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Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients;
A big week for the markets with participants finally permitted to look away from the prospect of Fed tapering, if only briefly and for disturbing geopolitical and potentially military headlines regarding Syria, only to have to look back again just as quickly as US Q2 GDP was revised sharply higher. Economic recovery gathering pace? Should Non-Farm Payrolls (NFP) produce a big number next week I see it possibly forcing Bernanke to make a move next month to retain credibility. But I do wonder, after some weaker Jul and Aug data prints, whether the Fed now just says “Yes, data did continue to improve to end-June but since then cooled a bit, so we won’t move just yet”, prolonging the taper dance a while longer – in-line with our long-held expectation of a move more likely at year-end.
From a technical standpoint the FTSE 100 index remains in an August correction and downtrend from summer highs, with fails yesterday and today at the 6500 level leaving the month’s trendline of falling resistance untroubled. While there is some support around the 6400, the downtrend remains in control unless we see a break above 6500 and indeed 6550, with downside possible to 6200 July lows (-7.6% from summer highs). While calm has returned for now, bear in mind that a positive outcome on Syria (No intervention? Delay? Swift regime change?) could easily see a strong relief rally.
Data of the week included a big miss for US Durable Goods Orders and slightly weaker Personal Income and Spending which along with the US Q2 GDP revision adds to our taper delay theory above although Consumer Confidence edged up and Housing prints were mixed. In Europe, German IFO Surveys and Eurozone Sentiment showed improvements adding weight to the region’s recovery hopes, however, inflationary data remains benign and unemployment stubbornly strong keeping alive arguments for an ECB rate cut to boost the recovery. Japanese data continues to confound and questions remain over the effectiveness of Abenomics and impact of a proposed sales tax on the consumption-led recovery.
In the UK, the Housing market continues to benefit (a bit too much?) from low rates and consumer/business confidence and BoE Governor Carney again failed to convince markets that interest rates would stay low until late 2016 although he was finally given some help with USD strength (break above 6-week falling highs versus a basket of major peers on a combination of safehaven seeking, resignation about tapering and then the stronger GDP print) offsetting recent GBP resilience bringing Cable back down from its recent peak.
Big movers on the FTSE 100 this week include Petrofac (PFC, +10.2%) after H1 results surprised to the upside. Vodafone (VOD, +7.8%) broke out to 12yr highs on confirmation it was back in talks with its US partner about selling its share of their JV which could result in a huge windfall. Fresnillo (FRES, +6.8%) maintained its breakout above 4-month highs helped by safehaven seeking in Gold and Silver. G4S (GFS, +5.3%) benefited from news of a capital raising which shored up its balance sheet even if H1 results were little weak. BG Group (BG/; +4.5%) moved higher as the situation in the Middle East saw the price of oil spike to multi-month highs on the prospect of supply disruptions in the region.
At the other end of the index, Serco (SRP; -12.4%) lost the most ground on news of an investigation into performance overstatement on Prisoner Escort and Custody services which could jeopardise its future consideration for government contracts. British Airways owner International Consolidated Airways (IAG; -8.6%) suffered from worries on higher fuel costs. Antofagasta (ANTO; -6.6%) was held back by H1 results with peer copper miner Rio Tinto (RIO; -4.9%) suffering in tandem. Legal and general (LGEN, -5.7%) continued its correction as higher yields impact bond prices and investments.
As the summer comes to an end, officially rather than weather-wise thankfully, we still have to contend with fragile sentiment regarding the future of loose monetary policy. Add to this a second round of increasing unrest in the Middle East and German elections allowing a return to Eurozone toing and froing and we have enough ingredients for a volatile September. Before signing off, I note the historical trading adage “Sell in May and go away, come back on St Ledger’s Day (mid Sept)”, not being quote so helpful this year. Assuming a sale on 1 May, the index is pretty much flat although we’ve had some big moves in between (+6.8%, -12.7%, +11.9%, and -4.1%). There are still 2 weeks to go for the adage to be confirmed or dismissed, but the moves since May just go to show how much can happen in a few months and what opportunities exist for short-term trading versus long term investing. As I asked a few weeks back, who said summers were boring?
As always, enjoy your weekend.
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