23.08.13 Friday Morning

The main focus this week has been on the FOMC meeting minutes, where Fed policymakers were discussing the likelihood of stimulus withdrawal in the form of a monthly bond purchase reduction. Speculation had been rife that the committee would decide to reduce the $85 billion in bond purchases per month by around $10-$20 billion come September 17th. 

The last time the FOMC gathered to discuss stimulus withdrawal, there appeared to be factions within the group with some policymaker’s statements seeming to contradict directly with Ben Bernanke’s wish to initiate tapering by mid-September. This time around the general consensus was that committee members were now broadly backing Bernanke’s wish to see a reduction in bond purchases in the near future.

Bernanke has managed to convince the majority of those who doubted him that the bond purchases are stoking excessive risk taking in assets such as junk bonds and leveraged loans. It now seems more than likely that the vast majority of Fed officials are in-line for September tapering. 

Policymakers have also repeated a pledge to hold the target interest rate near zero as long as unemployment remains above 6.5% and that the outlook for inflation over a one-two year period doesn’t exceed 2.5%. FOMC predicts that GDP will grow this year from 2.3% to 2.6%.

Traders are favouring U.S. stocks over emerging markets by the most ever as fund flows and volatility measures show institutions are increasingly seeking the relative safety of American equities.

Almost $95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of $8.4 billion, additionally $1.37 trillion has been erased form the value of emerging market equities. The MSCI traded at 13 times estimated earnings on August 16th compared with 15 for the S&P 500 Index and 14 times for the Stoxx Europe 600 Index.

The Confederation of British Industry has lifted its forecast for economic growth for this year from 1-1.2 percent amid signs of a pick-up in business confidence. Optimism about performance across the services, construction and manufacturing sectors has added to hopes that the recovery is gathering pace after 0.6% growth in the second quarter.

Its upgrade comes after figures last week showed that the Eurozone, Britain's biggest trading partner, had emerged from recession. However, the body warns that a hoped-for rebalancing of the economy to become less reliant on consumer spending and more focused on investment and trade is taking longer than expected.

Whilst global headline indices have all retreated this week on the back of the Fed tapering fears and the damage done to emerging market equities, we have ended the week with a wealth of encouraging data that bodes well for bullish traders going into next week.

A purchasing manager’s survey has shown better than expected growth in the Eurozone with German GDP expanding by 0.7% in the second quarter, a manufacturing survey in China rebounded and US manufacturing activity rose to a 5 month high. Most importantly US Labour department data has shown jobless claims benefit are holding steady near 6 year lows.

Stock of the Week:

The shares of Kentz Corporation have rallied 18.83% this week currently trading at 565.5-566 after the engineering services group confirmed it had received two indicative offers. Kentz revealed that AMEC had submitted a "highly conditional and unsolicited" proposal last week, while M+W Group, a subsidiary of the Austrian Stumpf Group, had presented an offer during July. Kentz said the proposal from AMEC valued its shares at between 565p to 580p in cash, while the deal from M+W was at a "lower indicative value". Kentz stated it had reviewed AMEC's proposal and concluded that it undervalued the company and had rejected the approach. Kentz also said it was not considering the offer from M+W.

Next Week’s Notable UK Earnings:

Tuesday:

• Antofagasta Interim 2013 Earnings Release
• Bunzl Interim 2013 Earnings Release

Wednesday:

• G4S H1 2013 Earnings Release
• Chemring Group Interim Management Statement

Thursday:

• Hansteen Holdings 2013 Interim Earnings Release
• Soco International  2013 interim Earnings Release
• Evraz H1 2013 Earnings Release
• Serco Q2 2013 Earnings Release
• Petropavlovsk Interim 2013 Earnings Release
• Bumi Interim 2013 Earnings Release & Q2 Production Report
• Xaar 2013 Interim Earnings Release
• Stagecoach Group Interim Management Statement

Next Week’s Notable Economic Data:

Monday:

• U.S Core Durable Goods Orders m/m @ 13:30

Tuesday:

• German Ifo Business Climate @ 09:00
• U.S Consumer Confidence @15:00

Wednesday:

• BOE Gov Carney Speaks @12:45
• U.S Pending Homes Sales m/m @ 15:00

Thursday:

• U.S Prelim GDP q/q @ 13:30
• U.S Unemployment Claims @ 13:30

Friday:

• Canadian GDP m/m @ 13:30