12.07.13 Friday Morning

With market participants having had the weekend to digest the strong U.S payrolls numbers, all eyes turned to Wednesday’s FOMC minutes and how the Fed would react to the latest batch of positive data. It would seem that investors have taken the strong jobs numbers in their stride despite the heightened risk of stimulus withdrawal, with global indices trading broadly higher on Friday.

Equities pushed on after Ben Bernanke made it clear that the Federal Reserve’s monetary policy will remain as accommodative as necessary. Citing high unemployment and low inflation as factors that need to be overcome, we can expect to continue to see aggressive stimulus for the foreseeable future.

With the U.S unemployment rate currently around the 7.5 percent mark, Bernanke feels that joblessness is still too high to justify a complete withdrawal of stimulus. A more comfortable figure that has been quoted by policymakers is 6.5 percent. Additionally, with the U.S inflation rate currently at a lowly 1.6 percent, it has been suggested that it would perhaps be more prudent to wait for inflation to reach the 2.5 percent target before making any potentially rash decisions.

Consequently, the dollar dropped to its lowest in almost three weeks against the euro. The initial move saw the euro rally from 1.28 to 1.32 against the dollar late Wednesday evening. It has since recovered slightly to trade around the 1.3060 mark.

Gold is finally enjoying a period of recovery as renewed promises of stimulus boosted bullion buying as a hedge against inflation. This comes after Gold lost some 23 percent in the last quarter after the Fed suggested that bond buying could slow down if the economy improved. Gold is still heading for the first annual drop in 13 years after some investors lost faith in it as a store of value.

WTI crude slipped from the highest level in 15 months after the International Energy Agency predicted that global oil supply will outstrip demand growth next year. Despite the move, WTI is now trading within $3 of Brent parity, creeping ever so closer on US economic optimism and lower inventory levels.

Asian shares have stalled as investors in the region cautiously await second quarter GDP growth. With expectations that it will be a damagingly low number, the data could offer telling evidence of the mounting weakness in the world’s second largest economy. Confirmation of any further weakness in China's economy would dampen risk appetite.

With investors having a wealth of data to look forward to next week, there will be no need to frantically search for further market direction. With the Fed currently adopting a policy whereby guidance on interest rates is tied to economic developments, data is proving to be ever more valuable.

Recent developments have shown that new Bank of England governor Mark Carney intends on echoing this methodology, heightening the significance that economic data carries. In a recent poll taken, it has emerged that the BOE intends on keeping interest rates at record lows for longer than was first forecast. Next Wednesday policymakers will meet to discuss the need of a rate cut.

Stock of the Week – Vedanta resources: Trading 11.5% higher than the week open at 1106 as metal prices, including Copper (a main product they mine), surged. This comes following the Fed’s commitment to loose monetary policy, resulting in a weakening dollar. Of course if the dollar goes down, dollar denominated products will go up in price. Riskier assets, such as mining stocks, have broadly benefited this week from the healthy state of global economies. Additionally, Goldman Sachs upgraded the equity to a “buy” this week.

Next Week’s Notable Economic Data:
 

Monday –

• CNY – GDP Q/Y (measures same quarter for last year against current quarter)
• USD – Core Retail Sales
• USD – Retail Sales

Tuesday –

• AUD – Monetary Policy Meetings Minutes
• GBP – CPI y/y
• EUR – German ZEW Economic Statement
• GBP – BOE Inflation Letter
• CAD – Manufacturing Sales
• USD – Core CPI

Wednesday –

• GBP – Claimant Count Change
• GBP – MPC Asset Purchase Facility Votes
• GBP – MPC Official Bank Rate Votes
• USD – Building Permits
• CAD – BOC Rate Statement
• USD – Fed Chairman Ben Bernanke Testifies
• CAD – BOC Monetary Policy Report
• CAD – BOC Press Conference

Thursday –

• GBP  - Retail Sales m/m
• EUR – Spanish 10-yr Bond Auction
• USD – Unemployment Claims
• USD – Philly Fed Manufacturing Index

Friday –

• CAD – Core CPI m/m

Next Week’s Notable UK Earnings:
 

Tuesday –

• Michael Page International Q2 2013 Trading Update

Wednesday –

• Electrocomponents Interim Management Statement relating to the financial year ending 31^st March 2014
• Hochschild Mining Q2 2013 Mining Production Report
• Intermediate Capital Group PLC Interim Management Statement
• Land Securities Group Q1 2013/14 Interim Management Statement

Thursday –

• London Stock Exchange Group Interim Management Statement