22.11.13 Friday Morning

Global indices have traded in an extremely tight range as the week comes to a close after the Dow Jones closed above 16,000 for the first time last night. This major milestone was achieved after data showed improvement in the job market and consumer sentiment. For the first time in a while, good macroeconomic figures have been welcomed positively suggesting that the health of markets is no longer dependant on QE. The S&P 500 closed at 1,795.85, near last week’s all-time high of 1,798.18.

The week kicked off with encouraging signs emerging from Asia, in particular China, after leaders pledged to allow more private investment in state-controlled industries and expand farmers’ land rights. The initial reaction to the Chinese political reforms was a negative one but as we’re getting more detail, it looks like this is could be a revolutionary change.

In a move that was largely expected by market participants, the FOMC committee made clear their intentions to begin tapering unprecedented $85 billion monthly bond buying in the coming months as long as the economy improves as anticipated. The Federal Reserve expect data to continue to improve going into the new year and the 18th-19th Fed meeting has been earmarked as the day that a reduction could finally be confirmed.

European representatives have responded to the prospect of tapering and subsequent threat of deflation by considering negative interest rates for commercial lenders who park excess cash at the European Central Bank. With eurozone inflation running at 0.7 percent, well below its target of just under 2 percent, a raft of ECB speakers this week have said it is open to taking fresh measures to support the economy.

ECB Vice-President Vitor Constancio said on Tuesday "everything is possible" and both he and economics chief Peter Praet have said asset buying (QE) is an option after years in which the bank's policymakers have ruled it out.

The FOMC minutes also touched on their plans to hold interest rates near zero but with no definitive outcome. The committee has said it will hold rates near zero at least as long as unemployment remains above 6.5 percent and the outlook for inflation is subdued.

Federal Reserve Chairman Ben Bernanke announced on November 19th that the Fed will probably hold down its main interest rate long after ending its bond buying, and possibly after unemployment falls below 6.5 percent.

Turning to gold, analysts are becoming extremely bearish as the prospect of Federal Reserve tapering edges closer, cooling demand for an investment haven. The metal is heading for its first annual drop in 13 years with some investors losing faith in gold as a store of value. Bullion slumped 26 percent this year to $1,244 an ounce in London, reaching $1,236 yesterday, the lowest since July 9th.

Looking ahead to next week, it will be interesting to see how much upside potential remains in the markets, especially the Dow Jones Industrial Average. Whilst we are at record highs, there’s no doubt that the temptation to go short will creep into the minds of traders. However, what must be bared in mind is that historically the Christmas period is remarkably strong.

Stock of the Week: Aberdeen Asset Management

Aberdeen Asset Management has seen off a rival bid from Australian group Macquarie to secure the acquisition of fund manager Scottish Widows Investment Partnership from Lloyds Banking Group. Investors in Aberdeen have been enthused by the prospect of the SWIP acquisition, which would boost the fund management group’s assets to around £350bn and in turn make it Europe’s largest listed fund manager.

Next Week’s Notable Economic Data:

Monday –

• USD – pending Homes Sales m/m @ 15:00

Tuesday –

• GBP – Inflation Report hearings @ 10:00
• USD – Building Permits @ 13:30
• USD – CB Consumer Confidence @ 15:00
• NZD – Trade Balance @ 21:45

Wednesday –

• GBP – Second Estimate GDP q/q @ 09:30
• USD – Core Durable Goods Orders m/m @ 13:30
• USD – Unemployment Claims @ 13:30

Thursday –

• GBP – BOE governor Carney Speaks @ 10:30

Friday –

• CAD – GDP m/m @ 13:30

Next Week’s significant  FTSE Earnings:

Monday – 

• Aberdeen Asset Management Preliminary 2013 Earnings Release
• Cranswick Interim 2013 Earnings Release

Tuesday –

• Britvic Preliminary 2013 Earnings Release
• Telecom Plus Interim 2013 Earnings Release

Wednesday –

•  Telford Homes Interim 2013 Earnings Release
• Findel Interim 2013 Earnings Release

Thursday –

• RPC Group Interim 2013/14 Earnings Release
• Creston Interim 2013 Earnings Release
• Marston’s Preliminary 2013 Earnings Release
• Thomas Cook Preliminary 2012/13 Earnings Release