This Week in the Markets:
The US economy has shrunk at its fastest rate since 2008, according to gross domestic product (GDP) figures published last Wednesday. Official data released in Washington showed that output as measured by gross domestic product fell at an annual rate of 2.9% in the first three months of 2014. Originally, the Department of Commerce had said that output rose by 0.1% at an annual rate in the quarter ending March before adjusting this to a 1% decline. The gap between the second and the third estimates was the largest on record.
At home, the Bank of England (BoE) has been accused by MPs of behaving like “an unreliable boyfriend”, giving mixed messages on when the first rise in interest rates is likely. The Bank's governor, Mark Carney, appeared to play down the need for an early rate rise when questioned by the House of Commons Treasury select committee last week, despite earlier leading markets to believe a hike was possible before the end of 2014. Andrew Tyrie, the committee’s chairman, said that since Carney arrived at the Bank almost a year ago, there had been “quite a lot of guidance, not all of it pointing in the same direction”.
In corporate news, UK biotech company Shire (LON:SHP) has fended off a takeover bid from US rival AbbVie saying that it aims to doubles sales by £10bn in seven years. According to the Guardian, the comments – made last Tuesday – echo promises made by AstraZeneca (LON:AZN) when it saw off an unsolicited approach from US group Pfizer earlier this year. Flemming Ørnskov, who has been running Shire since May 2013, also refused to answer questions about any other approaches that Shire – itself acquisition-hungry, having conducted six deals during his tenure – may have received, and stressed he was not against a takeover on any grounds.
UK banking giant Barclays (LON:BARC) hit the headlines for all the wrong reasons again on Wednesday evening. The New York State Attorney General filed charges relating to the investigation of LX Liquidity Cross - Barclays' SEC-registered Alternative Trading System that provides alternative liquidity to market participants. The UK bank has said it will respond to allegations in due course.
Carpet retailer, Carpetright (LON:CPR) reported a fall in annual profits of more than 50% last Tuesday, hit by net finance charges, a particularly weak market in the Netherlands and ongoing challenges across all its regions. Underlying pre-tax profits fell to £4.6m, from £9.7m a year earlier, pushing earnings per share to 4.7p from 9.6p. Underlying net finance charges were £0.6m higher at £2.3m. The figure was in line with its most recent guidance, which was significantly adjusted during the company's three profit warnings issued in the past nine months.
Key Companies Reporting June 30th – July 4th
Monday – Finals: Creightons (LON:CRL), Plastics Capital (LON:PLA), Redrow (LON:RDW). Interims: eServGlobal (LON:ESG).
Tuesday – Finals: Hayward Tyler Group (LON:HAYT). Interims: St Modwen Properties (LON:SMP).
Wednesday – Trading Statement: Carillion (LON:CLLN), Persimmon (LON:PSN), Tullow Oil (LON:TLW). Finals: Anite (LON:AIE), GB Group LON:(GBG).
Thursday – Finals: Greene King (LON:GNK), NCC Group LON:(NCC), Poundland Group Plc Ord 170p (LON:PLND).
Friday – Trading Statement: Caledonia Investments (LON:CLDN).
Corporate news is light this week. Of interest, UK house builder Persimmon (PSN) will be releasing its trading statement on Wednesday. The company reported an impressive set of results back in April, lifted by government initiatives like “Help to Buy” – total forward sales revenue increased 35% from 2013 to £1.87bn for 2014. The company said it continued to make progress with its so-called Capital Return Plan, announced in February 2012. Subject to shareholder approval at the AGM, the second payment of the Capital Return Plan of around £213m, or 70p per share, will be paid to shareholders on July 4th 2014. Shares have drifted down from March highs to around 1,250p, so an upbeat statement could well act as a catalyst to drive the stock higher.
Pubs, restaurant and hotels group Greene King (GNK) will be reporting its finals on Thursday. At the end of April, the company reported strong life-for-like (LFL) sales growth in Q4, boosted by occasions like Valentine’s Day, Mother’s Day and Easter. Total Retail LFL sales were up 4.8% in the last 16 weeks of the financial year to April 27th, bringing full-year LFL growth to 4.1%, ahead of the 3.75% expected by Shore Capital analysts. “Looking ahead, we see the UK's economic outlook improving. Throughout the downturn wage growth lagged inflation but this quarter has seen that change for the first time since the recession began, which bodes well for the future,” said Chief Executive Officer (CEO) Rooney Anand.
Major Economic Data June 30th – July 4th
Monday – UK: Net Lending to Individuals, M4 Money Supply, Mortgage Approval, Inflation Report Hearings. EU: M3 Money Supply, Private Loans, CPI Flash Estimate, Core CPI Flash Estimate, Italian Prelim CPI. US: Chicago PMI, Pending Home Sales.
Tuesday – UK: Manufacturing PMI. EU: Spanish Manufacturing PMI, Italian Manufacturing PMI, German Unemployment Change, Final Manufacturing PMI, Italian Monthly Unemployment Rate, Unemployment Rate. US: Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, IBD/TIPP Economic Optimism, ISM Manufacturing Prices.
Wednesday – UK: Construction PMI. EU: Spanish Unemployment Change, Final GDP, PPI. US: Challenger Job Cuts, ADP Non-Farm Employment Change, Factory Orders.
Thursday – UK: Services PMI. EU: Spanish Services PM, Italian Services PMI, Final Services PMI, Retail Sales, Minimum Bid Rate, ECB Press Conference. US: Trade Balance, Non-Farm Employment Change, Unemployment Claims, Unemployment Rate, Average Hourly Earnings, Final Services PMI, ISM Non-Manufacturing PMI.
Friday – EU: German Factory Orders, Retail PMI.
The US dominates the economic data schedule for this week, with Factory Orders figures on Wednesday, Unemployment Claims and Non-Farm Payrolls on Thursday.
Last week, the financial markets were surprised by the worse-than-expected GDP figures signalling a downturn in the US economy in the first three months of 2014. On Thursday the all-important non-farm payrolls data is released, and after May’s number missed slightly at 217,000, anything less than the forecast 202,000 jobs for June is likely to weigh negatively on the markets
In the UK, Mortgage Approvals, Inflation Report hearings and Manufacturing PMI data is scheduled for Tuesday.
FTSE 100:
The UK’s leading benchmark index took a turn for the worse last week due to poor US GDP figures and the Iraq crisis. The FTSE 100 dipped to the 200-day moving average at 6,700, a level not seen for two months. According to market analyst Chris Beauchamp, this move “could well bring out the dip buyers, especially those frustrated by the small size of the losses earlier in June.”
Technically, The FTSE 100 remains in consolidation mode, successfully testing the 200-day level at 6,700 on Thursday. This should mean that the next breakout of a 50 point range based towards 6,770 could be to the upside, even though there is a RSI resistance line to be broken at neutral 50. Cautious longs could wait on either RSI 50 breaking, or the top of the recent range at 6,830 before buying into this market again. However, sustained price action below 6,750 is seen as a seriously negative development.
Sterling/Dollar:
The US GDP figures sent the dollar to five week lows last Wednesday. Sterling also struggled as a result of indecision from the Bank of England over UK interest rates. “Carney did himself no favours at all. People feel he is flipping and flapping over rates,” said one London-based foreign exchange dealer. On the whole though, the outlook for sterling looks more positive in the long term compared to the other currencies like the dollar or the euro. Sterling was around 0.2% lower against the dollar last Wednesday. It fell to a one-week low against the dollar of $1.6952.
On a technical level, Actionforex.com is looking for a reversal signal as GBP/USD approaches long term fibonacci level of $1,7332.
Gold:
The precious metal fell back from two month highs, down $3.31 to $1,314.29 last Wednesday after physical buying dried up. An analyst said: “We will now have to see whether gold’s advance will re-accelerate going into the balance of the week,
especially now that the equity markets are looking a shade more wobbly just as geo-political tensions continue to simmer.” A physical dealer in Hong Kong said: “People are buying less gold lately, compared with when the price was below $1,300. After gold crossed $1,300, we saw short covering but after that, there's not much interest. We heard some investors may want to sell back at $1,325 or $1,330.”
On the technical front, Pete Southern of Gold & Oil News believes that Gold bulls have the edge following recent notable price surges in a multi-week upward trend on the daily chart. “The next upside potential target for the bulls, would be a price breakout and close above (or beyond) the April high of $1,331. This would be a significant psychological level.”