25.07.14 Friday Morning

The week started with a rise in Asian stocks overnight into Monday but the rest of the day was not so good for equities. Worries over the conflicts in Gaza and Ukraine drove investors away from riskier assets. Gold hit a weekly high of $1319/oz and bond prices rallied as investors moved money into the safe-havens. The markets also looked to western governments as the prospect of further economic sanctions on Russia loomed. Negative effects overshadowed earnings from the US where 66 percent of S&P 500 companies were announcing profits exceeding expectations; the normal level is around 63 percent.

As the situation in Ukraine seemed to cool on Tuesday market participants started to take on more risk, equities rose and gold fell. Asian markets performed well overnight, the MSCI’s broadest index of Asia-Pacific shares reaching a three-year high, and the positive sentiment flowed into the European and American trading sessions. The S&P 500 index hitting an intraday record high. Currency markets were unable to shake all concerns however, the dollar and euro only managed slight recoveries against the safe-haven yen.

The encouraging day in Europe and the US was followed by gains in Asian equities early on Wednesday. The Australian dollar was bolstered by news that inflation in the country had matched expectations. The dollar strengthened against a basket of other currencies as investors considered the possibility of interest rate rises in the US coming earlier than projected and the impact any future sanctions on Russia would have on the Euro area.

A series of upbeat corporate earnings from the US buoyed risk appetite and shares in Europe, emerging markets and Wall Street rose on Wednesday, the S&P 500 index reached a record close of 1987.01. The Dow Jones industrial average was pulled lower by a 2.3 percent fall in the Boeing Co share price after rising costs at the firm spooked investors, closing 0.16 percent down on the day. Crude oil futures in both WTI and Brent rose as news from the US showed stockpiles were significantly lower than expectations.

Performance in Asian equities on Thursday morning trading was mixed. Strong Chinese manufacturing data and better than expected tech earnings from the US bolstered Chinese equities, China’s CSI300 index closed 1.9 percent higher. Other markets saw less impressive performance; MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent; the Nikkei fell 0.2 percent as Japan’s export figures failed to express; and South Korean equities fell 0.1 percent after data showed slowing growth in the economy.

Fitch upgrades on a number of banks boosted performance in shares and lifted the FTSE. Worries about the strength of the recovery in the euro zone’s largest economy were eased when Germany joined China in reporting better than expected manufacturing data. The euro and pound both continued to struggle against the dollar. Further upbeat earnings reports in the US helped the S&P 500 index to reach another record high close. Gold remained around the $1295 level after reaching a one-month low on Thursday afternoon. Brent crude was down to around $107.20 as US Secretary of State John Kerry continued efforts to calm tensions in the Middle East.

Asian equities again saw mixed performance in Friday morning trading. Chinese shares rose 1 percent over the session to secure the largest weekly increase since September, gaining 5.6%. Russian dollar traded stocks struggled on worries of further sanctions on business in the country, European officials are meeting again today to discuss possible action over continued problems in Ukraine. The MSCI’s broadest index of Asia-Pacific shares outside Japan was also down but still managed to post a weekly gain of more than 1 percent.

European shares dipped on Friday on reports of a significant fall in German business confidence over the last few weeks, fuelling doubts about the health of Europe’s largest economy. The news also pulled the euro down close to an eight-month low against the dollar. Preliminary GDP figures from the UK, which were as predicted, also failed to impress. US stocks fell on the open of markets, Amazon and Visa putting downward pressure on the S&P 500 after disappointing reported earnings.

Stock of the Week – Apple Inc

Electronics giant Apple reported earnings of $1.28 per share on Tuesday evening, beating analysts’ expectations and driving shares up 2.61% the following day. Results showed sales in the US and other developed markets slowed in the latest quarter as consumers anticipated the launch of the new edition of the iPhone expected soon. These ‘purchasing delays,’ as Apple described them, were offset by strong sales growth in greater China, where revenues were up 28 percent.
Unit growth of the iPhone in China was at 48 percent, and growth was expected to continue as Apple’s new partner in the region, China Mobile, rolled out 4G coverage across the country. R&D costs for the company were quoted at 4 percent of revenue in the results, the highest level since 2007, giving weight to rumours that completely new products were in the pipeline. Apple shares have risen more than 20% over the last three months on the reports. Increased spending on research had not hit margins however as the company stated gross profit margins were sharply up on the previous year at 39.4 percent.

Next Week’s Data

Monday 28 July
15:00USDPending Home Sales m/m

Tuesday 29 July
00:30JPYHousehold Spending y/y
00:50JPYRetail Sales y/y
14:00USDS&P/CS Composite-20 HPI y/y
15:00USDCB Consumer Confidence

Wednesday 30 July
All DayEURGerman Prelim CPI m/m
13:15USDADP Non-Farm Employment Change
13:30USDAdvance GDP q/q
19:00USDFOMC Statement

Thursday 31 July
08:55EURGerman Unemployment Change
10:00EURCPI Flash Estimate y/y
EURCore CPI Flash Estimate y/y
EURUnemployment Rate
13:30USDUnemployment Claims

Friday 1 Aug
02:00CNYManufacturing PMI
02:45 CNYHSBC Final Manufacturing PMI
09:30GBPManufacturing PMI
13:30USDNon-Farm Employment Change & Unemployment Rate
15:00USDISM Manufacturing PMI

Next Week’s Earnings

Monday 28 July
Reckitt Benckiser Group - PLC H1 2014 Earnings Release
Great Portland Estates -  PLC Interim Management Statement
Jazztel - PLCQ2 2014 Earnings Release

Tuesday 29 July
BP PLC  - Q2 2014 Earnings Release
GKN PLC  - Interim 2014 Earnings Release
Drax Group PLC  - Half Year 2014 Earnings Release
Jardine Lloyd Thompson Group  - PLC Interim 2014 Earnings Release
Willis Group Holdings  - PLC Q2 2014 Earnings Release

Wednesday 30 July

Barclays  - PLC Half Year 2014 Earnings Release
Travis Perkins  - PLC Half Year 2014 Earnings Release
3i Group  - PLC Interim Management Statement Release
ITV  - PLC Interim 2014 Earnings Release
Noble Corporation PLC  - Q2 2014 Earnings Release

Thursday 31 July

Lloyds Banking Group  - PLC Half Year 2014 Earnings Release
BG Group  - PLC Q2 2014 Earnings Release
Centrica  - PLC Half Year 2014 Earnings Release
BT Group  - PLC Q1 2014/15 Earnings Release
Rolls-Royce Holdings  - PLC H1 2014 Earnings Release
BAE Systems  - PLC Interim 2014 Earnings Release
Pentair  - PLC Q2 2014 Earnings Release
Delphi Automotive  - PLC Q2 2014 Earnings Release