24.01.14 Friday Morning

The growing Asian credit crisis continues to weigh on regional shares with the MSCI Asia Pacific index set to record its longest run of weekly losses in more than 18 months. The MSCI equity gauge lost over 1% in value last night, with the index registering a fourth weekly decline as signs of weakness in the Chinese economy refuse to fade. The Chinese government’s decision to inject funds into the economy saw money-market rates fall, possibly slowing the recovery.

As well as Asian shares, global equities have broadly ended the week lower as uninspiring earnings coupled with concerns regarding cuts to U.S. Fed stimulus remain firmly in the minds of investors. There is a growing fear that Fed tapering may destabilise emerging market economies.

Still dictating the markets, the Federal Reserve tapering issue has dominated the minds of investors for some time and continues to provide volatility. Gold has retreated from a six-week high after its longest weekly rally since September 2012. Gold enjoyed bull market conditions for 12-years, spurred on by unprecedented bond buying, until Fed policy makers decided to taper stimulus in December 2013. Analysts expect the Federal Reserve to reduce asset purchases by $10 billion at each meeting to end the programme this year.

In a boost for the eurozone, the business sector has had an encouraging start to 2014 with the private sector recovery in full swing. With France a notable exception, growth has started to pick up with Eurozone PMI jumping from 52.1 to 53.2. Any figure above 50 signals growth and this was the highest reading since mid-2011. An earlier composite PMI from France, the bloc's second-biggest economy, showed activity contracted for the third month running in January.

France President Francois Hollande has stressed that there is still a long road ahead for his citizens, warning that the toughest economic reforms are yet to come. Eurozone ministers are cautiously backing the President in what is somewhat of a last chance to redeem himself after receiving the worst opinion poll ratings of any post war leader. It is not clear how and when he will pull off the public spending and tax cuts and it remains yet to be seen if French business will assist the government in its task to cut unemployment.

On the other hand, Germany continues to go from strength to strength with the latest boost coming in the form of the AAA Credit Rating reaffirmation. Fitch has cited the management of national debt and a stable outlook as the main reasons for their decision. This comes after Standard and Poor reaffirmed their AAA rating, with a strong belief that Chancellor Angela Merkel’s reforms are paying dividends.

On a cautionary note, European Central Bank President Mario Draghi has warned against premature optimism in regards to the health of the eurozone economy. Draghi has warned of unforeseen risks that could derail the recovery, but did clarify that he doesn’t see inflation or deflation as a big issue. Of course, a statement of this nature is only required owing to the fact there are signs of a sustainable recovery, underlining the progress made within the bloc.

Bank of England Governor Mark Carney is set to talk next Wednesday to clarify the central bank's stance regarding interest rates. This comes after Carney said Britain had come to the end of its 375 billion pounds quantitative easing programme, provided there aren’t any additional issues along the way.

Stock of the Week:
Egdon Resources Total PLC entering the UK shale market, where so far only utilities have entered (Centrica and GDF Suez), has given credibility to the industry as a whole. TOTAL has entered the Gainsborough shale-gas play in the North of England through a farm-in with Egdon Resources Plc. TOTAL’s entry also provides strong verification of the Gainsborough shale-gas play as one of the premier positions in the UK through a deal that gives Egdon a full carry on two shale wells, therefore limiting any financial risk to shareholders.

Next Week’s Notable UK Earnings:

Monday –

• AVEVA Group Interim Management Statement

Tuesday –

• Carpetright Q3 Interim Management Statement
• Crest Nicholson Holdings Preliminary 2013 Earnings Release

Thursday –

• BskyB Interim 2013/14 Earnings Release
• Lonmin Q1 Production Report & Interim Trading Update
• F&C Asset Management AUM and Business Flows
• National Grid Interim Management Statement

Next Week’s Notable Economic Events & Data:

Monday –

• EUR – German Ifo Business Climate @ 09:00
• USD – New Home Sales @ 15:00

Tuesday –

• Prelim GDP q/q @ 09:30
• USD – Core Durable Goods Orders m/m @ 13:30
• USD – CB Consumer Confidence @ 15:00

Wednesday –

• GBP – BOE Gov Carney Speaks @ 12:15
• USD – FOMC Statement @ 19:00

Thursday –

• CNY – HSBC Flash Manufacturing PMI @ 01:45
• EUR – French Flash Manufacturing PMI @ 08:00
• EUR – German Flash Manufacturing  PMI @ 08:30
• GBP – CBI Realised Sales @ 11:00
• CAD – Core Retail Sales m/m @ 13:30
• USD – Unemployment Claims @ 13:30
• USD – Existing Homes Sales @ 15:00

Friday –

• GBP – BOE Gov Carney Speaks @ 12:05
• CAD – Core CPI m/m @ 13:30
• EUR – ECB President Draghi Speaks