Mid-summer momentum flag, Q2 reports mix, awaiting UK Banks - Accendo Markets Weekly Roundup - 26 Jul 2013

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Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients;

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This week looks like the point where July equity momentum may have started to flag. Having traded sideways 6550-6660 for a few weeks, looking like consolidating the sharp 11% 6000-6600 gains from end-June, we had expected this to serve as a build-up of energy for a possible break higher, although we did also caution that the break could also be lower. While the latter doesn’t sound great, remember that consolidation can also be via retracements, offering better entry points.

It may be that the pause needs to be longer in duration and wider in range. Maybe back to last week’s 6515 lows; still only 2% from recent highs. Is that enough? Thankfully for any renewed assault, the rising support trendlines we have just breached are still steep, so any creep higher shouldn’t encounter too much of a hurdle allowing for a revisit of recent highs 6660 and possibly even higher. Music to the ears of the bulls who are still eyeing a return to May highs of 6875. Note that a break below 6515 would be what the bears would like to see, July’s high being lower than May’s, breaking the pattern endangering the longer term rally from last June.

It still sounds like Bernanke will keep QE3 going for a while longer (the WSJ’s Fed-watcher concurred last night) with data still mixed and the Chairman having hedged himself so much that we see him doing nothing more than managing markets’ bullish expectations preferring to keep a lid of sorts on optimism within a low rate world and easy monetary policy addiction. The Fed meets next week, with a new statement to guide/confuse markets further. Any changes to language? Any hints as to taper timing? The BoE also meets for its rates and QE decision although no change is expected given the new governor Carney’s (and the MPC it would seem) adoption of forward guidance over more QE and accompanying statement last month.

Q2 results have continued to flood in and on the whole things on the whole mixed with 60% of FTSE100 companies so far beating/meeting expectations for sales and profits compared to a combined 50% in the Eurozone and 57%/73% in the US (sales/profits). Remember the UK banks have their turn next week after strong reports from both US and European peers. Note that results-day hi-lo trading ranges for the likes of LLOY, BARC and RBS have been 5-9% for Q1 and FY 2012 – the kind of volatility that short-term traders seek out.

The FTSE100 index’s biggest winners* this week: Publisher Pearson (PSON, +7.4%) benefited from slightly better than consensus results and news of its Mergermarkets business being put on the block. Miner Vedanta (VED, +4.6%) gained on a restart of an aluminium refinery, progress towards a merger of two Indian units, results next week, a weaker USD helping commodities and China saying 7% GDP would be the floor. Specialty drugmaker Shire (SHP, +3.7%) after results beat expectations. Mining giant Glencore (GLEN, +3.2%) gained on China GDP floor and weaker USD on calming of QE3 taper fears. Gold miner Randgold Resources (RRS, +2.8%) benefited from the buoyed gold price. *Prices intraday

The flagship index’s laggards*, oil driller Tullow Oil (TLW, -6.78%) suffered from a dry well update. InterConti Hotels (IHG, -6.3%) was dented by a broker downgrade following 16% gains from end-June. Chemicals name Croda (CRDA, -5.5%) results missed market expectations. GKN (GKN, -5.3%) weakened back on a combination price technicals and fears management won’t be able to raise cash for a US acquisition. Chip maker ARM Holdings (ARM, -4.7%) was impacted by a perceived threat from giant Intel and a sales warning from licensee Broadcom. *Prices intraday

Oil (WTI and Brent) like equities lost momentum having regained highs of $109, falling back below the trendline of rising support. Concerns over global growth, the effects from the alternative drilling method of ‘fracking’ allowing access to hard-to-get gas and oil, and a relative lessening of geo-political risk. Gold slowed up at its prior breakdown level of $1350, but in a defined $1315-50 rising channel. Weaker USD would normally help, but fundamental drivers (inflation, upheaval) to the upside are lacking.

As always, have a great weekend. Enjoy the good weather while you can; we could be in coats come September.

For any commentary/analyst opinion on anything CFD/Spread Bet/financial markets-related, please contact research@accendomarkets.com

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