12.02.16 Friday Morning

Well. What. A. Week. With China on holiday things were supposed to be quiet; instead the markets have been stuck in a ‘death spiral’ (Citigroup’s words) of despair, with minor rebound on Wednesday and (hopefully) Friday breaking up the monotonous sound of investor-despair.

It was a combination of the usual concerns over China, a terror-stricken global banking sector and the continued commodity woes (with Brent Crude sporadically approaching its recent 12 year lows) that made it such a nightmare of the week, intensifying investors’ already potent fears.

Eurozone
The DAX and CAC struck a variety of year-lows this week, the former hitting a nadir of just below 8700 with the latter at one point falling under 3900. The region kicked off that miserable Monday with 10 month low Sentix investor confidence figure, worsened by the week-long turmoil in the banking sector, sparked by fears over Deutsche Bank (see below) and joined on Thursday by worries over Societe Generale. Weak German and French industrial production data early in the week were somewhat countered by an as expected 0.3% German Q4 GDP number helping the indices see a minor rebound on Friday morning.

It’s unclear how the return of China will affect the markets next week; at least, however, there is a constant stream of data to distract investors. Monday sees the Eurozone’s trade balance figures, whilst Tuesday brings with it the German and region-wide ZEW economic sentiment numbers and Thursday sees Italian retail sales, the Eurozone current account figures and the ECB monetary policy meeting minutes.

UK
Hitting a near 4 year low on Thursday, the FTSE suffered along with its global peers this week. It also had to endure a disappointing, if light, week of data, with a 3 year low for British business confidence on Monday joined by far worse than expected manufacturing (at -0.2 against 0.0% forecast) and industrial (at -1.1%, with last month’s number revised down to -0.8%) production figures. The index was somewhat saved on Friday, however, by a surprisingly strong performance by Rolls-Royce Holdings; despite cutting its dividend for the first time in nearly 25 years the fact that the company didn’t announce a 6th profit warning in 2 years saw a FTSE-lifting 12% surge from the defence and aerospace company.

If the past 5 days were frustratingly quiet figures-wise next week is bulging at the seams with UK data. An empty Monday leads into the latest inflation figures on Tuesday, followed up by the jobs report on Wednesday and the retail sales and public sector net borrowing numbers on Friday.

US
Like its European peers the Dow Jones approached its own 2 year lows this week, suffering under the weight of the same fears as the rest of the global indices. Decent JOLTS job openings and jobless claims figures mattered little to investors, who were by and large firmly focused on the macro-picture. The main event of the week arguably was Wednesday and Thursday’s testimony from Fed chair Janet Yellen, a testimony that took the edge off of Wednesday’s widespread gains before inspiring a late in the day lunge in the US markets.

Yellen warned that US conditions have become ‘less supportive of growth’, whilst also claiming, in a rather mild assessment of what actually happened, that China’s economic slowdown has exacerbated the widespread fears about the global growth outlook. The Fed chair wasn’t all negative, reaffirming the US is still seeing ‘ongoing employment gains and faster wage growth’, before making an attempt to reassure the markets that current economic conditions mean the central bank will only implement ‘gradual increases’ to the federal funds rate. Of course Yellen also defended the late-2015 hike, even if her admittance of ‘less supportive’ US conditions arguably painted a slightly more mixed picture on the wisdom of the December decision than she could perhaps openly admit.

Next week sees the US markets rest up for President’s Day on Monday, before returning on Tuesday with the Empire State manufacturing index. Wednesday then sees building permits, housing starts, the latest PPI figure, the capacity utilization rate and the industrial production data joined by January’s FOMC meeting minutes, before Thursday reveals the Philly Fed manufacturing index and the usual jobless claims. Finally Friday sees the week’s biggest bit of data in the form of the latest US inflation figure, any movement in which will be closely watched by the Fed and interest rate wary investors alike.

Stock of the week: Deutsche Bank AG
The dramatic movements made by Deutsche Bank this week were emblematic of the sector as a whole, panicky investors fleeing left right and centre. After a startling 10% drop on Monday the company was forced to issue a statement saying it had ‘sufficient’ reserves to make payments on its Additional Tier 1 bonds.

Yet despite added reassurances from CEO John Ryan (calling the company ‘absolutely rock solid’) and, even, German financial minister Wolfgang Schauble, Deutsche Bank continued to plunge on Tuesday, with investors’ fears over the company’s capital position pushing the bank lower than its post-Lehman Brothers price back in early 2009.

A 10% leap on Wednesday saw the bank recover some of its losses, before returning to a worrying (and this time Societe Generale-inspired) 6% plunge on Thursday. Friday saw the rollercoaster ride continue, Deutsche Bank rising around 5%; the stock sits at a current trading price of €14.48 (IT-Finance.com, 12/02/2016).

(Source: IT-Finance.com 12/02/2016)

Economic Diary, 15^th to 19^th February 2016

 

Monday 15^th February

All Day – USD Bank Holiday

10.00am – EUR Trade Balance

 

Tuesday 16^th February

9.30am – GBP CPI y/y

9.30am – GBP PPI Input m/m

9.30am – GBP RPI y/y

10.00am – EUR German ZEW Economic Sentiment

10.00am – EUR ZEW Economic Sentiment

1.30pm – USD Empire State Manufacturing Index

 

Wednesday 17^th February

9.30am – GBP Average Earnings Index 3m/y

9.30am – GBP Claimant Count Change

9.30am – GBP Unemployment Rate

1.30pm – USD Building Permits

1.30pm – USD Housing Starts

1.30pm – USD PPI m/m

2.15pm – USD Capacity Utilization Rate

2.15pm – USD Industrial Production m/m

7.00pm – USD FOMC Meeting Minutes

 

Thursday 18^th February

1.30am – CNY CPI y/y

1.30am – CNY PPI y/y

9.00am – EUR Current Account

10.00am – EUR Italian Retail Sales m/m

12.30pm – EUR ECB Monetary Policy Meeting Accounts

1.30pm – USD Philly Fed Manufacturing Index

1.30pm – USD Unemployment Claims

4.00pm – USD Crude Oil Inventories

 

Friday 19^th February

9.30am – GBP Retail Sales m/m

9.30am – GBP Public Sector Net Borrowing

11.00am – GBP CBI Industrial Order Expectations

1.30pm – USD CPI m/m

1.30pm – USD Core CPI m/m

 

Earnings releases, 15^th to 19^th February 2016

 

Monday 15^th February

Fidessa Group PLC – Full Year 2015 Earnings Release

Reckitt Benckiser Group PLC – Full Year 2015 Earnings Release

 

Tuesday 16^th February

SkyePharma PLC – Full Year 2015 Earnings Release

Spectris PLC – Full Year 2015 Earnings Release

 

Wednesday 17^th February

Dr Pepper Snapple Group Inc – Q4 2015 Earnings Release

 

Thursday 18^th February

BAE Systems PLC – Full Year 2015 Earnings Release

Rexam PLC – Full Year 2015 Earnings Release

Centrica PLC – Preliminary 2015 Earnings Release

 

Friday 19^th February

Standard Life PLC – Full Year 2015 Earnings Release