08.01.16 Friday Morning

The first week of 2016 trading took some of the most acute markets fears from 2015, namely China’s slowing economy and Brent Crude’s backbone-less collapse, and added some fresh fears, i.e. a North Korea nuclear test, to create a perfect storm for returning investors.

China
A 7% plunge by the blue-chip CSI300 index, spurred on by a disappointing Caixin manufacturing figure, set off China’s trade-halting circuit breakers for the first time on Monday and, in the process, saw the markets start the New Year in the worst way possible. A tentatively positive Asian session on Tuesday then led to an incredibly erratic day elsewhere, before weak Chinese services data, fresh 11 year lows for Brent Crude and, of all things, a North Korean nuclear test saw Wednesday resume the week’s disastrous declines.

Things got even worse on Thursday when, for the second time in a week, a precipitous plunge from the CSI300 index halted trading in China, the country’s circuit breakers bringing the day to an abrupt end after a mere 30 minutes as investors quickly displayed their fears over the speed in which the yuan is being devalued. Obviously this wreaked havoc on the global indices, prompting the China Securities Regulatory Commission to announce it was suspending the circuit breaker rule. Cut to Friday and the Chinese markets, boosted by a ‘national team’ intervention, managed a wild if positive day of trading, leading to tentative optimism elsewhere. However, with Chinese inflation figures to come this week, there could be more ructions on Monday.

UK

A 3 month low manufacturing PMI on Monday, an impressive construction PMI on Tuesday and a strong, but slowing, services PMI on Wednesday made no difference to UK investors this week. No, the start to 2016 was all about China, much to the FTSE’s detriment, the index slumping to near 3 week lows. Of course the biggest weight was the commodity sector; fuelled by Brent Crude’s decline the UK oil and mining stocks plummeted, only beginning to see a (tentative) rebound on Friday morning. 

Next week, data-wise at least, looks slightly quieter, with UK manufacturing and industrial production figures on Tuesday and, more importantly, the latest Bank of England rate vote on Thursday. Yet the main focus will likely remain on China, and if Monday gets off to another negative start then the micro-data from the UK wouldn’t matter in the face of the macro-nightmare the markets are currently going through.

US
Contending with 2016’s Chinese chaos was a cavalcade of US data, none of which made much difference to macro-focused investors. Weak ISM manufacturing and services PMIs and a huge drop-off in factory orders were countered by an unexpected surge in ADP non-farm employment change, solid Markit manufacturing figures and a better than anticipated trade balance figure. Still to come is the latest non-farm jobs report, a report that, despite not being as important as in the pre-Fed rate hike days, remains arguably the most anticipated release on the monthly data-calendar. Yet, as mentioned, none of this made much difference to investors, the Dow Jones touching 3 month lows on Thursday following the day’s intense decline.

Next week brings with it a less-exciting set of US data, with JOLTS job openings on Wednesday, jobless claims and import prices on Thursday and a cluttered Friday that sees retail sales, PPI, Empire State manufacturing, capacity rate utilization, industrial production AND the preliminary UoM consumer sentiment figures released throughout the day.

Eurozone
As was the case in the UK and US, the Eurozone’s region-specific data had little impact on the performance of its indices this week, all in thrall to the bearish beast that was the Chinese stock market.

The Eurozone saw a largely positive set of Eurozone manufacturing PMIs on Monday, with only Spain (slightly) disappointing; in fact, Italy, France and Germany saw near 5 year, 21 month and 4 month highs respectively, with the region-wide figure also beating estimates. This was followed a similar set of services PMIs; whilst Spain drastically underperformed expectations and France contracted, Italy (hitting a near 5 year high) and Germany (at a more modest 17 month peak) both surpassed expectations, leading the region-wide to reach its own 4 and a half year high.

Add onto this the lowest region-wide unemployment rate since Ocotber 2011 and it should have been a strong week for the DAX and CAC. Instead both slumped to 3 month lows, seeing dramatic falls throughout the week.

Like its Western peers the Eurozone has a fairly quite calendar on the cards next week, with Sentix investor confidence on Monday alongside the region-wide industrial production and trade balance figures on Tuesday and Friday respectively.

Stock of the week: Home Retail Group PLC
One of the more unlikely sources of growth this week was the Home Retail Group. A prime candidate to struggle in the aftermath of a reportedly tough Christmas period, the stock surged nearly 40% on Tuesday following the revelation from Sainsbury’s that the owner of Argos and Homebase had rejected a takeover bid from the supermarket back in November.

With little else to go on the stock then ticked lower on Wednesday, before reports on Thursday that Sainsbury’s had been joined by a partnership between former Tesco boss Sir Terry Leahy and private equity investment firm Clayton, Dubilier & Rice on the list of interested parties saw Home Retail Group jump another 2.7%. Add onto that a 1.7% rise on Friday, and the stock now sits at a 2 and a half month high of £1.40 (IT-Finance.com, 08/01/2016), a far cry from the over-3 year lows struck in mid-December.

(Source: IT-Finance.com 08/01/2016)

Economic Diary, 11^th to 15^th January 2016

 

Monday 11^th January

All Day – JPY Bank Holiday

9.30am – EUR Sentix Investor Confidence

3.00pm – USD Labor Market Conditions Index m/m

 

Tuesday 12^th January

9.30am – GBP Manufacturing Production m/m

9.30am – GBP Industrial Production m/m

3.00pm – GBP NIESR GDP Estimate

 

Wednesday 13^th January

Tentative – CNY Trade Balance

7.45am – EUR French CPI m/m

10.00am – EUR Industrial Production m/m

3.00pm – USD JOLTS Job Openings

3.30pm – USD Crude Oil Inventories

 

Thursday 14^th January

9.00am – EUR ECB Monetary Policy Meeting Accounts

9.00am – EUR Italian Industrial Production m/m

12.00pm – GBP MPC Official Bank Rate Vote

12.00pm – GBP Monetary Policy Summary

12.00pm – GBP Official Bank Rate

1.30pm – USD Unemployment Claims

1.30pm – USD Import Prices m/m

 

Friday 15^th January

9.30am – GBP BoE Credit Conditions Survey

9.30am – GBP Construction Output m/m

10.00am – EUR Trade Balance

1.30pm – USD Core Retail Sales m/m

1.30pm – USD Retail Sales m/m

1.30pm – USD PPI m/m

1.30pm – USD Core PPI m/m

1.30pm – USD Empire State Manufacturing Index

2.15pm – USD Capacity Utilization Rate

2.15pm – USD Industrial Production m/m

3.00pm – USD Prelim UoM Consumer Sentiment

 

Earnings releases, 11^th to 15^th January 2016

 

Monday 11^th January

N/A

 

Tuesday 12^th January

Debenhams PLC – Trading Statement

Saga PLC – Trading Statement

WM Morrison Supermarkets PLC – Christmas Trading Statement

 

Wednesday 13^th January

Barratt Developments PLC – Trading Statement

Dunelm Group PLC – Q2 2016 Interim Management Statement

J Sainsbury PLC – Q3 2015/16 Trading Statement

 

Thursday 14^th January

Associated British Foods PLC – Q1 2016 Trading Statement

Burberry Group PLC – Q3 2016 Trading Update

ASOS PLC – Trading Statement

Premier Oil PLC – Trading and Operations Update

JP Sports Fashion PLC – Christmas Trading Statement

Tesco PLC – Christmas & Q3 2015/16 Interim Management Statement

 

Friday 15^th January

N/A