10.10.14 Friday Morning

Global indices ended the week on the retreat in reaction to news that the German economy could be heading towards recession. Yesterday’s figures, showing that Europe’s largest economy had suffered the biggest monthly fall in exports in more than five years, followed worse-than-expected German Industrial Production figures days before and saw the Dax, FTSE and Dow all fall to new lows in Friday morning’s trading.

Data showed the German economy had shrunk by 0.2% in the second quarter of 2014 meaning a drop for a second successive quarter would mean it entering a technical recession. Monday began with the spotlight once again on Hong Kong as protests cooled off at the start of the week, allowing the Hang Seng to bounce. Moreover, the news of calm being restored to Hong Kong buoyed investor confidence, with the thinking that new stability in China would be crucial for growth for the natural resources sector.

The FTSE and Dow were both on the rise at the open of the week, with the latter up around 50 points at around the 1750 mark. This was emphasised by Hewlett-Packard’s news that the company aims to split into two separate entities. The news created a positive reaction which saw shares rise about 5% early this week. This, along with Yahoo!’s newly announced investment plans, helped the Dow on its way up.

The FTSE’s reaction to the end of last week’s sell off was short-lived due to poor economic data from the UK’s primary importer/exporter, Germany. Investors forecasted Industrial Production to be down 1.4% however a shock result of production down 4% created jitters in the market as one of the world’s largest trading partners is struggling to grow. The FTSE hit a weekly low this morning at 6333.8 from a high of 6588.3 at the start of trading on Monday.

The volatility index reached an 18-month high this week as the Hang Seng and the Dax had very large variants in its peaks and troughs. The Dax was of course shocked by production data but Mario Draghi’s worrying conference showing the lack of growth of the EU’s lynchpin economy created further worries in the market that Germany could return to recession. The Dax has slipped to a one-year low at 8910, with consecutive days trading this week in the red.

Brent Crude Oil has been in the news this week as its downward trend continued. Brent opened at $91.85 however, for a variety of reasons, Brent Crude has dipped around 3.65% to the $88.50 mark. Investors believe the dollar’s strength hasn’t helped but in addition Iran has matched Saudi Oil discounts in the bear market, which is the largest discount in almost six years. This could be interpreted as a cause for a price war between large Middle Eastern oil companies, creating further destabilisation of crude prices.

Overall volatility has been high. Poor results have been announced and major indices are looking to end the week in the red.
 

Stock of the Week - Rio Tinto

Rio Tinto was a unique winner this week in a broadly falling market. This is more impressive taking into account free-falling oil prices.

Rio Tinto opened at £29.69 this week but with overnight news that Glencore had approached Rio Tinto with a merger offer of $160 billion with the vision to make the world’s largest mining company. Tuesday morning trading saw Rio Tinto’s share climb to £31.77 on the open. Rio Tinto rejected the merger offer, releasing a statement that it was not in the best interest of its shareholders to accept it. This sharp rise in share price has now settled down as the share price begins to slide slightly after its initial 7% rise.