemployment Rate, January German Unemployment Rate, U.S.: Nov Case / Shiller Composites, Jan Chicago PMI, Jan Conference Board Consumer Confidence.
Wednesday – UK: Jan Manufacturing PMI. EU / Germany: Jan Manufacturing PMI. U.S.: Dec Consumer Spending, Jan ADP National Employment Report, ISM Manufacturing.
Thursday – EU: Dec Consumer Price Index. U.S.: Q4 Non-Farm Productivity, Unit Labor Costs.
Friday – UK: Jan Services PMI. EU: Dec Retail Sales, EU Jan Services PMI. U.S.: Dec Durable Goods, Factory Orders, Jan Non Farm Payrolls, Unemployment Rate, ISM Non Manufacturing Index.
The week is dominated by EU and U.S. economic data, with of course the January Non Farm Payrolls topping the bill. Expectations this time are for a slightly lower figure than the Dec 200,000 number, with Jan expected to stand at around 170,000. The Unemployment Rate is set to edge up from 8.5% to 8.6%. Also in the U.S., the Jan Conference Board Consumer Confidence number is expected to bounce over 3 points from the previous 64.5 reading. Closer to home and the Jan Services and Manufacturing PMI is set to feature in the UK. The crisis hit EU will provide the latest Unemployment Rate as well as the key Business Confidence and Economic Sentiment gauges for Jan. Both German and EU Manufacturing PMI numbers for Jan are expected to improve a couple of points from Dec 48 and 47 numbers respectively.
Main Markets Outlook:
FTSE100:
Incredible though it may seem, the steady progress for the FTSE100 continues unabated, and all the while the index remains above the 200-day moving average at 5,600, progress is likely to continue. In fact, we are not just narrowly into positive technical territory; leading blue chips are now over 150 points above the 200-day line, and have spent the best part of three weeks above this benchmark. True, the Dotcom Bubble burst in 2000 after over a month spent at equivalent technical levels, but an unexpected or wholly negative shock over and above defaulting EU states and £1trn national deBT figures would be needed to change the state of play. While above recent 5,700 – 5,720 intraday support, the index can be expected to return to the 5,800 – 5,900 July resistance zone during February – however excessive this currently appears.
Sterling / Dollar:
As the Federal Reserve vowed to keep U.S. interest rates at record low levels for at least the next two years, any douBTs over Sterling in the wake of the GDP and national deBT setbacks this week were swept aside. Technically, the cross has built on the January bear trap below an October $1.5272 intraday low, and progress from this low has been via an acceleration through the 50-day moving average at $1.5550, above which one would expect the last significant resistance for this market – December’s $1.5774, to be the minimum target as soon as the end of January. That said, once the initial post Fed euphoria wears off, traders may take the view that given the rather questionable fundamentals it is still too early to take this cross any closer to $1.60 than the December highs.
Gold:
Rather like the FTSE 100, Gold has risen above its 200-day moving average at $1,644 currently, but with the way apparently blocked by a line of resistance at $1,670 down from the record level of $1.920. If it weren’t for the Fed’s January 25th reiteration of its ultra lax monetary policy, one might have expected the zone above $1,670 to provide resistance for the metal for many weeks to come. But at least with $1,700 broken, the 4-month retracement in this market looks to be over, and only sustained price action back below the sharply rising (positive) 200-day moving average would change the scenario. But with the Fed supporting Gold, Goldman Sachs have highlighted how over the past 5 years it has been one of the best investments, and it expects the metal to provide similar “riskless” returns going forward with a $1,940 an ounce target over the next 12 months
