11.01.13 Friday Morning

Expectations going into the fourth quarterly reporting season are not particularly strong, with many analysts scaling back their September estimates. Whilst this does leave room for plenty of positive surprises, those will be very few and far between given the less than desirable climate in the U.S currently.

Fiscal cliff worries will hit most consumer-related companies, especially retailers.

On the plus side, resources may find some help on the regaining Chinese economy. Outlook statements will be the key, setting the tone for the rest of the year.

Alcoa’s encouraging 4Q numbers have lifted spirits across global markets, soothing some of those concerns in the previous session of a poor showing from the resource giant. Still early days for US earnings season with investment banking giants (JPMorgan, Goldman Sachs, Bank of America and Morgan Stanley) reporting 4Q figures next week, but the positive tone for this sector has certainly been set, particularly when it comes to outlook statements.

Putting the headline figures from Alcoa aside, the optimism regarding growth in aluminium demand this year supports China along with the emerging market recovery story.

That said, management at Alcoa have warned that the looming US budget and debt ceiling battle is the biggest unknown – a view that will most certainly be shared across corporate America this reporting season.

With these concerns hanging over markets for the next few weeks, enthusiasm to increase risk will most certainly be constrained until we hear of meaningful development in Washington.

Spanish and Italian bonds however smashed expectations at auction this Thursday helping European indices find some direction. Bond yields for both countries have eased from session highs as such, vaulting the euro to a session high in the process. Core government bonds [seen as safe havens] have declined in response to the ramp up in risk appetite.

The BoE has declared that they are not going to move on rates and QE. Reaction is likely to be muted to the event with traders more focused on what the minutes will reveal when released in later weeks.

The ECB kept rates on hold, widely expected by the market and at the press conference. Draghi said the decision was unanimous only a month after saying ECB members discussed a rate cut.

Draghi certainly believes that conditions in the market are far more favourable this month but has left the door open for easing. That though, will be dependent on how the euro zone economy fares in the months ahead.

The ECB expects Europe to struggle for the next 6 months but a gradual pickup in latter half of the year. The risks are on the downside though, with unemployment this week reaching a record high and of course, Germany printing poor industrial output and factory orders data. Again, the ECB’s OMT operations are ready and waiting for any country that needs assistance but with Spain smashing expectations by selling above its targeted amount at a bonds auction today (Friday), it is unlikely the country will check-in to the ECB emergency room anytime soon.

Monday 14^th Jan

• Taylor Wimpey PLC trading update.
• Big Yellow Group PLC interim management statement for quarter ending 31^st Dec.

Tuesday 15^th Jan

• Rio Tinto PLC Q4 2012 operations review.
• Halfords Group PLC Q3 interim management statement.
• Michael Page International PLC Q4 trading statement.
• Intermediate Capital Group PLC interim management statement for 9 months to 31^st Dec.
• Ashmore Group PLC Q2 trading statement.
• IG Group Holdings PLC Earnings Release.
• Ocado Group PLC Christmas trading update.
• Burberry Group PLC Q3 trading update.

Wednesday 16^th Jan

• Diploma PLC first interim management statement.
• N Brown Group PLC interim management statement.

Thursday 17^th Jan

• African Barrick Gold PLC earnings release.
• Associated British Foods PLC Q1 interim management statement.
• Computacenter PLC pre-close trading statement.
• Premier Oil PLC trading and operations update.
• Booker Group PLC earnings release.
• Aberdeen Asset Management PLC interim management statement.

Next Week’s Important Financial Events:

Monday 14^th Jan

• USD – Fed chairman Bernanke speaks.

Tuesday 15^th Jan

• GBP – CPI y/y
• GBP – BoE Inflation Letter
• USD – Retail Sales m/m
• USD – Core PPI m/m

Wednesday 16^th Jan

• USD – Core CPI m/m

Thursday 17^th Jan

• AUD – Employment Change
• EUR- Spanish 10-yr Bond Auction
• USD – Building Permits
• USD – Unemployment Claims
• USD – Philly Fed Manufacturing Index

Friday 18^th Jan

• GBP – Retail Sales m/m
• USD – Prelim UoM Consumer Sentiment.