02.11.12 Friday Morning

European equities started out the week on a lower note being pressured by weakness out of Asia where several companies reported disappointing earnings overnight.

Furthermore the on-going wrangling about extending the time frame by which Greece has to meet budget and deficit targets is starting to have a dragging effect on the markets.

As there was very little data out on Monday, tied with the fact that US equity trading was cancelled due to Hurricane Sandy, markets were expected to be range-bound awaiting further economic data later in the week.

Tuesday started off on a more positive note with European equities receiving a lift from better-than-expected European corporate earnings with German heavyweights Deutsche Bank and Bayer both beating estimates. Furthermore Allianz, Europe’s largest insurer, has upped its projections for 2012.

In news out overnight from Japan BoJ expanded its asset purchasing programme for the second consecutive month in a row. It was however less well received as many investors had hoped for much more aggressive easing to counteract weakness seen in the Japanese economy.

Hurricane Sandy was making its way east by Tuesday with people starting to estimate that over $20bn damage had been done, more than Irene caused. The devastation is a huge concern for stocks and sectors exposed heavily to transport, logistics, manufacturing and insurance.

By midweek, stocks managed to build on Tuesday’s impressive rally trading higher on Wednesday morning. The main spotlight was on a conference call held by eurozone finance ministers on the topic of the Greek crisis.

Trying to find a solution on how to give Greece more time to hit budget and deficit targets is paramount. With talk that Greece’s coalition government is closer to agreeing new austerity measures, steps towards securing the next tranche of bailout money could now be taking place.

Throughout Wednesday we saw some impressive European equity earnings with the likes of Total, GDF Suez, and Air France-KLM posting positive results. However, eurozone unemployment did hit a new high edging up to 11.6% from 11.5%. This was not a surprise considering the austerity measures implemented by various governments and the deterioration in eurozone economic activity.

The FTSE 100 was underperforming its peers with poor Q3 results from Barclays and BG Group whilst Wall Street was re-opening after two days of closure due to Hurricane Sandy. US traders' imminent return to the fold brought back the volumes that we had lacked over the past two sessions.

Both Dow and S&P 500 futures were up 51 and 8 points respectively.

Turning our attention to Greece, estimates predict a deeper recession next year and a heavier budget deficit than forecast only a month before. The economy is expected to contract 4.5% in 2013 revised from 3.8%. Greece wants time, asking for two extra years to service its debt but creditors won’t make it easy and will force stricter conditions before pumping additional funds.

After a series of disappointing economic data the US saw its early gains cleared. With poor US retail sales and a sliding Chicago PMI the market was pressured and despite volumes returning, traders were also unwinding positions as we end the month. Both reports prompted caution before the eagerly awaited US monthly jobs report due on Friday which is scheduled to still go ahead despite Sandy’s impact.

The UK was driving much of the action on Thursday morning thanks to a number of robust earnings from the likes of BT, Shell and Lloyds Banking Group. By the mid-afternoon, the US took control of the wheel, sending European markets into the passenger seat.

Wall Street, graced with a deluge of upbeat economic data, rallied hard after ADP jobs data, weekly jobless claims, ISM manufacturing, consumer confidence and construction spending all printed at levels better than forecast. This raised confidence after Sandy’s devastation, playing into the hands of President Obama who will have been relieved that the world’s largest economy is on an upwards path to growth under his leadership.

The macro data offset any weakness by the poor earnings from Pfizer and Exxon Mobil. The question now for many is how sustainable are today’s gains and with major event risks in the days ahead, namely the US elections, developments or the lack of in Greece and the continued uncertainty of Spain, all threaten moves to the upside.

Friday morning, support came out of Asia where better than expected US economic data yesterday afternoon sparked renewed optimism that the world biggest economy is finally gaining strength. Friday afternoon's focus was on the non-farm payrolls report, where the U.S. October payrolls rose by 171,000. In reaction the UK 100 jumped up by 30 points.

Looking towards next week with the US election just around the corner and the race still being too close to call, investors and traders alike are expected to increasingly remain on the side-lines until after the elections, with much of the activity being comprised of position squaring ahead of next Tuesday.

UK equity earnings of significance due for next week include Marks & Spencer Group’s interim 2012/13 earnings, Bowleven PLC’s preliminary 2012/13 earnings, G4S PLC’s interim management statement (all 3 on Tuesday).

Wednesday will see the release of Vedanta Resources interim FY 2012/13 earnings & Burberry Groups interim 2012 earnings. Finally, Thursday will see the release of WM Morrison Supermarkets Q3 interim management statement and Cable & Wireless Communications interim 2012/13 earnings.