Jul
29th
Market Wrap - 29th July
By Michael Hewson CMC Markets
European markets have retained their predominantly heavy tone today
as the failure of the Republicans to even agree amongst themselves
has increased the fears of a U.S. default next week.
This has weighed on markets today as has renewed fears about Spain's finances in the wake of Moody's putting Spain's Aa2 rating on notice for a downgrade. This has put upward pressure on 10 year bond yields as has the decision by Spanish PM Zapatero to call a general election for November, heightening the political risk of further austerity measures being carried out.
Banks have fallen across Europe, with Barclays (BARC), Lloyds (LLOY) and RBS (RBS) all lower.
Commodities stocks have also fallen back as investors remain firmly defensive, though there have been some silver linings today with Vedanta Resources (VED) and Fresnillo (FRES) both higher so it's not all doom and gloom.
Mobile phones group Vodafone (VOD) is the biggest gainer after it announced that it was going to be paying a special dividend of 4p a share next year after its U.S. associate Verizon resumed dividend payments. BT Group (BT.A) is also higher on a read across from Vodafone's rise in share price, as well as continued optimism from its results earlier this week.
BSkyB (BSY) also showed why News Corp wanted to take over full control by announcing an increase in profits to £1.4bn as well as announcing a share buyback and an increase in the dividend to appease shareholders in the wake of the recent News Corp tribulations.
U.S. markets continue to be spooked by the continued deadlock on Capitol Hill as politicians appear oblivious to the angst starting to be felt in financial markets. Earnings announcements continue to play second fiddle to the overshadowing macro political problems.
Pharmaceutical giant Merck profits for Q2 came in on expectations of $0.95c a share, while at the same time announcing job cuts of around 12%, as it seeks to make $4bn of savings, and is the biggest faller.
Oil giant Chevron Q2 earnings came in well above expectations of $3.57c at $3.85c on the back of higher oil prices.
Biotech giant Amgen Q2 earnings came in marginally ahead of expectations of $1.24c a share, with revenues at the top end of estimates.
Starbucks shares are expected to be in focus after posting better than expected Q3 earnings of $0.36c a share, after the bell last night.
If anyone was hoping for some slivers of optimism, U.S. Q2 GDP failed to provide it, coming in at 1.3%, well below expectations of 1.8%. Notwithstanding the poor Q2 number, Q1 was also revised down to 0.4%.
Chicago PMI and University of Michigan sentiment for July also all missed to the downside coming in at 58.8 and 63.7 respectively reinforcing perceptions that the current deadlock in Washington is weighing on sentiment, throughout the U.S.
The Euro has continued to remain under pressure this morning after Moody's put Spain on notice of downgrade of its Aa2 rating. It has continued to get battered particularly against the Swiss franc after Spanish PM unexpectedly called a general election for November, throwing a new uncertain political element into the mix with respect to the austerity measures being implemented in the Spanish economy.
The disappointing U.S. GDP numbers fuelled the rise in the Swiss franc and the yen as both continued to push higher with the Swiss continuing to make record highs against the U.S. dollar and the euro. The yen has also gained as it moves closer to the record highs seen in March this year.
Gold prices have surged higher once again hitting record highs once more after the dismal GDP numbers showed that all is far from well in the U.S. economy.
Silver prices have followed in lock step while crude oil prices have sunk back as growth fears in the U.S. economy weigh on sentiment as worries grow of a double-dip recession in the wake of this afternoon's disappointing economic data.
This has weighed on markets today as has renewed fears about Spain's finances in the wake of Moody's putting Spain's Aa2 rating on notice for a downgrade. This has put upward pressure on 10 year bond yields as has the decision by Spanish PM Zapatero to call a general election for November, heightening the political risk of further austerity measures being carried out.
Banks have fallen across Europe, with Barclays (BARC), Lloyds (LLOY) and RBS (RBS) all lower.
Commodities stocks have also fallen back as investors remain firmly defensive, though there have been some silver linings today with Vedanta Resources (VED) and Fresnillo (FRES) both higher so it's not all doom and gloom.
Mobile phones group Vodafone (VOD) is the biggest gainer after it announced that it was going to be paying a special dividend of 4p a share next year after its U.S. associate Verizon resumed dividend payments. BT Group (BT.A) is also higher on a read across from Vodafone's rise in share price, as well as continued optimism from its results earlier this week.
BSkyB (BSY) also showed why News Corp wanted to take over full control by announcing an increase in profits to £1.4bn as well as announcing a share buyback and an increase in the dividend to appease shareholders in the wake of the recent News Corp tribulations.
U.S. markets continue to be spooked by the continued deadlock on Capitol Hill as politicians appear oblivious to the angst starting to be felt in financial markets. Earnings announcements continue to play second fiddle to the overshadowing macro political problems.
Pharmaceutical giant Merck profits for Q2 came in on expectations of $0.95c a share, while at the same time announcing job cuts of around 12%, as it seeks to make $4bn of savings, and is the biggest faller.
Oil giant Chevron Q2 earnings came in well above expectations of $3.57c at $3.85c on the back of higher oil prices.
Biotech giant Amgen Q2 earnings came in marginally ahead of expectations of $1.24c a share, with revenues at the top end of estimates.
Starbucks shares are expected to be in focus after posting better than expected Q3 earnings of $0.36c a share, after the bell last night.
If anyone was hoping for some slivers of optimism, U.S. Q2 GDP failed to provide it, coming in at 1.3%, well below expectations of 1.8%. Notwithstanding the poor Q2 number, Q1 was also revised down to 0.4%.
Chicago PMI and University of Michigan sentiment for July also all missed to the downside coming in at 58.8 and 63.7 respectively reinforcing perceptions that the current deadlock in Washington is weighing on sentiment, throughout the U.S.
The Euro has continued to remain under pressure this morning after Moody's put Spain on notice of downgrade of its Aa2 rating. It has continued to get battered particularly against the Swiss franc after Spanish PM unexpectedly called a general election for November, throwing a new uncertain political element into the mix with respect to the austerity measures being implemented in the Spanish economy.
The disappointing U.S. GDP numbers fuelled the rise in the Swiss franc and the yen as both continued to push higher with the Swiss continuing to make record highs against the U.S. dollar and the euro. The yen has also gained as it moves closer to the record highs seen in March this year.
Gold prices have surged higher once again hitting record highs once more after the dismal GDP numbers showed that all is far from well in the U.S. economy.
Silver prices have followed in lock step while crude oil prices have sunk back as growth fears in the U.S. economy weigh on sentiment as worries grow of a double-dip recession in the wake of this afternoon's disappointing economic data.
Jul
28th
Market Wrap - 28th July
By Michael Hewson CMC Markets
Despite a number of positive trading updates European markets
remain weighed down by continuing worries about fiscal
dislocations in both Europe and the U.S. With markets
predominantly in risk off mode it is the mining and oil and gas
sectors that are bearing the brunt of the sell-off, in terms of
sector losses.
The biggest faller though is catering group Compass
(CPI) despite revenues that beat expectations. Banking
stocks have managed to post some gains in the afternoon session
despite disappointing earnings from its European peers, with
Lloyds (LLOY), Barclays (BARC) and RBS
(RBS) all higher, reversing some of this weeks earlier
falls.
Energy giant Centrica (CNA) was lower on the
back of a lower than expected profit for the first half of the
year. The company blamed tighter margins and unseasonably warmer
weather. Royal Dutch Shell (RDSA) on the other
hand posted a 77% rise in earnings for the latest quarter, but
cautioned on the outlook for the remainder of the year.
BAE Systems (BA.) is near the stop of the leader
board despite announcing a worse than expected drop in first half
profit. Despite this the company increased its dividend and
announced a £500 share buyback.
BT Group (BT.A) continued its rise back to grace
with results that were slightly ahead of city estimates on the
back of rising broadband sales.
Pharmaceuticals are also performing well after Shire
(SHP) posted its latest earnings figures which came in
better than expected.
U.S. markets have had a slightly firmer tone today despite
earnings announcements continuing to come in mixed. The state of
the economy and the on-going events in Washington continue to
weigh on sentiment, though we did get some positive economic news
with weekly jobless claims coming in below 400k
for the first time since April at 398k.
Pending home sales for June also surprised, rising 2.4%, above
expectations of a drop of 2%. In earnings news Dow component
Du Pont posted a 5% rise in quarterly profits,
coming in at $1.29c a share, below expectations of $1.34c a share
but the company raised its guidance for 2011.
Oil giant Exxon Mobil also posted disappointing
Q2 results as the latest figures missed expectations by some
distance, coming in at $2.18c a share, well short of the $2.33c a
share expected.
CME Group announced an 8.5% rise in profits for
Q2 with earnings coming in well above expectations of $4.17c a
share at $4.38c.
The Euro has been the worst performer today,
closely followed by the Danish Krone, as higher
borrowing costs in an Italian auction weighed on the currency
this morning. Rumours that the Italian finance
minister had resigned also weighed on sentiment.
Italian borrowing costs increased again today at an auction of
2014/2015/2018 and 2021 bonds. The yield on the 10 year hit its
highest levels since 2000 in signs that markets continue to have
doubts about the ability of Italy not to follow in the footsteps
of Spain. As it is Italian 10 year bond yields
are slowly catching up with Spain's. A week ago they were 40
points apart, now they are only 20. Eurozone economic sentiment
in July fell to 103.2 from previous 105.4, reinforcing the weaker
data theme across Europe at this time.
The Danish krone has also been smacked after S&P announced
that a number of Danish banks could default.
The pound has managed to hold up well despite
disappointing CBI sales data for July as it
continues to remain relatively insulated from the spill over from
Europe and the U.S.
The Swiss franc once more posted a new all-time
high against the U.S. dollar, while the
Canadian dollar is the best performer on the
day.
Gold has slid back from its record highs
yesterday, but continues to remain fairly well underpinned on the
back of the problems in U.S. and Europe. There is some evidence
that we could well see further losses in the short term if the
yellow metal is able to break below the $1,600 level.
Silver prices are also looking a touch heavy and
could also slip back a little as the U.S. dollar pulls back some
ground.
Oil prices have slipped back but have bounced
back from their lows after the better than expected weekly
jobless claims and pending homes sales out of the U.S.
Jul
28th
Pre Market and FX Commentary - 28th July
By Michael Hewson CMC Markets
If concerns about the U.S. debt ceiling negotiations weren’t bad
enough investors also got a taste of a deteriorating economic
outlook after yesterday’s hugely disappointing durable
goods numbers. Orders for June slipped back 2.1%, well
below expectations of a rise of 0.3% in signs that the
uncertainty surrounding the U.S.'s fiscal situation is seeing a
paring back in big ticket items. If that wasn’t bad enough the
Fed’s Beige Book of industrial conditions for
July showed that growth in many more regions was starting to slow
in the face of a weak housing and employment market.
Politicians do appear to be making some progress, however a major
sticking point would appear to be the Republican insistence of a
second vote on a debt ceiling rise before the 2012 election.
Given recent comments by ratings agency S&P this may not be
wisest course of action by U.S. leaders and could well
precipitate a ratings downgrade in the coming months.
Hopes that the Eurozone debt crisis had receded into the
background for a month or two soon got laid to rest yesterday,
when Moody’s downgraded Cyprus due to its banks
exposure to Greek banks debt. This was followed soon after by
S&P downgrading Greece again with a negative outlook, as a
result of the events at the recent EU summit.
The agency went on to say that Greece’s debt may well have to be
restructured again, something that won’t have gone down well with
Germany, given finance minister Schauble’s comments earlier in
the day. He stated that the Greek restructuring agreed last week
would be a one-off and that the EFSF would not have carte blanche
to buy up debt on the secondary market and would not be given a
blank cheque to do so. With economic data in Europe continuing to
deteriorate there is a slow realisation that the current €440bn
in the EFSF will be nowhere near enough to manage multiple
bail-outs let alone a contagion to a stagnating Spain and Italy.
With parliamentary approvals in some EU countries not set to be
finalised until October, more delay in passing last week’s
measures maybe time the euro can ill afford. In data out later
today German unemployment for July is expected
to shrink by 15k, though that may be as good as the good news
gets with euro zone consumer confidence for July expected to
remain at -11.4 reflecting the lack of confidence in parts of
Europe as growth slows down and in some places starts to
contract.
In the UK the pound has managed to find a
measure of support from the problems in the U.S. and Europe even
though growth remains anaemic. CBI sales data
for July is expected to improve to +2 for July from a negative
reading in June.
In the U.S. after yesterday’s dire durable goods numbers
weekly jobless claims are set to be in focus
once again with hopes that the numbers will continue to come down
after last weeks 418k, with expectations of 415k.
EURUSD – the failure to re-test this months high
at 1.4576 provoked a sharp sell off yesterday, however while
above the 55 day and 100 day MA around the 1.4310/20 area,
momentum remains positive. Only a move beyond 1.4576 targets
1.4700, followed by 1.4875. The euro should find support around
the 55 day and 100 day MA both at 1.4305/10. Only a move back and
close below 1.4300 would reopen a test of the downside, back
towards 1.4150. The daily candlesticks have posted a daily
reversal however so we could well see the market break lower.
GBPUSD – cable’s break out to 1.6440 has
prompted a pullback which could well see the pound pull back
towards the 1.6260 area without undermining the previously
positive momentum currently behind its recent gains. The 1.6260
area was the 50% retracement of the 1.6745/1.5780 down move. If
the pound slips below 1.6250/60 then we could well get a move
back towards 1.6180/1.6200 which acted as strong resistance for
most of last week. Only move below 1.6180 retargets the 1.6080
pivot.
EURGBP – the euro continues to trade in its
broad range but we did get the break lower after pushing below
the 0.8820 support area, before finding support around the 0.8770
area. A sustained break below the 0.8770 area opens up the lows
this month around 0.8705. Pullbacks above 0.8800 should be
confined to the 0.8820/30 area and the 55 day MA, while behind
that the main resistance remains at 0.8895.
USDJPY – the dollar continues home in on the all
time lows at 76.25, putting in another new low at 77.55 This
week’s brief spike above 78.50/60 remains a key obstacle for a
move and return towards the May lows of 79.50/60, which had acted
as fairly strong support after the co-ordinated intervention
earlier this year. It should be noted that the threat of further
intervention remains very likely and as such; it could well be
susceptible to sharp short squeezes of the type we saw earlier
this week.
Jul
27th
Market Wrap - 27th July
By Michael Hewson CMC Markets
European markets continue to feel the weight of expectations over
the on-going problems in the U.S. as well as concerns about the
recent disappointing results in the European banking
sector.
Following on from disappointing results from UBS and Deutsche
Bank, Spanish bank Santander (BNC) reported a
21% drop in first half profit with a significant rise in bad
loans, sending Lloyds (LLOY), Barclays (BARC)
and Royal Bank of Scotland (RBS) to the bottom
of the pile. Goldman Sachs added to the overall negative mood by
downgrading the banking sector.
Biggest loser of the day is utility company Scottish and
Southern Energy (SSE) as it goes ex dividend, but there
could well be some apprehension on top of that after the
regulator Ofgem fined British Gas £2.5m for mishandling customer
complaints. Ofgem is still investigating Scottish and Southern
for a similar issue.
Risers today include ITV (ITV) after beating
expectations for revenue and earnings for the first half of this
year. A positive reiteration from Peel Hunt also boosted the
shares.
Software group Autonomy (AU.) is leading the
gainers after reporting record revenues of $256m for Q2.
Accountancy firm Sage Group (SGE) is also higher
after stating it expects full year results in line with
expectations.
U.S. markets opened lower today and carried on going as the
negative overhang of the political wrangling in Washington
continues to sap risk appetite.
Another factor weighing on risk appetite this afternoon was a big
miss on U.S. durable goods orders for June
slipping back 2.1%, well below expectations of a rise of 0.3% in
signs that the uncertainty surrounding the U.S.'s fiscal
situation is seeing a paring back in big ticket items.
Earnings data from Dow Chemical did bring some
positive news reporting better than expected earnings of $0.85c a
share, above expectations of $0.79c a share and well above the
previous quarter.
Other earnings announcements include aircraft maker
Boeing, who blew out expectations of Q2 numbers
of $0.97c a share, coming in at $1.25c a share, in the process
being one of the few Dow gainers so far today.
Credit card company Visa is expected to announce
Q3 earnings of $1.23c a share after the bell.
The single currency has found upside a little more difficult to
sustain today after German finance minister Schauble stated that
the EFSF would not have carte blanche to buy up debt on the
secondary market and would not be given a blank cheque to do so.
Spanish bank Santander’s rise in loan impairments also spooked
investors sending Spanish 10 year yields back above 6%. Further
comments from ratings agency S&P about a second Greek debt
haircut has also weighed on sentiment.
The pound has been largely unmoved today despite
a disappointing CBI total orders survey for July, falling by -10
from expectations of -3, and raising fears that Q3 could see
further weakness in growth.
The Swiss franc and Australian
dollar continue to make gains hitting new highs as the
U.S. dollar continues to wilt under the pressure
of events in Washington. As a result the dollar continues to sink
against the yen hitting its lowest levels since mid-March at
77.55, increasing concerns about Bank of Japan intervention in
the currency markets as it gets closer to its all-time lows at
76.25.
Gold continues to push higher on the back of the
weaker U.S. dollar and on the back of weak economic data, once
again making new all-time highs.
Silver prices have also pushed higher
consolidating above the $40 level.
Crude oil prices remain constrained by fears of
tighter monetary policy in emerging nations as well as
disappointing economic data ahead of inventory data due out this
afternoon. Analysts had expected inventories for the week to
decrease by around 2m barrels, but in fact they showed a surprise
increase as demand over the past week slowed down
substantially.
Copper prices have also pulled back this
afternoon in the wake of the sharp drop in U.S. durable goods
orders.
Jul
27th
UK GDP number could reignite QE debate
By Michael Hewson CMC Markets
Yesterday’s preliminary release of Q2 GDP numbers will do nothing
to weaken the hands of the doves after numbers showed that the UK
economy grew by 0.2% in the second quarter.
Comments by the ONS that growth could have been as high as 0.7%
but for the extended Easter break and the after effects of the
Japanese earthquake could be construed as a positive, that while
growth has been slow, the potential is there.
The numbers don’t make great reading for the Bank of England and
will probably intensify the debate between the hawks and the
doves on the monetary policy committee about the likelihood of
further quantitative easing.
MPC member Adam Posen has been strongly consistent in his view
that further QE is required to boost growth in the UK economy and
these figures will be unlikely to alter his view point on this.
He certainly has support for this view from ex MPC member David
Blanchflower who has been hypercritical of the MPC and the
government in recently reported comments.
Posen may well find some sympathy for this view from Governor
Mervyn King; however he is still likely to be in the minority, in
the same way that Martin Weale and Spencer Dale are in the
minority in calling for a rate hike.
The fact is there is a lot of debate as to how effective further
stimulus will be given the failure of just such measures in the
US to address the same sorts of problems we have here, namely an
indebted consumer and concerns about unemployment.
This household indebtedness, as well as rising prices remains a
key factor driving UK GDP, given that the consumer makes up 70%
of the GDP number, and any measures like VAT cuts aren’t likely
to find their way into the economy, but be used for paying down
debt.
With growth in Europe also slowing down as well as across the
globe, politicians may have to get used to the fact that sub-par
growth will be the new normal for some time to come.
One thing is certain; the prospects of further rate hikes appear
to have receded further into 2012 with these figures.
They have also spiked the guns for at least another quarter of
those who would call for a loosening of the austerity measures in
the face of weak growth.
The pound has remained fairly well supported, especially against
the dollar, breaking above the 1.6380 level, which is the 61.8%
retracement of the down move from the highs at 1.6745 to the
recent 1.5780 lows.
Having made progress above 1.6380 we could well see further gains
towards the 1.6520 area, as long as we stay above the 1.6260
level which has been the lows for the past few days.
Against the euro the picture is slightly more mixed given
comments by the ECB’s Noyer who stated that the bank remained in
strong vigilance mode, code for the possibility of higher rates,
which could pressure the pound in the short term.
Resistance remains at 0.8895 initially level initially, 50%
retracement level, and then the 0.8940 area, which is the 61.8%
retracement of the down move from 0.9085 to the 0.8705 lows this
week
Jul
27th
Pre Market and FX Commentary - 27th July
By Michael Hewson CMC Markets
For the last 18 months it has been European leaders that have
drawn the ire of markets and voters across Europe for their
handling of the sovereign debt crisis that has been roiling
financial markets. It would seem that U.S. politicians have been
taking lessons from their European counterparts if the handling
of the debt ceiling negotiations is anything to go by, as they
continue to play party politics with the credit rating of U.S.
economy.
For the moment markets aren’t showing too much signs of distress,
apart from a slide in the U.S. dollar, and limited upside in
equity markets. That could quickly change if politicians show no
signs of putting financial stability before their own egos and
the politics.
Elsewhere inflationary pressures continue to dominate sentiment,
not only in Europe but in Asia as well after yesterday’s surprise
50 basis point rate hike by the Reserve Bank of
India in response to rising inflationary pressures in
the Indian economy.
In Australia the Australian dollar hit record highs against the
dollar after CPI numbers came in much hotter than expected rising
to an annualised 3.6%, and putting rate rises back on the table
after last weeks fairly dovish note from
Westpac.
In Europe inflation seems to be fairly well contained despite the
continued hawkish rhetoric from European Central Bank officials.
Comments from ECB member Noyer saw the euro gain
ground yesterday, when he claimed that the ECB remained in a
state of "strong alertness", and not "strong vigilance" as had
been previously reported. The poor choice or interpretation of
these words was illustrated during the day when Spanish
and Italian T-bill auctions showed higher yields, with
Spanish yields hitting three year highs.
Today’s German CPI figures for July are likely
to show that inflation remains fairly benign at 2.4%, unchanged
from the previous two months, while import prices are expected to
have declined by 0.2% for June.
In the UK the pound is likely to remain in the spotlight after a
collective sigh of relief from the markets when Q2 GDP numbers
came in as expected at 0.2% with a strong showing from the
services sector.
While these figures have raised concerns in some parts about a
slide back into contraction, the Chancellor’s room for manoeuvre
with respect to easing policy is virtually zero, when one looks
at the problems in Europe and the U.S. If he wants to keep the
confidence of the bond markets and borrowing costs low he doesn’t
have much of a choice either.
Today’s CBI industrial orders for July are set
to keep the focus on this low growth story with orders expected
to slip into negative territory to -3 from Junes +1. A
negative number would raise concerns of a poor start to the third
quarter and a contraction in the economy.
U.S. durable goods for June are also expected a
continued slowdown in the U.S. economy with a rise of 0.3%, well
down on May’s 1.9% rise.
EURUSD – the likelihood for further gains in the
single currency towards the July high at 1.4576 remains while
above the 55 day and 100 day MA around the 1.4300/10 area. The
move in Asia beyond trend line resistance at 1.4450/60 brings the
1.4500 level into play. Beyond 1.4576 targets 1.4700, followed by
1.4875. The euro should find support around the 55 day and 100
day MA both at 1.4305/10. Only a move back and close below 1.4300
would reopen a test of the downside, back towards 1.4150.
GBPUSD – yesterday’s move above the 61.8%
retracement level of the down move from the highs at 1.6745 to
the recent 1.5780 lows at 1.6380 has the potential to target the
May highs above 1.6500. Any pullbacks should find support above
the 1.6260 area which was the 50% retracement of the same move.
There is also interim support around the 1.6360 area. If the
pound slips below 1.6250/60 then we could well get a move back
towards 1.6180/1.6200 which acted as strong resistance for most
of last week. Only move below 1.6180 retargets the 1.6080 pivot.
EURGBP – yesterday’s break in Asia above the
0.8850 level has so far stopped short of the 0.8895 level which
is the 50% retracement level of the down move from the 0.9085 to
the lows last week at 0.8705. A break here would then target the
0.8940 area, which is the 61.8% retracement of same move.
Intraday trend line support from the 0.8705 lows last week can be
found around 0.8820 level. A break below 0.8820 retargets the
0.8770 area.
USDJPY – the dollar continues to lose ground
against the Japanese yen, putting in new lows every day as it
closes in on the all time lows at 76.25. Yesterday’s brief spike
to 78.65 was swiftly reversed and this remains a key obstacle to
a return towards the May lows of 79.50/60, which had acted as
fairly strong support after the co-ordinated intervention earlier
this year. Yet another new low at 77.75 keeps the bias firmly to
the downside as the all time lows below 76.50 remain a key
target, however with the threat of intervention hanging over the
market; it could well be susceptible to sharp short squeezes of
the type we saw earlier this week.
Jul
26th
Pre Market and FX Commentary - 26th July
By Michael Hewson CMC Markets
Despite the political wrangling taking place in the U.S. at the
moment it is the UK that will take centre stage this morning with
the release of preliminary Q2 GDP numbers.
Some economists fear that the figures could show that the economy
has slipped back into contraction territory. Expectations are for
a rise of 0.2%, down from Q1’s 0.5% rise, due to concerns that
the UK consumer is starting to struggle against the competing
demands of paying the bills, rising prices, and the discretionary
spending which is required to boost the UK economy.
The fact is given the parlous state of UK household finances, and
the fact that the UK economy is 70% consumer driven, low GDP
growth is likely to be the new normal for some time to come,
until the household debt of the consumer is pared down to more
manageable levels.
A poor number will also increase the political pressure on the UK
Chancellor to loosen his current spending plans, with all the
inherent risks that would bring in the bond markets to the
current low borrowing costs.
With the current focus the market has on debt the stakes could
not be higher given the calls from some parts of the political
debate for a plan B, or a relaxation of the fiscal reins, in
order to help boost growth.
In the U.S. the political wrangling over the raising of the
debt ceiling has continued in the last 24 hours
with both parties putting forward competing plans to raise the
debt ceiling, as well as continuing the political blame game.
The U.S. dollar plunged in Asia after President
Obama announced that the parties were as far away as ever on a
deal as markets woke up to the fact that the U.S. could well be
sleepwalking its way into a default.
Republican Boehner’s two step proposes a short
term rise in the ceiling matched by spending cuts over a ten year
period, tied to a plan to cut spending further down the line.
This plan would involve another debate early next year for a
further rise to the debt ceiling.
On the other side of the political divide Senate leader
Democrat Harry Reid proposes a much longer term fiscal
plan to cut $2.7 trillion in spending over the next 10 years in
order to give President Obama the additional borrowing authority
he seeks, enough to get through the 2012 elections.
Today’s U.S. consumer confidence figures for July will be a key
barometer of how much damage has been done by the recent
uncertainty caused by this political wrangling, with expectations
of a fall back to 56, from the previous 58.5.
In amongst all this uncertainty the Swiss franc
and gold have continued to hit record highs
against the U.S. dollar as investor’s hedge against the
probability of a credit rating downgrade in the coming months as
well as a possible default.
EURUSD – the risk for further gains in the
single currency towards the July high at 1.4576 remain while
above the 55 day and 100 day MA around the 1.4300/10 area. The
move in Asia beyond trend line resistance at 1.4450/60, brings
the 1.4500 level into play. The euro should find support around
the 55 day and 100 day MA both at 1.4305/10. Only a move back and
close below 1.4300 would reopen a test of the downside, back
towards 1.4150.
GBPUSD – the pound continues to hold above the
1.6260 area which was the 50% retracement of the down move from
the highs at 1.6745 to the recent 1.5780 lows. Momentum should
continue to remain positive while above here for a move towards
1.6380, which is the 61.8% retracement of the same move. A move
above 1.6380 targets 1.6520. If the pound slips below 1.6250/60
then we could well get a move back towards 1.6180/1.6200 which
acted as strong resistance for most of last week. Only move below
1.6180 retargets the 1.6080 pivot.
EURGBP – the break in Asia above the highs at
0.8850 now looks set to target a move towards the 0.8895
initially level initially, 50% retracement level, and then the
0.8940 area, which is the 61.8% retracement of the down move from
0.9085 to the 0.8705 lows this week. Intraday trend line support
from the 0.8705 lows last week can be found around 0.8820 level.
USDJPY – while below the main resistance at the
May lows of 79.50/60 the bias remains for further declines. Yet
another new low at 77.92 keeps the bias firmly to the downside
after breaking below the lows earlier this month at 78.50. The
all time lows below 76.50 remain a key target, however with the
threat of intervention hanging over the market; it could well be
susceptible to sharp short squeezes.
Jul
25th
Market Wrap - 25th July
By Michael Hewson CMC Markets
Protracted debt ceiling discussions in the U.S. and
sovereign debt concerns in Europe have weighed
on European markets today, with financials bearing the brunt of
the falls. Continued divisions between Republicans and
Democrats have increased market fears that an agreement
on raising the debt ceiling is as far away as ever.
Moody's decision to downgrade Greece once more has also weighed
on financials this morning with Barclays (BARC), Lloyds
(LLOY) and RBS (RBS) leading the
fallers in the FTSE100.
Despite this the DAX and the FTSE100 have remained fairly
resilient with precious metals miner Fresnillo
(FRES) leading the gainers in the FTSE on the back of a
surge in precious metals prices, while defensive pharmaceutical
stocks are also benefitting from safe haven capital
inflows.
Broker comment has had a significant effect on one particular
share in the retail sector with luxury retailer Burberry
(BRBY) making gains after UBS hiked its price target for
the shares. The rest of the retail sector continues to be weighed
down by concerns about the health of the consumer ahead of
tomorrow's preliminary Q2 GDP announcement. Figures released by
Markit show that household finances continue to
remain squeezed, hitting their lowest levels since the record low
in March 2009, has seen shares in retail stocks slide back.
U.S. markets opened lower today as U.S. politicians continue to
try and reach a consensus for raising the debt ceiling as well as
agreeing a deficit reduction program. With no economic data
of note out today the main focus will remain on earnings as well
as news flow out of Washington. Texas
Instruments is due to report Q2 earnings of $0.53c a
share down from $0.62c a share, after the bell later today.
In corporate news Dow Chemical has announced a
$20bn joint venture with the Saudi Arabian Oil Company to build a
chemicals complex in Saudi Arabia.
Pepsico shares have also slipped back after
being removed from Goldman Sachs "conviction buy" list.
Blackberry owner Research in Motion has continued its recent torrid time announcing the loss of 2,000 jobs, in an attempt to cuts its costs as the shares trade at four year lows.
Financials have led the sector decliners with Bank of America and JP Morgan leading the way.
The single currency has remained somewhat becalmed despite the
weakness in the U.S. dollar over the debt
ceiling uncertainty amidst fears about the likelihood of a US
credit ratings downgrade.
Upside in the euro has been limited after Greece downgraded by Moody's another three notches saying that a default was now 100% inevitable. With all this uncertainty the Swiss franc has gone on a further tear being the best gainer of the day, up over 1.5% on the day hitting new record highs against the dollar.
The yen has also gained increasing the pressure on Japanese exporters as the currency looks to return below pre intervention levels earlier this year. The pound has also been somewhat side-lined ahead of tomorrow's Q2 preliminary GDP numbers, with markets concerned that they could well be much closer to flat lining than previously thought.
Upside in the euro has been limited after Greece downgraded by Moody's another three notches saying that a default was now 100% inevitable. With all this uncertainty the Swiss franc has gone on a further tear being the best gainer of the day, up over 1.5% on the day hitting new record highs against the dollar.
The yen has also gained increasing the pressure on Japanese exporters as the currency looks to return below pre intervention levels earlier this year. The pound has also been somewhat side-lined ahead of tomorrow's Q2 preliminary GDP numbers, with markets concerned that they could well be much closer to flat lining than previously thought.
Gold prices have once again benefitted from
political uncertainty, only this time it's concerns about a
possible US default, and downgrade though we did get a reminder
that the European sovereign debt crisis hasn't gone away either
after Moody's downgraded Greece once again in the wake of last
week's EU proposals to bail them out.
Silver has ridden the move higher in precious metals pushing above the $40 mark, but still underperforming gold.
Silver has ridden the move higher in precious metals pushing above the $40 mark, but still underperforming gold.
Crude oil prices have slipped back on both US
and Brent measures on the back of risk aversion as have copper
prices as uncertainty grows about the US's ability to pay its
long term debts.
Copper's declines have been mitigated somewhat by tight supply concerns due to a strike at the world's biggest copper mine in Chile.
Copper's declines have been mitigated somewhat by tight supply concerns due to a strike at the world's biggest copper mine in Chile.
Jul
25th
Pre Market and FX Commentary - 25th July
By Michael Hewson CMC Markets
With a fiscal crisis in Europe temporarily postponed the focus of
the markets has now shifted towards the U.S. and the continued
wrangling between Democrat and Republican politicians with
respect to raising the debt ceiling, as well as agreeing a budget
that will prevent a potentially damaging ratings downgrade from
the credit ratings agencies.
The differences between the two parties remain political with
Democrats calling for a balanced approach between spending cuts
and tax rises, while the Republican side remain ideologically
opposed to any forms of tax rises in agreeing a new budget plan.
The Republicans look set to back a two step plan with respect to
the debt ceiling with a proposal to agree a short term rise in
the ceiling matched by spending cuts over a ten year period, tied
to a plan to cut spending further down the line.
Up until now the markets have given U.S. politicians the benefit
of the doubt with respect to passing a package, taking the view
that despite all the posturing neither side would be stupid
enough to risk a run on U.S. treasuries, as well as the
likelihood of a damaging default. Treasuries have so far been
largely immune from the turbulence in financial markets as a
result of the turmoil in Europe. As the 2nd August deadline looms
ever closer without any agreement, this could well change and
push yields higher.
In Europe the fall-out in Germany has started over last week’s
new bailout package for Greece with a firestorm of criticism
coming Angela Merkel’s way in her apparent cave in over changes
to the EFSF. Her old economic adviser and now new head of the
Bundesbank Jens Weidmann is one of many critics
who accuse her of taking risks with Germany’s fiscal sovereignty.
With any changes to the EFSF needing parliamentary approval last
weeks Brussels agreement looks as if it could well have been the
easy bit as the changes start to be debated in EU member
parliaments. In response to last Thursday’s events ratings agency
Moody’s this morning downgraded Greece, this time to “Ca” with a
developing outlook, citing the likelihood that private creditors
will incur substantial economic losses on their holdings of
government debt.
As a result gold prices have surged in Asia
hitting new record highs as investors seek a haven away from
fears of a possible default and an almost certain US credit
ratings downgrade, if events continue in their current direction.
In the UK house prices fell for a third month in
July and are likely to continue on their recent downward trend,
Hometrack says.
EURUSD – having broken above both the 55 day and
100 day MA in quick succession last week the risk remains for
further gains towards the July high at 1.4576. The euro could
well find resistance on the way here at 1.4450/60, which is trend
line resistance from the 1.4940 highs. This could provoke a test
back towards the breakout level at 1.4300. The euro should now
find support around the 55 day and 100 day MA both at 1.4305/10.
Only a move back and close below 1.4300 would reopen a test of
the downside, back towards 1.4150.
GBPUSD – last weeks break above the 1.6260 area
which was the 50% retracement of the down move from the highs at
1.6745 to the recent 1.5780 lows, the momentum remains positive
for a move towards 1.6380 which is the 61.8% retracement of the
same move. A move above 1.6380 targets 1.6520. If the pound slips
below 1.6250/60 then we could well get a move back towards
1.6180/1.6200 which acted as strong resistance for most of last
week. Only move below 1.6180 retargets the 1.6080 pivot.
EURGBP – the single currency continues to find
the 0.8835/50 area a difficult nut to crack. While it does so the
likelihood of more range trading appears likely until such time
as we either break above the 55 day MA, or post a daily break
below trend line support at 0.8760. Above the highs at 0.8850
could well target a move towards the 0.8895 initially and then
the 0.8940 area, which is the 61.8% retracement of the down move
from 0.9085 to the 0.8705 lows this week.
USDJPY – while below the main resistance at the
May lows of 79.50/60 the boas remains for further declines.
Another new low in early Asia trading at 78.15 keeps the bias
firmly to the downside after breaking below the lows earlier this
at 78.50. The all time lows below 76.50 remain a key target,
however with the threat of intervention hanging over the market;
it could well be susceptible to sharp short squeezes.
Jul
22nd
Market Wrap - 22nd July
By Michael Hewson CMC Markets
European markets initially romped ahead this morning, continuing
their positive theme from yesterday as investors breathed a
collective sigh of relief on the back of yesterday’s events in
Brussels.
As the day has progressed an element of reality, or a post
euphoria hangover, has set in as the detail of the bailout plan
is digested, and attention turns to the problems the other side
of the Atlantic and the deadlock between U.S. politicians over
the raising of the debt ceiling.
Banks after being initially positive have sunk back from their
intraday highs, with only Royal Bank of Scotland
(RBS) in positive territory, while Barclays
(BARC) after being over 6% up at one stage, has
given up all of its gains and is now in negative territory along
with the rest of the banks.
Mining stocks are just about clinging onto positive territory
trading higher despite concerns about a slowdown in China with
Vedanta Resources (VED) leading the sector
higher. Budget airline Easyjet’s (EZJ) share
price surged after reporting a rise in profits of 23%, well above
analyst expectations, dragging sector peer International
Consolidated Airlines Group (IAG) along with
it.
Mobile telecoms provider Vodafone (VOD) also
reported a rise in revenues for Q2; however southern Europe has
proved a drag. The company confirmed it is on target for its
outlook for the year, while getting a positive read across from
sector peer in the U.S. Verizon who also reported a jump in
earnings.
U.S. markets had been set to open in positive territory this
morning, until Caterpillar’s results for Q2
missed expectations of $1.75c a share, coming in at $1.72c a
share. Profits were up 44%, but despite raising guidance for 2011
the shares fell back in the pre-market. This was despite positive
earnings, from other key U.S. bellwethers, General
Electric, Verizon and
McDonalds, all of them beating
expectations.
Concerns about the continued stalemate amongst U.S. politicians
with respect to the debt ceiling extension has seen investors
take fright and book some profits after the gains we’ve seen this
week.
House speaker John Boehner has stated that
“we’re not even close to an agreement” as politicians play
Russian roulette with the U.S. credit rating. Unfortunately it
could well be too late as ratings agency Standard and
Poor’s has already indicated that the U.S. could well
get downgraded, even if they do raise the debt ceiling, if a
credible fiscal plan doesn’t follow on from an upgrade.
The single currency has given up some of the gains of yesterday
as analysts delve a little deeper into the detail of yesterday’s
agreement in Brussels. Ratings agency Fitch
announced that it would place Greece on “restricted default” and
then place any new bonds on a special post default rating.
German IFO data also weighed on the single
currency with business morale hitting a 9 month low in July. The
IFO also stated that the high value of the euro is starting to
hit exports.
Key political obstacles still remain not least that the changes
in the EFSF require parliamentary approval in
all 27 European countries.
Attention now turns to the U.S. dollar and the debt ceiling
deadlock and it is becoming increasingly likely that if no
agreement is reached by today that legislation may not get passed
in time to beat the 2nd August deadline, technically putting the
U.S. into a temporary default.
Gold and silver prices have
continued to retain their firm tone despite the agreement in
Brussels yesterday. Fitch’s actions in placing Greece in
“restricted default” continue to highlight the problems within
Europe, and keep the precious metals prices underpinned.
U.S. oil prices look set to post their fourth
successive weekly rise in a row, helped somewhat by the IEA
announcing that they would not be looking to add any more
emergency releases. The oil price needs to hold above $100.20 to
carry its recent upward momentum towards $105.
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