06.06.14 Friday Morning

Global equities have experienced an overall positive stance this week, fuelled by high expectations the European Central Bank will tackle their growing deflation rate. Stocks started the week on a positive note, pushed higher on Chinese manufacturing data which came in at 50.8, beating the 50.7 expectation. The expansion happened at the quickest pace in 5 months after investors were reassured the economy has recovered from issues seen at the start of the year.

Gains in Europe were short-lived on Tuesday after investors found little reason to add to gains. Investors decided to take to the sidelines ahead of euro-area unemployment and US factory orders. Adding to negativity, UK construction PMI failed to meet expectations, coming in at a reading of 60 versus the 61.2 expected.

The negativity continued by mid-week with Asian markets dropping off recent highs throughout the night with the Hang Seng falling by 0.52%. The Nikkei closed relatively flat at the end of the trading session with investors remaining in a positive mood. A worse-than-expected ADP employment change reading provided little reason for investors to buy, causing the markets to remain softer.

European markets traded higher on Thursday, ahead of the all-important ECB announcement. The ECB announced a rate cut on the deposit rate to -0.10 percent, the main refinancing rate to 0.15 percent, and the marginal lending rate to 0.40 percent to help tackle deflation. Cutting rates from zero to -0.1% should encourage banks to lend to businesses rather than hold on to money. The ECB was not finished yet, offering long term loans to commercial banks at cheap rates until 2018. With loans capped at 7% of the amount individual banks lend to companies, the more banks lend to companies, the more money they can borrow from the ECB cheaply. Mario Draghi announced the ECB's policymakers are willing to consider more unconventional measures to boost inflation if it stays too low.

Markets reacted positively to the news, adding to early gains. The euro traded near four-month lows against the dollar after the European Central Bank cut interest rates to record lows while indicating further monetary policy actions. During the press conference, the euro spiked higher, erasing all of daily losses to trade in positive territory. The Dax managed to breach the key 10,000 technical level to trade a high of 10,014 for the first time ever.

The widely expected UK interest rates were held at the record low of 0.5% for another month by the Bank of England. The size of the Bank's bond-buying economic stimulus programme was also kept unchanged at £375bn. The pound edged higher against the dollar after house price data came in slightly higher than expected.

US and European equities were lifted again on Friday following a better-than-expected US payroll figure. Employers added 217,000 jobs in May to push US payrolls past their pre-recession peak. The jobless rate also helped sentiment, dropping towards the six-year low to 6.3% as the economy continues to gain traction.

Stock of the week - ASOS
British online fashion retailer ASOS warned full-year profits would miss forecasts by 30 percent due to a strong pound, forcing it to cut prices in foreign markets, wiping 1.2 billion pounds off its market value. With shares closing at 4523 on Wednesday, following the statement early Thursday morning, shares opened at 2724 (-40%) before recovering to close at 3120.  In an unexpected trading update, the group said it expected its operating margin for the current financial year to come in at around 4.5 percent versus a previous forecast of 6.5 percent with pre-tax profit coming in at around £45 million, compared with the £64 million.

Economic calendar:

Monday

 - French and Germany Bank holiday

Tuesday

- AUD NAB Business Confidence
- CNY CPI
- GBP Manufacturing Production


Wednesday

- GBP Claimant Count change
- GBP Unemployment Rate


Thursday

- AUD Employment Change & Unemployment Rate
- USD Core Retail Sales & Unemployment Claims


Friday

- CNY Industrial Production
- JPY BOJ Press Conference
- USD PPI
- USD Prelim UoM Consumer Sentiment

Earnings calendar:

Monday

Tuesday

- Park Group – earnings release
- Ted Baker – interim management statement

Wednesday

- Sainsbury’s – trading statement
- WH Smith – interim management statement

Thursday

- PZ Cussons – trading update
- Home Retail Group – interim management statement
Friday