11.04.14 Friday Morning

Global bourses started the week in steep declines as investor’s feared tech companies are being overvalued. Investors across the globe took the opportunity to dump stock on fears tech firms are being valued on their potential over decades and not current market conditions. With the S&P trading at roughly 15-16 times forward earnings, many of the growth firms are trading at valuations twice that. The US tech fell to its biggest three-day retreat since 2011 on Monday whilst the S&P erased all of yearly gains. The market feared that this could be the start of a bear market, forecasting a big market turnaround. The market volatility caused the Volatility Index to trade over 20 percent higher on speculation volatility will remain.

Japanese equities were also hit hard at the beginning of the week following big declines in Health-care and technology stocks. Chinese stocks however held their ground on continued speculation the government will take steps to bolster economic growth. Investors have priced in the fact that the government will introduce measures to stabilize growth if the economy deteriorates further, highlighting the importance of future economic data.

Stirling strengthened against the dollar midweek following better than expected UK manufacturing data. The sector posted a surprise jump in activity, adding to hopes the country’s economic recovery is strengthening. Manufacturing Production grew by 1% month-on-month in February, beating the 0.3% forecast.

Sentiment was improved by midweek as the bulls overcame the bears; with global markets rebounding from previous loses. The positivity was helped after a string of corporate earnings beat market estimates. Alcoa Inc started the quarterly earnings season by posting profit that exceeded estimates with shares rallying as much as 4% during pre-market trading. Further positivity was then helped after the release of the FOMC meeting minutes on Wednesday night, triggering a rally which would see all of Monday and Tuesdays losses erased.

During the Federal Reserve March meeting, the Fed indicated they would end their massive bond-buying program this autumn. A speech followed by Fed Chair Janet Yellen who said the Fed could start raising interest rates six months after bond purchases cease. However, from the gist of last Wednesdays meeting minutes, it seems the market wrongly interpreted Yellen’s hawkish views back in March of an imminent rate hike. The FOMC minutes concluded that policymakers probably won't be raising rates in near future amid worries about low inflation and slack in the labour market. Markets took to the news positively, adding to earlier gains and erasing weekly losses.

Gains were short lived as valuation fears emerged once again towards the end of the week. Thursday and Friday saw steep losses, with the Wall Street shedding over 300 points. Investors took the opportunity to dump stocks after it emerged that equity gains have overshot the earnings outlook, sending global equities to a two-week low. Investors took to Gold, pushing the precious metal near a two week high. The US dollar was under heavy selling pressure, set for its biggest weekly decline against the euro in six months after FOMC minutes showed no interest rate hike was imminent.

Stock of the week:
Alcoa kicked-off Q1, posting earnings that exceeded Wall Street expectations despite continued drag from primary metals unit. Alcoa reported $5.5 billion in first quarter revenue, a figure that beat Street expectations of $5.4 billion.

Earnings calendar

 

Tuesday

Michael Page International – Interim Management Statement

Aggreko – Interim Management Statement

Hochschild Minding – Mining Production Results

 

Wednesday

Persimmon – Interim Management Statement

Telford Homes – Trading Update

Reckitt Benckiser – Interim Management Statement

Economic Data

Monday

USD – Core Retail Sales @ 13:30

USD – Retail Sales @ 13:30

Tuesday

GBP – PPI @ 09:30

EUR – German ZEW Economic Statement @ 10:00

USD – Core CPI @ 13:30

USD – Fed Chair Yellen Speaks @ 13:45

Wednesday

GBP – Claimant Count Change @ 09:30

GBP – Unemployment Rate @ 09:30

USD – Building Permits @ 13:30

USD – Fed Chair Yellen Speaks @ 17:15

Thursday

CAD – Core CPI @ 13:30

USD – Unemployment Claims @ 13:30

USD – Philly Fed Manufacturing Index @ 15:00