28.12.11 Wednesday Afternoon

Week in Review:

The first trading week of the New Year has displayed a quiet flat trend across the main markets ahead of today’s US non-farm figure. Economic news has been dominated once again by the Eurozone with focus being on the multiple bond auctions, some being more successful than others, happening across the zone. Germany and France were successful in their debt auctions with the German selling 4bn of the intended 5bn euros 10 year bonds at a retreated rate of 1.93%. France hit their target selling off 7.93bn at a slightly higher than previous rate of 3.29%. Hungary was less successful only managing to sell 110M euros of one-years at a rate which hit 9.96%, far outweighing the 7% ‘danger’ level. Consequently Hungary has been demoted to junk by Moody’s.

Aside from the bond auctions the plot thickened for two other Eurozone members in their individual battles to avoid being sucked into the mire. The Turkish Central Bank sold US dollars for a fourth consecutive day in a bid to sustain the Lira which weakened nearly 22% over the course of 2011 to a level above 1.85. However, analysis states that the Central Bank is playing a risky game as their Forex reserves are just about adequate in a case of a European Credit Crunch. Spain is also feeling the heat entering 2012 with their new government stating that their deficit could be higher than last week’s upward revision. It was disclosed that the deficit for last year could be two full percentage points higher than the 6% target. The Euro has continued to succumb to the dollar after holding firm for most of 2011. Analysts expect it to be around a price of 1.28 going into the second half of 2012, a level it sits at currently.

Away from Europe, Japan announced that the continually strengthening Yen is eroding its competitiveness and making it difficult to make capital investments because of the on-going European issues. The Yen strengthened 5% against the dollar in 2011. Saudi Arabia has said that they are ready to fill the gap left if tension from Iran continues; Nymex Oil steadily rose to above the $102 a barrel mark. Commodity prices overall have been buy orientated with Gold and Silver seeing bullish sentiment after the bear market was avoided and Copper prices rising due to demand out of China for the metal.

Figures out this week have proved been positive from the US, however the Dow remains stagnant and pensive ahead of the non-farm figure after the best quarter since summer 2009. The ADP non-farm increase of 325K over a forecast 176K should lead to hope that the increase in jobs will be greater than last month’s 120K increase. Unemployment claims once again remain below the 400K mark coming in at 372K. All other data came out in line with what was forecast.

News regarding the performance of consumer retail outlets headed the equities this week. Next, one of the largest high street retailers announced a 3.1% in total sales in the second half of 2011. However, this figure was skewed by the fact that online sales went up 16.9% with store sales dropping. This figure displays a worrying overall picture of the decline of the general health of retailers and the state of the UK high street. Next share price was down 6.5% overall this week. Blacks Leisure the outdoor leisure retailer, announced Friday that it had received a number of final offers for the company. However, any sale will be effective through an administration process and that the offers it had received attributed no value to its ordinary shares which have been suspended from trading. JJB announced a 5% rise in sales which saw the stock price jump 73% this week. However, this can only be seen as a small glimmer of light on the overall picture which has seen the stock diminish 77% last year.

Week Ahead:

The first full trading week of 2012 sees a high abundance of figures coming out. However most of these are perceived as low impact. Thursday sees Manufacturing data, the official Bank Rate and Industrial Production from the UK. Unemployment Claims from the US and an ECB press conference. Data on Friday concerns the Trade Balance from the US and Canada. PLCs reporting next week include Marks and Spencer’s, Debenhams, Balfour Beatty, Sainsbury’s, Tesco, SIG, Mothercare, Barratt Developments and Home Retail Group. No companies from the Dow Jones are reporting.