10.05.13 Friday Morning

Owing to the UK bank holiday, European markets started the week trading fairly flat with thin volumes to match. Asian shares did advance on the back of better than expected U.S jobs data released last Friday.

The Dow closed above 15,000 on Tuesday for the first time, a significant achievement that highlights the importance of the U.S employment figure to traders. Additionally, the Dax index closed at a record high on Wednesday, with investors seeing better returns from equities than bonds. Bond yields have been driven lower as a result of interest rate cuts from major banks.

Draghi confirmed earlier in the week the ECB’s readiness to cut interest rates further if the economy continues to deteriorate. The dollar quickly made significant gains against the Euro as investors prepare for the possibility of further rate cuts.

The Reserve Bank of Australia has also taken action by cutting the benchmark interest rate to 2.75%, a record low. Along with better than expected employment data, the rate cut has lifted regional shares.

Economic data remains in a goldilocks range, whereby it is weak enough to warrant continued stimulus, but strong enough to keep earnings expectations positive. With the FTSE 100 having achieved significant gains, adding nearly 12% since the start of the year, the index seems to finally be stabilizing at its multi-year peaks with an upward trend still intact.

In a somewhat contradictory move, the ECB has refrained from committing to further interest rate cuts. Draghi has made it clear now that we will have to wait until 2015 until the possibility of further reductions. It was only on May 2nd that Draghi declared the ECB’s readiness to act again if required.

The Bank of England has also decided to leave interest rates on hold and resisted calls to extend its bond purchases. Policymakers are opting to wait and see if recent initiatives to boost lending will lift the struggling economy.

Japanese shares have surged this week on the back of a weakening yen. The currency is now beyond the 101 per dollar for the first time in 4 years. The yen has now tumbled 23% since September, heading for its biggest annual loss since 1979.

Sainsbury's has suffered a slight fall in annual profits amid the intense battle among supermarkets to grow market share. It made a pre-tax profit of £788m in the year to March 16 - down 1.4% on the previous 12 months. Chief executive Justin King also confirmed he had reached an agreement with Lloyds Banking Group to take full control of Sainsbury's Bank, at a cost to the chain of £248m.

A revised German trade balance figure for the previous month has helped push the Dax over the 8300 level during today’s session for the first time. The FTSE has risen yet again after better than expected earnings from Arcelor Mittal and BT Group.

Going into next week, investors will be searching for clues as to whether or not the rally seen in the past week or so is sustainable. You can be certain that many traders will go short of equities and indices hoping that they have entered at the highs, but there is a growing consensus that this could be the start to a long period of growth.

Stock of the Week:
 

Adjusted earnings rose 4% to 1.67 billion pounds in the quarter ending in March. Analysts had predicted 1.62 billion pounds. Seperatly, Bank of America Corp. raised its reccomendation on the stock to buy from neutral.

Next Week’s Notable Economic Data:
 

Monday –

• USD – Core Retail Sales
• USD – Retail Sales

Tuesday –

• DE – German ZEW Economic Sentiment
• AUD – Annual Budget Release

Wednesday –

• GBP – Claimant Count Change
• GBP – BOE Gov King Speaks
• GBP – BOE Inflation Report
• CAD – Manufacturing Sales
• USD – PPI

Thursday –

• USD – Core CPI
• USD – Unemployment Claims
• USD – Philly Fed Manufacturing Index

Friday –

• CAD – Core CPI
• USD – Prelim UoM Consumer Sentiment

Next Week’s Notable UK Earnings:
 

Monday –

• The Unite Group PLC Interim Management Statement
• Diploma PLC Interim 2013 Earnings Release
• Lonmin PLC Interim 2013 Earnings Release and Q2 Production Report

Tuesday –

• British Land FY 2012/13 Earnings Release
• Enterprise Inns PLC Interim 2013 Earnings Release
• ICAP Preliminary 2013 Earnings Release
• Babcock International Preliminary 2012 Earnings Release
• Balfour Beatty Q1 Interim management Statement
• Capita PLC Interim Management Statement

Wednesday –

• Compass Group Interim 2013 Earnings Release
• Greggs Interim Management Statement
• Land Securities Preliminary 2012/13 Earnings Release
• Keller Group Interim Management Statement

Thursday –

• Vedanta Resources Preliminary 2012 Earnings release
• Euromoney Institutional Investor Interim 2013 Earnings Release
• TalkTalk Telecom Group Preliminary 2012 Earnings Release
• Travis Perkins PLC Interim Management Statement