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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 Week Ahead: Bob Diamond replaces Rupert Murdoch as public enemy number one
July 07 2012, 7:00am
This Week in the Markets
You could have bet and lost good money on the idea that the so called U.S. Fiscal Cliff, a time bomb set to go off within months, would eclipse the ongoing EU crisis.
But the spotlight has moved onto events at home, and without doubt many in the UK financial establishment and even the Government are probably still wishing that the aforementioned crises were still at the top of the list.
In fact, it may only be the rumoured U.S. Credit Rating downgrade that finally kills off the Libor story, and of course the one-month recovery in the stock market from an initial June bear trap.
In the week just gone, ex Barclays (LON:BARC) CEO Bob Diamond has replaced News Corp’s (NASDAQ:NWS) Rupert Murdoch as public enemy number one.
A cursory appraisal of the Libor scandal damage (without any official investigation) by the media seems to have established already that ordinary members of the public have lost their homes unnecessarily due to the manipulation of interest rates. However, the real reasons for the challenges faced by ordinary householders is that mortgage rates are still some 3% above the present Libor rate – a fact that seems to have gone wholly unnoticed.
Observers will no doubt be studying the Barclays share price over the next few sessions to establish whether at near to 165p, the stock has lost enough value to factor in the reputational damage Mr Diamond alluded to when he resigned at the start of this week.
As things stand though it is looking increasingly likely that the whole affair could turn into a giant can of worms for the Coalition regarding the aftermath of the Credit Crunch and the relationship between the Government and banking sector.
It may have been best for all concerned if the workings of Libor (and the alleged rigging) had remained as obscure as they were before July 2012 when apparently even Mr Diamond wasn’t privy to the behind-the-scenes machinations.
Elsewhere the rather more mundane economic realities of the UK economy remained downbeat, with the latest data on the key services sector showing it had fallen to an eight month low.
Even news that shop prices had fallen to a 30-month low had to be interpreted as bad given that the UK is in a deflationary recession that shows little sign of ending any time soon.
Just to complicate matters even further, former Bank of England Monetary Policy Committee member Charles Goodhart has suggested that QE should be stopped as it damages the economy. He is recommending private corporate bond buying as the way forward.
The Week Ahead
Key Companies Reporting: July 9th – 13th
Monday - Interims: Michael Page International (LON:MPI), RM (NYSE:RM.). Trading Announcement: Bovis Homes (LON:BVS).
Tuesday – Trading Announcement: Marks & Spencer (LON:MKS), ASOS (LON:ASC), Interserve (LON:IRV), SIG (lon:SHI).
Wednesday – Trading Announcement: Burberry (LON:BRBY), Barratt Developments (LON:BDEV), ICAP (LON:IAP), Hays (LON:HAS), JD Wetherspoon (LON:JDW).
Thursday– Finals: Supergroup (LON:SGP). Trading Announcement: Associated British Foods (LON:ABF), Computacenter (LON:CCC), Premier Oil (LON:PMO).
Friday– No Major Company Announcements Due.
A selection of results and trading announcements from FTSE100 and 250 companies are in prospect this week. Monday sees recruitment agency Michael Page International (LON:MPI) step up to the plate. This geographically diversified group has always been viewed as a proxy both to the strength of the world economy and the banking sector. Certainly, on a fundamental basis there has been a sinking feeling since the relatively upbeat March update where there was optimism over the group’s global investment plan despite the fall in pre-tax profits at the time. Since then both brokers Panmure Gordon and Credit Suisse have put red pens though the stock due to a lack of visibility in the Q1 update. Unless the group can deliver an exceptionally upbeat set of interims, a retest of 2012 share price support at sub 350p levels seems likely.
Luxury goods giant Burberry (LON:BRBY) provides a trading update on Wednesday following a stellar growth run and a 26% hike in annual profits announced in the finals in May. The challenge Burberry faces is to maintain this impressive rate of growth, and given that the main driver is the burgeoning China economy, the raft of economic data due from the nation this week will probably have the greatest impact on the price movement at the time of the announcement. Broker Nomura remains a fan though, reiterating its buy rating and 1,530p price target at the start of July
There has been something of a sinking fundamental feeling of late at IT services provider Computacenter (LON:CCC). The April Q1 announcement noted a squeeze on margins, which escalated to a profits warning in June in spite of the fact the supply chain business had been forecast to hit high single digit percentage growth. Since then the shares have fallen from over 440p towards 300p, and with Computacenter having to invest in order to maintain growth, the sellers look likely to hold the upper hand for now.
Major Economic Data: July 9th – 13th
Monday – No Significant Economic Data Due.
Tuesday – UK: May Industrial Production / Trade Balance.
Wednesday – Germany: June Harmonised Index of Consumer Prices. U.S. May Trade Balance, June FOMC Minutes.
Thursday – EU: May Industrial Production. U.S.: Weekly Jobless Claims.
Friday – U.S.: June Core / Producer Price Index, July University of Michigan Consumer Sentiment.
Friday 13th arguably provides the biggest number of the week - the University of Michigan Consumer Sentiment figure which is called to rise from 73.2 to 75, while Weekly jobless claims are expected to come in at 380,000. Also in the U.S. the Producer Prices Index is expected to deliver a 0.6% decline vs. a 1% fall last month. Even so, the FOMC Minutes for June could still steal the show.
Closer to home, Tuesday’s UK May Industrial Production data should provide a lead on whether the double dip recession is here to stay. In Europe the May Industrial Production number is also on tap – it was -0.8% in April.
Main Markets Outlook
FTSE100:
While the day-to-day trajectory for the FTSE 100 or indeed any other major market is never easy to call, the general pattern over the past few months has been relatively straightforward. The sell in May gave way to an initial June bear trap below 5,250 which has since led to a break of the key 200-day moving average now at 5,591.
It certainly doesn't feel as though the good times are back yet, but above the 200-day line – the traditional dividing line between bull and bear markets, while there is no weekly close below 5,591 it may not be too optimistic to suggest that the former May resistance zone through 5,800 could be hit before the end of July.
Sterling / Dollar:
The concerns reverberating around the City at the moment are that the Libor scandal will not only do irreversible damage to Barclays (LON:BARC) but also to the reputation of the City of London. This could of course have implications for the economy and in turn the value of Sterling, over and above Manchester United choosing to float in New York and not over here.
The key technical level for Sterling remains the $1.5602 March intraday low, with the price action in recent sessions rather unhelpfully yo-yoing either side of this. However, while the 200-day moving average now at $1.5746 caps the price of this market, any other concerns are arguably academic.
Gold:
Safe haven Gold has proved to be wholly unreliable for investors in 2012, with numerous false dawns catching Gold bulls out time and time again after the yellow metal backed off from record highs in September 2011. This may still be the case to a greater or lesser extent, but it would appear that over nine months later the yellow metal has finally found support above the $1,522 December high, as the latest EU rescue of Spain and Italy looks set to deliver inflation by the bucketload.
Added to this, talk of the U.S. heading off a fiscal cliff by the turn of the year should be enough to offset evidence that Indian buyers who drive the physical market are yet to return. From a technical perspective while there is no end of day close back below the 50-day moving average at $1,598, the initial upside for this market should be towards the all important 200-day moving average now at $1,660 – also the area of May resistance.
