07.02.14 Friday Morning

After the savage sell-off global bourses experienced since the turn of the year, many investors began to question the sustainability of the economic recovery. Dominating the thoughts of market participants has been several factors including; Chinese growth concerns, tapering fears, earnings and emerging market fears.

However, encouraging jobs data out from the states on Thursday sparked a mini revival with equities worldwide recouping some of the losses seen in 2014. Asian shares responded to a bullish European/U.S. session with the regional benchmark index paring its sixth straight weekly loss, on the back of encouraging U.S. jobs data and better-than-expected company earnings.

The MSCI Asia-Pacific gauge dropped 4.6 percent in January in what was its worst start to a year since 2009. About $2.3 trillion has been wiped from the value of stocks worldwide this year as of yesterday. Volatility - reaching a seven month high on Tuesday - finally subdued, suggesting investors’ concerns are easing.

Initial jobless claims (U.S.) dropped for the first time in three weeks, falling 20,000 to 331,000 in the period ending February 1st. The Labor Department reported today that U.S. non-farm payrolls rose only 113,000, falling short of the 185,000 expected whilst the unemployment rate hit a new five-year low of 6.6 per cent. For many investors who have been expecting the developed economies, especially the United States, to lead the global economy this year, solid evidence of strong U.S. job growth is vital to maintain conviction. Treasuries rose whilst markets turned south after the data as the worse-than-expected figure added to concerns the Federal Reserve maybe tapering too early. Despite this brief drop, markets soon recovered and added to pre-data gains, looking to finish the day in positive territory.

Relative calm in vulnerable emerging markets over recent days also helped to ease worries some emerging economies might suffer harsh downturns if capital flight continues. Battered currencies such as the Turkish lira and the South African rand are trading off their recent lows.

This Thursday marked the latest opportunity for Bank of England Governor Mark Carney to discuss interest rates in detail, with a number of economists predicting Carney to put the process of raising interest rates into motion. Set at 0.5 percent, a number of banks were predicting that the strongest growth since 2007 would prompt the U.K. to lift its benchmark rate in early 2015.

However, policymakers have stressed that the central bank is in no hurry to hike interest rates as inflation has fallen to its target and wage growth remains subdued. Whilst Britain's economy had one of the fastest recoveries among industrialised nations last year, growth has largely been driven by household spending. The Central Bank is making an effort to shift towards business investment and stronger exports. The main rate did indeed remain at 0.5%.

The euro held near a one-week high against the dollar after European Central Bank President Mario Draghi said on Thursday that the eurozone was not plagued by deflation. He did, however, caution that the currency bloc's economy remained skewed to the downside and put markets on alert for a possible rate move in March, acknowledging that emerging-market turbulence could hit the eurozone. The ECB also decided to leave rates unchanged at 0.25%.

Stock of the week – Twitter

Shares in Twitter were battered hard this week, despite posting revenues of $242 million, increasing revenue by 116% to exceed analysts’ expectations. Despite the good headline figure, investors took the opportunity to sell their stock after it emerged the company only managed to add 9 million users in the final three months, an indication of a slowdown. The results, the first since the company went public, wiped $6.5 billion off Twitter’s value in extended trading on Wednesday night. Shares have recovered marginable this afternoon, trading $3 dollars higher since yesterday to $53.40

Economic data:

 

Monday

-          NA

Tuesday

-          AUD NAB Business Confidence

-          CNY Trade Balance

-          USD Fed Chair Yellen Testifies

Wednesday

-          BOE Carney Speaks

-          BOE Inflation Report

-          EUR ECB President Draghi Speaks

 

Thursday

-          AUD Employment Change and Unemployment Rate

-          USD Unemployment Claims

-          USD Core Retail Sales

-          USD Fed Chair Yellen Testifies

Friday

-          CNY CPI

-          USD Prelim UoM Consumer Sentiment

 

Earnings:

 

Monday

-          NA

Tuesday

-          Babcock International – interim management statement

-          Thomas cook – Interim management statement

-          Cable & Wireless – Interim management statement

Wednesday

-          Reckitt Benckiser – Earnings release

-          Speedy Hire – Interim management statement

-          Manchester United – Earnings release

 

Thursday

-          Amex – Earnings release

-          Lloyds Banking Group – Earnings release

-          Tate & Lyle – Interim management statement

-          Rolls-Royce Holdings – Earnings release