21.03.14 Friday Morning

Money managers from New York to Hong Kong started the week as early as they did intently, with one word on their mind: Crimea. Sunday saw the outcome of a referendum the majority of the developed world held as illegitimate, one that would see relationships between the west and Russia breakdown to their lowest since after the Cold War. Markets while nervous and concerned over the systemic risk implications of any such denigration of political and economic corridors, are wily creatures and had priced most of the risk before the event. Once again, it was a case of buy on the news. Equity index futures, while initially softer during the early hours of Monday, soon rallied to squeeze out most of the doomsday shorts and markets opened positively. Meanwhile, Eurozone inflation dropped to a five-month low at 0.7%, supporting any hopes for the ECB to undertake its own bond-buying program.

Tuesday then brought with it much the same as Monday, namely a continuation from participants reacting to further geopolitical risks from Crimea and Mr Putin. News that sanctions had been imposed on some of the Kremlin’s most senior figures did little to shake markets, and investors turned to economic sentiment numbers from Germany that showed a revision lower on the previous month. Markets then took relief when building permits from the US showed stronger growth than forecast, printing 1.02M versus 0.97M.

The main event of the week, however, was brought courtesy of the Fed, where Janet Yellen was to hold her first press hearing as the Fed’s number one. The market had become fond of Yellen, as she looked set to reinstate a dovish tone to the committee’s support of economic affairs. But markets were in for somewhat of a shock. Ms Yellen confirmed the tapering of $10bn to assets purchases, but then intimated that rates could rise as soon as six months after the purchases cease all together – a comment completely unexpected. This was taken rather badly by the bond market, with traders immediately fleeing the scene of the short end of the curve. 5-year treasuries were in free-fall, sending yields to their highest in months. And equities were no better in the immediate aftermath either, as the Dow dived by more than 100 hundred points from intraday highs. But, as we’re familiar with now in today’s market, it became clear the market overreacted and prices soon recovered. Investors will do well to remember that the Fed will only likely become more hawkish if the economy surprises to the upside. And even in spite of more expensive costs of capital, equities could remain in demand.

In what was already becoming a jam-packed week for news flow, Wednesday also brought with it George Osborne’s eagerly-awaited budget. And although important, many in the market weren’t too concerned and kept a closer eye on their orders and US open ahead of the Fed minutes. This, however, changed very quickly. The coalition, in dramatic move to shake up the pensions market, broke policy that no one would be required to buy an annuity against their pots. The market at first seemed muted, but soon the sands shifted and insurers and pension providers were in the crosshairs. From large-cap giants like Legal & General and Aviva to the minnows Just Retirement Group, traders were creating a collapse in prices, as a trickle of orders developed into a wave of selling sending the bigger names down by more than 10 percent and causing some of the smaller names to halve. More than £5bn was soon wiped of the aggregate market capitalisation of these firms, indicating just how much of winner annuities have been perceived to be for the insurers. But there were was one winner from all of this – a big winner. Hargreaves Lansdown, the one-stop fund provider, started to inflate gently on the news. And much like an inverse reaction the insurers experienced, the stock was soon limit-up, trading more than 10 percent higher on the day. The market clearly loved the idea that Hargreaves would be a beneficiary of the news that ISA allowances were being increases and the change to annuities would likely increase future revenues, too.

Thursday marked an initial flight from risk following on from the Fed’s shift in forward guidance, with European benchmarks were subject to heavy selling on the open, with momentum stocks taking the full force of outflows. The FTSE 100 was down by more than 1 percent by mid-morning. But it wasn’t to last. As the US equity market geared up after lunch, the bulls came fighting back, pouring capital into risk. The sellers soon gave up some of their ground and markets closed down less than 0.5 percent. Helping matters further, Philly Fed then closed out the week on a positive: 9 versus 4.2 expected.

Stock of the week: Hargreaves Lansdown 

Wednesday’s budget announcements from George Osborne had the large insurers and pension providers on their knees. But the opposite can be said for Hargreaves Lansdown, the retail investor funds provider. News from Whitehall that both the personal allowance for ISAs was to be significantly increased together with a removal of the necessity to by an annuity saw a small rise in the shares immediately after the announcement turn into one of the best days for Hargreaves Lansdown’s share price in recent memory. Shares traded more than 15 percent higher at one point, as traders took on large buy orders throughout the day. The shares trade 39 times against projected earnings however, meaning the market is already very forward-looking.

Economic Data:

Monday

9:00am French Flash Manufacturing PMI
9:30am German Flash Manufacturing PMI

Tuesday

10:00am German Ifo Business Climate
10:30am CPI y/y
3:00pm CB Consumer Confidence
New Home Sales

Wednesday

1:30pm Core Durable Goods Orders m/m

Thursday

10:30am Retail Sales m/m
1:30pm Unemployment Claims
3:00pm Pending Home Sales m/m

Friday

10:30am Current Account

EARNINGS:

MONDAY

Greencoat UK Wind PLC - Preliminary 2013 Greencoat UK Wind PLC Earnings Release

TUESDAY

Polyus Gold International Ltd - Full Year 2013 Polyus Gold International Ltd Earnings Release

Nanoco Group PLC - Interim 2014 Nanoco Group PLC Earnings Release

Sinclair IS Pharma PLC - Interim 2014 Sinclair IS Pharma PLC Earnings Release

A.G.Barr PLC - Preliminary 2013 A.G.Barr PLC Earnings Release

Corero Network Security PLC - Preliminary 2013 Corero Network Security PLC Earnings Release

KBC Advanced Technologies PLC - Preliminary 2013 KBC Advanced Technologies PLC Earnings Release

Faroe Petroleum PLC - Preliminary 2013 Faroe Petroleum PLC Earnings Release

Kingfisher PLC - Preliminary 2013 Kingfisher plc Earnings Release

Topps Tiles PLC Pre-Close Statement for the 26 weeks ended 29 March 2014

Gulfsands Petroleum PLC - Preliminary 2013 Gulfsands Petroleum PLC Earnings Release (Tentative)

Quixant PLC - Preliminary 2013 Quixant PLC Earnings Release

Carnival PLC - Q1 2014 Carnival PLC Earnings Release

WEDNESDAY

Vislink PLC - Preliminary 2013 Vislink PLC Earnings Release

TUI Travel PLC - TUI Travel PLC Pre-close Trading Update

IQE PLC - Preliminary 2013 IQE PLC Earnings Release

Alliance Pharma PLC - Preliminary 2013 Alliance Pharma PLC Earnings Release

ServicePower Technologies PLC - Preliminary 2013 Servicepower Technologies PLC Earnings Release

Bellway PLC - Interim 2014 Bellway PLC Earnings Release

Euromoney Institutional Investor PLC - Euromoney Institutional Investor PLC Pre-close Trading Update

Augean PLC - Preliminary 2013 Augean PLC Earnings Release

THURSDAY

Velocys PLC - Preliminary 2013 Velocys PLC Earnings Release

JKX Oil & Gas PLC - Preliminary 2013 JKX Oil & Gas PLC Earnings Release

SkyePharma PLC - Full Year 2013 SkyePharma PLC Earnings Release

London Stock Exchange Group PLC - London Stock Exchange plc Pre-close period update