26.10.12 Friday Morning

Tuesday was also uninspiring.  The retail sector within the UK’s blue-chip index took a battering as a result of Aim listed luxury- brand retailer Mulberry issuing a profit warning following reduced demand from Asia.

Midweek, investors observed the UK’s blue chip index falling below the psychologically important 5,800 level despite positive manufacturing data from China.

Clearly, upbeat data from China was not enough to compensate for disappointing manufacturing data from France, Germany and in fact the Eurozone as a whole which wreaked havoc on the attractiveness of risk-on assets.

The Bank of England’s Mervyn King acknowledged the limits regarding the BOE’s capability to support the UK, which also added to the calamity.

Thus, the markets slipped between gains and losses as investors juggled with the benefits of improved manufacturing data from the world’s export giant China, with the possibility that the UK is reaching the end of its tether for fiscal support.
Minutes from the US FOMC meetings were also released on Wednesday.

US policy officials acknowledged the detriments of inflationary pressures and expected household spending to fall, leading to equities losing pace.

However, policy officials reinforced their approach concerning loose fiscal measures and kept interest rates at record low levels leading to a slightly positive finish for US equities.

There was an air of apprehension hanging over European markets on Thursday as investors awaited preliminary GDP figures from the UK.  Despite economists predicting that the UK was officially due to exit the worse double dip recession since world war two, risk-on assets remained largely under pressure as investors feared the worse prior to the data being released.

However, such fears proved entirely unjustified, as growth rates came in at 1 percent, which was the best UK quarterly growth figure since 2007.

The figure excelled analyst’s expectations and also supported the UK prime minister’s views that good news was coming.

Despite the figures, the euphoria proved short-lived as investors slowly came to terms with the fact that a large part of the growth was due to the Olympics, which are now over.

 
On Friday, we saw another blanket of apprehension hanging over global markets.  However, this bout of apprehension was coupled with more pessimism compared to yesterday, and likely justified.

Investors shrugged off positive news that Japan’s policy officials have announced a 423 billion yen package to support the world’s third largest economy and remained fixated on the economic news of the day, US advance GDP figures.  Although analysts were expecting a 1.9 percent annual growth figure, investors were clearly concerned that the figure will unlikely be enough to ensure a return to stable growth.

However, once again investor’s apprehension proved unjustified.  US growth rate was reported at 2.0 percent, which beat expectations.  Consequently, the global markets rallied off lows but still remained slightly negative.

Equity of the week will go to Facebook, a likely surprise to most.  An even bigger surprise was Facebook’s third quarter results which were released on Tuesday.  The social media giant reported revenues of $1.262 billion, beating estimates for $1.23 billion and finishing the day up 19 percent.

Next week we have a raft of economic data due for release.  These include Bank of Japan’s outlook report, a key Italian 10-year bond auction as well as most traders’ personal favourite, US Non-farm report.