18.01.13 Friday Morning

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This week will likely be remembered for a week dominated by economic data from China and corporate news from banks in the US.

The trading week began confidently as European headline shares built on strong gains in Asia overnight which were fuelled by US officials projecting the economy to grow by 2.5% in 2013. Interestingly, it seems the doomsday prophesies of poor US growth this year, owing to the problems of the fiscal cliff which were plaguing the markets just a few weeks ago, are slowly now being hushed away.

Burberry’s upbeat trading statement on Tuesday also gave traders another reason to rejoice. However, mixed data from the US which showed retail sales for the month increased whereas data from manufacturing surveys showed a bleak outlook led to traders second-guessing their recent indulgence in risk-on assets.

At the midweek point, investors started to show signs of panic leading to a sharp sell-off in Asian equities. Investors started to freight over the raft of troubling economic data coming from Asia which showed consumer confidence from Japan dipped and foreign direct investment into China stagnated. Furthermore, not even better-than-expected reports from some US financial institutions, including JP Morgan and Goldman Sachs regarding better-than-expected earnings, could inject much optimism into the markets.

Thursday’s trading day also began with a hint that bears were once again dominating sentiment. This was fuelled by Thursday’s announcement that that Rio Tinto’s chief executive was resigning and this, coupled with Wednesday’s announcement by Anglo American that one of its mines was being closed due to a strike, further deteriorated optimism within the mining sector. Lacklustre results from Citigroup and Bank of America also added to the poor sentiment. However, optimism slowly pulled back towards the latter period of the trading day resulting in solid gains.

On Friday, at the time of writing, headline shares traded confidently due to a string of positive economic data from China, which compensated for the frosty end to the trading week weather-wise. The most important aspect of the Chinese data showed that Chinese GDP for the last quarter of 2012 grew by 7.9% against an expectation of 7.8%. Such data should remind investors that despite the recent economic problems in China, the Chinese economy is still going from strength to strength.

Equity of the week will probably go to Shire. News that the pharmaceutical giant was a bid target by AstraZeneca led to a rise of around 2.5% on Thursday which was especially impressive given the rise on a day which was dominated by bears. Clearly, not even bears can remove the limelight on news of a possible bid on a stock.

Next week, traders have a raft of economic data to help entertain sentiment. Although Monday’s trading volumes will likely prove thin due to a US bank holiday, the rest of the week’s economic data should suffice. These include home sales from the US, unemployment figures from the UK as well as manufacturing figures from China.

Thus, in a market which many analysts believe to be overvalued, the opportunity for volatility is ever present.