26.09.14 Friday Morning

Thursday night’s fall was preceded by worse-than-expected Japanese core inflation data but Friday’s session saw markets recover ground with investors deeming the sell off to be overdone sending the Down Jones Industrial Average back to the all-important 17,000 level.

Global markets were initially sent lower at the start of the week, led lower by Asian equities as it emerged the chances of immediate stimulus had been crushed. The news sent markets lower after China's finance minister Lou Jiwei dampened expectations that his government would boost stimulus in response to a slowdown in growth. The negativity continued into Europe, with investors focusing on news from Tesco. It had emerged that Tesco had understated the previous H1 profit by as much as 23 percent. Britain’s biggest retailer admitted executives had artificially boosted profits by £250million. Tesco suspended four executives immediately on the news and has begun an internal investigation. Not surprisingly, shares have dropped by over 15 percent this week to trade at 192p.

Asian stocks were initially lifted on Tuesday after a preliminary reading of China’s manufacturing sectors showed a surprise improvement this month. The HSBC Flash Manufacturing PMI figure jumped to 50.5, exceeding the 50 estimate. A reading above 50 indicates expansion from the previous month, a welcome sign given the struggles of the world’s second-largest economy has had recently. However, this couldn’t entice European buying, and shares soon opened lower with supermarkets being in the limelight once again. The main casualty was Tate & Lyle which saw shares drop by over 20 percent. Management warned of a “challenging” half year meaning profit would be lower than initially expected blaming supply chain problems and competition in the sweetener market for the warning.

By mid-week, the FTSE had shredded over 2 percent on its value. Markets did seem to be in a better mood on Wednesday, with the recent declines attracting bargain hunters. US New Home Sales also contributed to sentiment, with sales jumping to 504k, exceeding the 432k estimate and surging 18% in August. Sales of newly built homes soared last month to the highest level since 2008.

Towards the end of the week, the bears resurfaced again, sending the Dow down by over 260 points on Thursday. The deterioration of the markets was not only contributed by one factor but a number of issues filtering into the markets. First of all, worries of an improving US economy continued to give the Federal Reserve more ammunition to raise rates. With geopolitical concern in Syria intensifying, this has provided another reason for investors to reduce exposure. Technology stocks were also taking some of the brunt, with Apple dropping by over 2% after they recalled their new operating system and as concerns over bending iPhones took headlines. Another catalyst is that some investors are describing the recent flotation of Alibaba could have been on the high of the market, sending investors to the side-lines.

Thursday data was pretty much been in line with expectations with both Core Durable Goods Orders and Unemployment Claims matched Wall Street estimates. The Core Goods Orders, which strips out aircraft and other volatile orders, came in at 0.7%. Unemployment Claims for the week came in as expected at 293,000, a slight increase from the 281,000 last week’s figure. Meanwhile a speech from Bank of England Governor Mark Carney showed the time to increase the benchmark rate is getting closer. Sterling jumped on the news against the dollar to 1.6335. Mark Carney said strong growth and job creation meant the judgment about when to start raising rates from a record low of 0.5pc had become "more balanced".

Stock of the week – Tesco

With a FTSE 100 stock declining by over 15%, the choice for stock of the week is certainly an easy one. Tesco is facing one of the biggest crises in its history after new chief executive Dave Lewis discovered a £250m shortfall in its estimated profits for the six months to August 23. Investigators are now launching a case against how Tesco has accounted for deals with suppliers, led by Deloitte and law firms Freshfields. As expected, the news came to a huge shock to the market, with shares already under pressure due to their recent profit warning. A further blow to their share price came on Wednesday after BlackRock announced it's selling a chunk of the 5.03% it currently holds in Tesco.

Economic calendar

Monday

- EUR German Prelim CPI
- USD Personal Spending
- USD Core PCE Price Index
- USD Pending Home Sales

Tuesday

- NZD ANZ Business Confidence
- CNY HSBC Final Manufacturing PMI
- GBP Current Account
- GBP Final GDP
- EUR CPI Flash Estimate
- EUR Unemployment Rate
- USD CB Consumer Confidence

Wednesday

- CNY Manufacturing PMI
- AUD Retail Sales
- GBP Manufacturing PMI
- USD ADP Non-Farm Employment Change
- NZD GDT Price Index
- USD ISM Manufacturing PMI
- USD Crude Oil Inventories

Thursday

- CNY Bank Holiday
- AUD Building Approvals
- AUD Trade Balance
- GBP Construction PMI
- EUR Spanish Unemployment Change
- EUR Minimum Bid Rate
- EUR ECB Press Conference
- USD Unemployment Claims
- USD Factory Orders

Friday

- CNY Bank Holiday
- German Bank Holiday
- GBP Services PMI
- USD Non-Farm Employment Change
- USD Trade Balance
- USD Unemployment Rate
- USD ISM Non-Manufacturing

Earnings calendar

Monday

- Compass Group – Pre-Close Trading Update

Tuesday

- ICAP – Trading Statement
- HomeServce – Pre-Close Statement

Wednesday

- Sainsbury – Trading Statement
- ITE Group – Pre-Close Trading Update

Thursday

- Domino’s Pizza – Interim Management Statement

Friday