14.08.15 Friday Morning

China
There is no way to discuss the past week without discussing China. The biggest market mover by far, the People’s Bank of China’s surprise decision to devalue the yuan on Tuesday, a ‘one-off depreciation’, soon turned into a two and then three day trend that only halted on Friday. The central bank took the currency around 5% lower against the dollar, before raising it a paltry 0.05% at the end of the week, and showed a worrying lack of consistency in its actions throughout. These moves were inspired by a 4 month low in exports and a big miss in industrial production, just the latest figures to suggest a troubling economic landscape in the country.

UK
So with those unwelcome Chinese currency movements in mind, we turn to the FTSE. The yuan devaluation caused the already-shaky commodity stocks to go into full-blown sell-off mode for the central portion of the week, obviously dragging with them the UK index’s oil and mining stocks, and causing the FTSE itself to fall to 2 week lows in the process. It didn’t help that the UK had little to offer in the way of data this week, and what it did have to offer was a bit dull, as wage growth stagnated and the unemployment rate remained steady at 5.6%.

Next week could bring with it a bit more excitement data-wise; the UK’s latest inflation data arrives on Tuesday, and is expected to be a flat 0.0% following comments saying as much from the Bank of England on last week’s (not-so) Super Thursday. Beyond inflation, Thursday brings with it the UK’s retail sales, whilst Friday sees the arrival of the public sector net borrowing figures.

US
The US indices had a relatively quiet week, one dominated, like the rest of the markets, by the yuan devaluation. It wasn’t a blockbuster week for data by any means, but solid JOLTS job openings, retail sales and unemployment claims all mean that a September lift-off could still be on the cards. The extra boost the dollar received from the Chinese currency movements could be a concern for the Fed, especially since the PBOC doesn’t appear to actually have a concrete plan in place, but in terms of US-based concerns everything appears to be ticking along nicely. This, of course, wasn’t the best news for the Dow Jones, which remained near its current 6 month lows for much of the week.

Fed vice-chairman Stanley Fischer stated this week that inflation remains an issue despite a healthy jobs sector, so the chances of a September hike could be determined on Wednesday with the release of the latest CPI figures (and FOMC meeting minutes). The week also brings with it the Empire State manufacturing index on Monday, building permits and housing starts on Tuesday, the Philly Fed manufacturing index and jobless claims on Thursday and the flash manufacturing PMI on Friday.

Eurozone
Whilst the yuan situation did cause a drag on the Eurozone this week, it also had some exciting news of its own. A third bailout was agreed at the start of the week, setting in motion some kind of endgame (however short term it proves to be) for the tortuous Greek saga. The next step was a Greek parliamentary vote on the deal on Thursday, a vote that wasn’t completed until well into Friday morning. Despite a solid chunk of Syriza dissention, the deal was passed, with focus now turning to the Eurogroup who meet on Friday to sign off on the agreement.

In theory, at least; Germany are still sceptical about the conditions of the bailout, with Merkel and Schauble favouring a bridging loan to give more time for the deal to be thoroughly examined and, ideally, bring the IMF on board. If the Eurogroup does indeed sign off on the deal it would then be voted on by other Eurozone parliaments next week, including the notoriously tough to please Bundestag. This would all need to be done before Thursday, when Greece faces its latest ECB repayment, something the country cannot make without some kind of extra funds.

Beyond the deal, and following a swathe of weak GDP figures across the region (oddly not including a surprisingly robust Greek figure) the Eurozone will next week see a wave of manufacturing and services PMIs on Friday, with not much else leading up to the end of week deluge of data.

Stock of the week: Alibaba Group Holdings Ltd
Alibaba, the Chinese e-commerce giant, fell to a fresh all-time low this week after investors reacted poorly to the company’s Q1 2016 earnings release. A 28% increase in revenue may sound impressive, but that figure fell short of the 30% jump expected, and provided the catalyst for a precipitous fall for its stock in the middle of the week. Add in a 3 year low for growth in its gross merchandise volume and Alibaba’s stock plunged from $80.50 at the start of the week to a nadir of $71.05 on Wednesday. Whilst the stock has climbed back to $75.16 since then, if the company’s downward trend continues (something that has been pretty consistent for the past 9 months), Alibaba could soon be at half of its $120 November highs.

(Source: IT-Finance.com 14/08/2015)

Economic Diary, 17^th to 21^st August 2015

 

Monday 17^th August

12.50am – JPY Prelim GDP q/q

1.30pm – USD Empire State Manufacturing Index

 

Tuesday 18^th August

9.30am – GBP CPI y/y

9.30am – GBP Core CPI y/y

9.30am – GBP PPI Input m/m

9.30am – GBP RPI y/y

1.30pm – USD Building Permits

1.30pm – USD Housing Starts

 

Wednesday 19^th August

9.00am – EUR Current Account

1.30pm – USD CPI m/m

1.30pm – USD Core CPI m/m

3.30pm – USD Crude Oil Inventories

7.00pm – USD FOMC Meeting Minutes

 

Thursday 20^th August

7.45am – FOMC Member Williams Speaks

9.30am – GBP Retail Sales m/m

1.30pm – USD Unemployment Claims

3.00pm – USD Philly Fed Manufacturing Index

3.00pm – USD Existing Home Sales

 

Friday 21^st August

2.45am – CNY Caixin Flash Manufacturing PMI

7.00am – EUR Gfk German Consumer Climate

8.00am – EUR French Flash Manufacturing PMI

8.00am – EUR French Flash Services PMI

8.30am – EUR German Flash Manufacturing PMI

8.30am – EUR German Flash Services PMI

9.00am – EUR Flash Manufacturing PMI

9.00am – EUR Flash Services PMI

9.30am – GBP Public Sector Net Borrowing

2.45pm – USD Flash Manufacturing PMI

Earnings releases, 17^th to 21^st August 2015

 

Monday 17^th August

Urban Outfitters Inc – Q2 2016 Earnings Release

 

Tuesday 18^th August

Persimmon PLC – Half Year 2015 Earnings Release

Cairn Energy PLC – Half Year 2015 Earnings Release

Wal-Mart Stores Inc – Q2 2016 Earnings Release

 

Wednesday 19^th August

Target Corp – Q2 2015 Earnings Release

Staples Inc – Q2 2015 Earnings Release

Hikma Pharmaceuticals PLC – Half Year 2015 Earnings Release

 

Thursday 20^th August

Gap Inc – Q2 2015 Earnings Release

Hewlett-Packard Co – Q3 2015 Earnings Release

KAZ Minerals PLC – Half Year 2015 Earnings Release

 

Friday 21^st August

Foot Locker Inc – Q2 2015 Earnings Release