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Galvan's Week-Ahead: There is no longer any excuse for central banks to sit on their hands as they wait and see how active consumers have been over the Christmas period
Galvan's Week-Ahead: Title stripping to appease mob bloodlust.
This Week in the Markets:
Although not strictly speaking a stock market event, the title stripping of Sir Fred Goodwin the former CEO of Royal Bank of Scotland (LON:RBS), has undoubtedly been a major talking point in the City of London and beyond. The move has been described by some as little more than the appeasing of a mob bloodlust, and by others as the final cathartic event that draws a line under the banking sector contribution to the financial crisis - now nearly 5 years old. Unsurprisingly, so far this year leading banking stocks such as RBS (LON:RBS), Lloyds Banking (LON:LLOY) and Barclays (LON:BARC) have been leading the great rally of 2012. It is also clear that a wall of worry regarding the possibility of the break up of the Euro has been successfully climbed, with apparently little in the way to sour the mood of investors.
Perhaps part of the explanation has been the rather repetitive nature of bailouts, summit meetings, Greek default deadlines and Credit Agency downgrades, all of which have come and gone in a regular cycle without the world ending. The bluff may be called at some point, but those shorting stocks or indices hoping for something to crack have so far found to their cost that the pockets of the ECB, whether with printed money or not, are deeper than their own.
Apart from the Knighthood issues in the UK, there is clearly still a desire to re-ignite the now flat lining economy, which is doubtless going to struggle to avoid to negative quarters on GDP if the forecast February cold snap lasts for any extended period of time. The suggestion from the Institute for Fiscal Studies is that the Chancellor of the Exchequer George Osborne should opt for a so called Plan B economic stimulus package. This would involve a £20bn cash injection should the EU zone break up – enough it is hoped to prevent what would be a severe recession in this country. Some observers are already arguing that such a plan is needed anyway, even in the absence of a fully-fledged disaster on the Continent.
There were several corporate highlights of note this week. U.S. tech giant Apple (AAPL) has called upon the services of Dixons (LON:DXNS) retail maestro and CEO John Blowett, appointing him the Senior Vice President of Retail operations and in turn knocking the stuffing out of the recent share price rally at the UK electronics retailer. Also in retailing, Tesco (LON:TSCO) COO Noel Robbins who sold 50,000 shares just before last month’s profits warning, has been moved out of his job to work under CEO Philip Clarke directly.
The Week Ahead:
Key Corporates Reporting: February 6th – 10th
Monday – Finals: Randgold Resources (LON:RRS)
Tuesday – Finals: BP (LON:BP.), GlaxoSmithKline (LON:GSK). Q1: Tui Travel (LON:TT.) Trading Announcement: Bellway (LON:BWY).
Wednesday – Finals: International Power (LON:IPR), Reckitt Benckiser (LON:RB.). Interims: BHP Billiton (LON:BLT), Dunhelm (LON:DNLM).
Thursday – Finals: BG Group (LON:BG.), Catlin Group (LON:CGL), Rio Tinto (LON:RIO), Rolls Royce (LON:RR.), Shire (LON:SHP). Interims: Aquarius Platinum (LON:AQP), Diageo (LON:DGE), Hargreaves Lansdown (LON:HL.), Rank (LON:RNK). Q3: British Land (LON:BLND).
Friday – Finals: Barclays (LON:BARC).
The nature of the corporate calendar is sometimes reminiscent of London buses in that while one can be waiting an extended period for big gun companies to report, all of a sudden there are three, or in the case of this week several coming through at the same time. We start with BP (LON:BP.), which at the start of January was claiming $60bn back from its contractor Halliburton (LON:HAL) - the bill for the cleanup of the Gulf of Mexico following the April 2010 oil spill. But by the end of January a court judgement left BP itself at risk of having to indemnify its oilfield services company Transocean. As far as the actual oil business is concerned, broker Credit Suisse downgraded many leading oil stocks, and cut BP’s fourth quarter EPS estimate by 9% whilel reiterating its outperform recommendation on the stock.
From one oil & gas giant to the next. BG Group (LON:BG.) has enjoyed a great run after announcing in December that it was to receive $3bn in return for reducing its stake in the Karachaganak gas field in Kazakhstan by 10%. The oil giant said at the end of that month that its vast assets offshore Brazil were nearing production, and at the beginning of January reported that it had received six to seven preliminary bids for its 65% stake in India's Gujarat Gas in a deal valued at about $900m. Full year numbers are eagerly anticipated.
Switching from oil & gas to mining, and both Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) are reporting this week, but finals from the former should ensure it takes centre stage. The Q4 update from last month should help underpin expectations as the group continued to bounce back from a weather-blighted H1. Iron ore in particular was a standout as production was reported to have hit record levels. And changing tack again, banking giant Barclays (LON:BARC) will no doubt raise the contentious issue of bonuses again on Friday when it reports full year numbers.
Major Economic Data – February 6th – 10th
Monday – EU: Dec German Factory Orders
Tuesday – EU: Dec German Industrial Production.
Wednesday – No significant economic data due.
Thursday – UK: Dec Trade Balance, Industrial Production, Bank of England Interest Rate Decision / QE Announcement. EU: ECB Interest Rate Decision / Press Conference. U.S.: Dec Wholesale Inventories.
Friday – UK: Jan Producer Price Index. EU: Jan German Harmonised Index of Consumer Prices. U.S.: Dec Trade Balance, Feb University of Michigan Consumer Sentiment, Jan Federal Budget Balance.
There is no longer any excuse for central banks to sit on their hands as they wait and see how active consumers have been over the Christmas period. The Fed have committed to extended low interest rates, but it is now the turn of the Bank of England to attempt to stimulate the economy, and for the ECB to pull the correct economic strategy out of the hat to prevent a two tier EU from fragmenting. All will be revealed in both instances on Thursday. Economic data announcements at home feature the Jan Producer Price Index, which came in at 4.8% the previous month, as well as the Dec Trade Balance (-£8.6bn in Nov) and Dec Industrial Production (-0.6% in Nov). In the U.S., the Dec Trade Balance is due, and forecast to be just a fraction worse than the -$47.75bn of Nov, with the University of Michigan Consumer Sentiment figure for Feb called a point down on Jan at 74.
Main Markets Outlook:
FTSE100:
Since the start of the Christmas rally for leading stocks, experts both fundamental and technical have warned that the move higher is unlikely to last. These siren calls continue despite the best start for many leading world indices, including the FTSE 100 for over 20 years. Adding to the bullishness is the traditional rule that whatever way the stock market swings in January, it will do for the year-end. At this juncture, it will take a quite massive turnaround to prove the doomsters correct. Technically, the UK index starts February with a bear trap rebound back above 5,700 and the 20-day moving average at 5,694. The likelihood is that the longer the 5,700 zone remains in place the upside for the index should be back towards the former July resistance as high as 5,950 plus.
Sterling / Dollar:
The Sterling / Dollar cross offered resistance at $1.5730, but this has melted away as the U.S. Dollar’s safe haven role seemed less important to start February as stronger than expected Chinese Manufacturing PMI numbers emerged. This also boosted the Euro, and generally improved prospects for the toxic debt ridden Eurozone, largely off the back of the German economy where unemployment has fallen to just 5.5%. At home, hopes are that the 8 month high PMI number for January at 52.1 might be the start of a domestic recovery, to let the bulls resume command of the UK currency. So far the intraday peak is just shy of $1.59, but it appears that above former December $1.5774 resistance, the upside for the cross should at least hit the 200-day moving average at $1.5953, a feature last seen in late October.
Gold:
From a $1,564 start to 2012, it is clear that now nearly $200 ahead, Gold is nearly keeping pace with the growth in the stock market. Massive injections of cash into the EU banking system by the ECB, and the Federal Reserve’s promise to keep its interest rates at ultra low levels for at least the next two years, have served to remind us that there is a massive liquidity injection and money printing programme at work as part of the general competitive devaluation of leading currencies. The technical position for Gold may look somewhat stretched after the sharp rise of the past month, but with all the near term moving averages rising, a test of November resistance at $1,802 looks almost imminent. At this stage only an end of day close back below the 10-day moving average at $1,704 would even begin to suggest any extended consolidation is due for this market
