28.06.13 Friday Morning

The FTSE 100 is edging ever closer to its first monthly fall in over a year as concerns over central bank stimulus continues to weigh on global equities. After enjoying its longest run of monthly gains since the mid-1990s, signs that the U.S Federal Reserve will temper stimulus is set to end that sequence today.

With the Wall Street falling nearly 800 points between the 19^th-24^th June, the Federal Reserve has been forced to take steps to reassure investors that bond purchases will not halt unless the economy continues to strengthen. The incredible rally which started in March 2009, was of course on the back of pledges made by central banks across the world to continue providing liquidity in the form of QE.

The week certainly didn’t get off to a great start with Asian stocks having continued with their recent decline, posting further losses amid uncertainty in the region. With the benchmark regional index heading towards its worst monthly loss in a year, Goldman Sachs cut its growth forecast with mounting concerns regarding a cash crunch at banks.

UK Chancellor George Osborne completed the finishing touches on a deal set to secure spending cuts worth 11.5 billion pounds over the weekend. Taking effect in 2015-2016, the plans are aimed at reducing the country’s budget deficit. The major disputes between departments were over the sensitive defence budget and a business department under pressure to do more to revive the economy.

Encouragingly for the U.K, revised data released by the Office for National Statistics has revealed that the economy performed better than first thought at the end of 2011 and the start of 2012, suggesting that the much debated double-dip recession never happened.

The revised U.S GDP figure released on Wednesday proved extremely bullish for global indices indeed. The data, revised down from 2.4% to 1.8%, served as a stark reminder of the fragility of the economy. Policymakers will be inclined to perhaps be more prudent when discussing stimulus withdrawal in the coming months.

The gains seen over the last few days however, have been more about traders seeking bargains rather than genuine optimism. There is no doubt that the markets are still in the process of pricing in the Federal Reserve’s plan to tone down its stimulus drive later this year.

Gold is trading back at the depths last seen in March 2010 as investors continue to sell bullion at record pace. After the Fed confirmed that they will be reigning in money printing, fears that Gold will devalue further against a basket of currencies has set the bearish tone.

Looking ahead to next week, investors will be keeping a close eye on Friday’s non-farm employment. We are in the precarious yet familiar situation whereby a good figure could send the markets either way.

Bearing in mind that good data will encourage the Fed to withdraw stimulus at a faster pace, market participants may be surprised to see a good figure trigger another sell-off.

Stock of the Week:

Fresnillo – Down some 6% this week on the back of plummeting gold prices. Gold trading down over 7% itself has hurt the share price along with a price target decrease from $17.28 to $14.98. Currently has a “hold” rating. Opened at 904 – Trading now at 856.

 

Next Week’s Notable Economic Data:

Monday –

• CNY – Manufacturing PMI
• GBP – Manufacturing PMI
• USD – ISM Manufacturing PMI

Tuesday –

• AUD – Cash Rate
• GBP – Construction PMI

Wednesday –

• AUD – Trade Balance
• USD – ADP Non-Farm Employment Change
• CAD – Trade Balance
• USD – Trade Balance
• USD – Unemployment Claims

Thursday –

• GBP – Official Bank rate
• EUR – ECB Press Conference

Friday –

• USD – PPI
• USD – Prelim UoM Consumer Statement

Next Week’s Notable UK Earnings:

Tuesday –

• St. Modwen Properties – Interim 2013 Earnings Release
• Anite – Preliminary 2012 Earnings Release
• Ocado Group – Interim 2013 Earnings Release