FTSE-100 (6330.49) recorded its fourth consecutive daily advance as traders repositioned themselves ahead of the Fed meeting (which starts later today). The consensus in the market is that no tapering of bond purchases will begin before the end of the summer but traders will be looking very carefully at the wording of any statements. Yesterday’s 43.7-point advance was accompanied by pretty thin volumes, suggesting a lack of conviction, and a listless session looks likely today as well. As I have noted previously, we really need to see a close back above 6420 or so to confirm that this ‘rally’ is anything more than short-covering.
Author Archives: sarah
Lacklustre Tuesday trading session ahead of the result of today’s FOMC meeting
European markets had a somewhat lacklustre trading session on Tuesday, ahead of the result of the FOMC meeting later today; stocks closed moderately higher in the main, with the exception of the CAC which ended the day 0.08% lower, weighed by the health care sector.
CDS indices were range-bound, closing around unchanged levels; with the yields on both 10-year core and peripheral government debt grinding higher throughout the day in the main.
In the US, stocks had a positive session, with the S&P closing up 0.78% at 1651.81 – only its second 2-day rally in June so far. The yield on 10-year US Treasuries closed just 1 bp higher at the 2.19% level.
Overnight, Asian stocks are mixed, the Nikkei closed up 1.83% at 13245.22, boosted by some robust export data for May, the Hang Seng is currently down 0.65%, with the Shanghai Composite currently down 0.61%. The yield on 10-year JGBs has fallen to the 0.81% level, from highs of around 0.89% at the beginning of the month.
As for today, European stocks are called higher on open, with CDS indices all seeing some mild tightening; Sep bunds are currently 16 ticks higher at the 143.37 level.
On the macro front, all eyes will obviously be on the outcome of the key FOMC meeting this evening. I think there will be little new from the Fed on the tapering front, with the usual statement that any action will be data dependant and any move could be in either direction on the back of the data flow; and as yet macro data is far from reaching the Fed’s targets for both employment and inflation. Indeed, yesterday’s inflation figures – CPI (y/y) of 1.4% – highlighted that the measure was still some way short of the Fed target of 2%. It is also widely believed that the Fed would want to see Non-Farm Payrolls of 200k+ for a sustained period of time before levels of employment would be considered to be moving in the right direction.
Next Week in the Market 17th – 21st June 2013
Charles Stanley’s award-winning Private Client Research Team present a look at what is coming up next week on the markets, who is reporting and what to look out for.
Next week’s reporting highlights include:
Aggreko – is the Power Projects division getting back on track?
Whitbread – is Costa Coffee’s global expansion staying on track?
Tuesday
First-half trading update from Aggreko, which rents out, and sometimes operates, temporary power and temperature control equipment. It last updated the market in April, when it confirmed full-year expectations and reported underlying first-quarter revenue growth of 8%. Trading was, however, subdued in the Power Projects division and although its order pipeline was beginning to improve, there have been no significant order announcements since that date and the share price has declined by 8%. The update will give first half divisional sales and margin trends as well as cash flow metrics, but the focus will be on the outlook for Power Projects. Given its significance (60% of group profit) there are concerns that Power Projects is performing below its medium-term underlying sales growth target of 10-15%.
First-quarter trading update from Whitbread, owner of the Premier Inn budget hotel chain, restaurant brands including Beefeater and Brewers Fayre, and the Costa coffee shop business. The company last updated the market on 30 April, when it reported a good set of full-year results. The share price fell 2% on the statement, but has since advanced by 12%. Market expectations are for dividend growth of 8% this year, predicated on moderate sales growth, a broadly flat operating margin and unchanged interest charge. Attention next week will focus on the first-quarter ‘revenue per available room’ performance at Premier Inn and like-for-like sales in the restaurants and at Costa. The share price level suggests that investors expect trading to remain robust in each of the three main business segments over the medium term.
This report was compiled by Charles Stanley’s Private Client Research Team comprising:
Jeremy Batstone-Carr (Head of Private Client Research)
Nic Clarke (Banks, Insurance, Other financials)
Tony Shepard (Travel, Support Services, Oil)
Tom Gidley-Kitchin (Construction, Household Goods, T&T, Mining)
Sam Hart (Retail, Leisure, Media Beverages)
Tina Cook (A&D, Utilities, REITs and Tobacco)
Rae Ellingham (Pharma, Food Producers, Industrials)
Commodities – The Week in a Minute
This report is compiled by Kieron Hodgson, Commodities Analyst at Charles Stanley Securities. Kieron is happy to talk with any members of the media, clients or potential clients should they require further information on the Commodities sector and can be contacted on 020 7149 6939 on Twitter: @ kieronjhodgson or email: Kieron.hodgson@csysecurities.com
Diamonds:
Diamond demand, especially from the U.S. remains resilient although, as expected, Asian demand reduced slightly through a mix of holidays and Indian Rupee weakness. The De Beers sight, held this week, raised an estimated $540m which is a similar figure to last year. Prices were said to have been held, albeit with weaker assortments, so in effect a small rise. Over the last week or two there has been an increasing interest from commentators highlighting the potential value in the diamond market, a sentiment we have long supported and written about and of course agree with. The Rapaport Diamond Trade Index ticked up marginally to $8,292 this week, with YTD performance up around 0.4%, considerably below rough’s near 10% returns.
Import and export data from India, Belgium and Japan continue to point towards a market that is enjoying a considerable recovery. As such, we see no reason to change our positive outlook on the sector.
Precious metals:
Physical demand for gold, so prevalent after the collapse in prices in April, is now showing signs of waning as premiums for buying coins and bars falls away to more “normal” levels in the middle east and Asia. Diverted exports are now being delivered and refinery backlogs, due to the spike in demand, are now clearing. In addition to this, the Indian government’s target of reducing gold imports, by raising taxes, has also coincided with a traditionally weak demand period that has seen the average value of imports collapse by around 60% since 20 May.
We fear gold prices are set to continue to come under pressure throughout the summer and another assault on $1,300 could be seen.
Base metals:
Base metal prices remained under pressure this week, not helped by the world bank downgrading growth forecasts driven by a weaker emerging market outlook. Nickel earned the wooden spoon for the week, falling around 5% as stocks continue to grow and the aforementioned economic outlook dented confidence. Copper demonstrated some resilience as supply issues prompted physical buyers back to the market. Freeport this week finally announced a force majeure at Grasberg, the second largest copper and gold mine in the world as well as the giant Oyu Tolgoi mine announcing that it was unable to start shipments.
Copper remains well supported at current levels, especially as supplies are being disrupted, although as these reverse, things could turn quite bearish for the red metal.
Speciality metals and minerals:
Lynas this week attempted to draw a line under the weakness in the rare earth element market by setting a new “minimum price schedule”, set to come into effect on 1 July. Current spot prices of around $16 to $20/ kg is around 25% below the level for economical production. The company is attempting to entice buyers into accepting contracts above spot prices in return for guaranteed production. The company also announced that it was delaying its planned uplift in production from 11ktpa to 22ktpa until markets improve.
Prices will continue to remain under pressure in the near term, but sensible capacity restrictions will help to bring the market back in to balance whilst destocking continues.