17.08.12 Friday Morning

The tone within the markets this week could best be described as lacklustre, but with a hint of excitement over news regarding takeover bids.

Monday set the tone for the week, beginning with very low trade volumes (the lowest since 1999 in some European markets) as investors used lower than expected preliminary GDP data from Japan as an excuse to extend their holiday from the markets. Yet, we experienced some takeover rumours on Monday. United Utilities, the FTSE100 water company, surged to a four year high as speculation that the company could become a takeover target teased investors’ appetite for risk.

Once again, Tuesday’s volumes also proved painfully low. Better-than-expected German GDP data caused a brief excitement as investors once again remembered that there is still a Eurozone powerhouse acting as an outlier to the Eurozone gloom. However, gains were small as investors also remembered that the Eurozone itself is still in turmoil.

The UK market enjoyed some positive news midweek as the UK unemployment rate finally dipped from 8.1% to 8% and monthly claimant count dropped from an expected 6,200 to -5,900. However, miners continued to drag the UK blue-chip index south as poor trading sessions in Asia overnight concerning global growth plagued global markets. Towards the latter period of the week, European markets entertained a positive start to trading. This was led by China’s Premier, Wen Jiabao, announcing that further stimulus measures could be on the table to help boost China’s worrying economic growth rate. Such an incentive would likely come in the form of a cut to Chinese’s banks reserve ratio requirement which would allow banks to hold less capital and instead boost their pool of liquidity to aid in lending to faltering businesses. Such moves in the past have led to the markets thundering with optimism. However, gains were a shadow of what they have been in the past following similar announcements from Chinese officials. Another takeover rumour was also gifted to the markets on Thursday courtesy of a rally towards the end of Wednesday. Informa, the FTSE250 media company, rallied from 386 pence to close at 406 pence on Wednesday following rumours of a takeover by German multimedia giant Axel Springer as well as a private equity consortium.

The last day of trading this week was filled with some sentiment, yet volumes were still poor. Better-than-expected Eurozone current account figures provided a foundation for bulls, yet bears still stubbornly over stayed their welcome, particularly around the mining sectors. Yet again, takeover rumours circulated around the UK markets on Friday. Britvic, the FTSE250 beverage firm, could be subject to a takeover by Guiness and Diageo as well as another private equity consortium. However, Britvic traded relatively flat on the open as investors were wary of buying into a stock which was only last month fined for having to recall one of their headline products owing to a design fault. 

Next week’s sees a further raft of economic as well as corporate data which could result in investors sticking with their stocks through sickness or health. Trade balance figures from Japan and manufacturing data from China will provide an insight as to how the Asian export champions are dealing with global economic slowdowns. Furthermore, profit announcements from mining giant, BHP Billiton on Thursday will provide a further insight as to whether core demand for mining goods are reflecting the current pace of the global economy.