17.04.14 Thursday Morning

News that the crisis in Ukraine had escalated over the weekend, with one serviceman killed, saw appetite for risk subdued at the start of the week. NATO officials continued to urge Russia to withdraw troops from Ukraine’s borders to no avail. Financial markets, unsurprisingly, reacted appropriately. Dollars and fixed income were in demand early on Monday morning, as investors rushed to protect from a further flight from risk assets. The selling then worsened at around mid-morning, hitting the so-called momentum stocks particularly hard. Recent big winners such as EasyJet, Sports Direct and Ashtead were all down by more than 5 percent in London. But the selling then eased once US core retail sales came in better than expected, helping to support prices. Then, following the US equity market open, investors chased stocks higher into the close.

The improving risk appetite quickly succumbed to investors changing their minds once again. What looked like a decent start to Tuesday declined into the familiar geopolitical concerns over Ukraine. Not helped either by news that the money supply in china grew at the slowest pace in 13 years, European equities were dragged lower. The German ZEW economic sentiment data came in worse than expected at 43.2. The survey of around 275 institutional investors showed outlook for the next 6 months worsened on Ukraine fears. Inflation data, however, did go some way to support sterling, as UK inflation came in lower than expected.

The early end to the week courtesy of the Easter bank holiday was met with a positive close to trading. A market that has become growingly concerned over the health of the Chinese economy was given a positive note on Wednesday as a better-than-expected first-quarter GDP number sent Asian equity benchmarks higher. Investors have at least already baked a good amount of bad news into prices concerning China, with analysts increasingly pointing to the overheating nature of domestic credit markets and the concerning opaque quality of its banking system. Elsewhere, gold continued its downward spiral. Traders sent prices sharply lower on speculation that the improving economic health of the US would give rise to a greater chance of a tightening of monetary policy.

Stock of the week: Sports Direct

After what can be described as one of the best performances from any London-listed company of recent memory, Sports Direct’s shares were in freefall last week, as founder Mike Ashley sent a devastating blow to buyers with a sale of £204m shares. With a significant increase to the free float of shares, the typical squeeze in the price from a shortage of stock was turned upside down, with investors quickly running out of cash to support the price. The selling continued into this week, as the rest of the so-called momentum stocks sold off. Support was, however, found from analysts at Bank of America. On Wednesday they made a case for there being a possibility that the market has underestimated the company’s growth prospects. Shares were sent screaming higher, then settling marginally lower from the highs at 787.5p, up 3.6 percent.

Economic Diary

Tuesday 22
 

-          USD Existing Home Sales

Wednesday 23

-          EUR French Flash Manufacturing

-          EUR German Flash Manufacturing

-          GBP MPC Asset Purchase Facility Votes

-          GBP MPC Official Bank Rate Votes

-          USD New Homes Sales

Thursday 24

-          USD Core Durable Goods

-          USD Unemployment Claims

Friday 25

-          GBP Retail Sales

 

Earnings

Tuesday 22

Genel Energy – Q1 2014 Interim Management Statement

Wednesday 23

Amec – Interim Management Statement

ARM Holdings – Q1 Earnings

Creston – Trading Statement

Moneysupermarket.com – Q1 Interim Management Statement

Sports Direct – FY Trading Statement

Carpetright – Trading Update

Avacta Group – Interim 2014 Earnings