28.03.14 Friday Morning

The majority of global bourses are on track for another positive week with confidence being fuelled on speculation the Chinese government could impose stimulus measures to boost sentiment. Chinese data has been somewhat poor over recent months, adding to concerns the world's second largest economy is faltering. This year, Asian markets have lagged behind other indices. The Nikkei has lost over 10% since the start of the year, the Hang Seng over 5% whilst the Dow Jones and FTSE have only lost 2%. However, the Asian benchmark index headed towards its biggest weekly advance since April 2013 on stimulus hopes.

Despite a substantial move to the upside at the beginning of the week, the euro received heavy selling pressure against the dollar, on track to close near three week lows. Speculation has intensified that the European Central Bank might ease policy further causing a drop in bond yields and a weakening euro. Investors will likely keep a close eye on future economic data within the Eurozone to see if it will build a stronger case for easing. It seems there is downside risk going into next week ahead of the ECB press conference on Thursday. With policy easing now priced into the market, if this becomes a lacklustre event, we could see a sudden surge in euro strength. Adding to further pressure, ECB Governing Council member Jens Weidmann said negative interest rates were an option to tamper euro strength.

It seems continued strain between Russia and Ukraine has had little impact on markets this week. Safe heaven assets such as Gold have continued to slide with investors willing to take on more risk. Markets did lose some tread midweek following comments from President Barack Obama who stated the crisis could escalate further. World powers have continued to threaten further sanctions to discourage Russia from invading other parts of Ukraine. Gold remains near six-week lows, on track for a second straight weekly decline.

Economic data this week has been fairly mixed across the globe. Weak Chinese manufacturing PMI caused further strain to the economy, coming in below expectations at 48.1. However, markets soon shrugged off the data with the majority of European markets opening the week in positive territory. By the end of the day markets were in the red, falling after German and US Manufacturing PMI failed to match expectations.

Data from the UK inflation rate fell to a four-year low of 1.7% on Tuesday directly influenced by the 0.8p a litre fall in petrol prices between January and February earlier this year. However, British retail sales were more favourable, rising much faster than forecasted in February. With retail sales increasing to 1.7% and beating the 0.5% estimate, it shows the economy continues its solid recovery. The reduction in inflation has helped consumer spending after pay packages lag behind the cost of living.

US Durable Goods Orders came in much better than expected this week, beating the 1.1% estimate to 2.2%. Consumer confidence was also on the rise, hitting a six-year high to 82.3. With confidence being the leading indicator of consumer spending, this could have a direct impact on retail stocks. The only negativity to take from the US economy this week was housing data. New home sales and pending homes sales failed to match those of analysts’ expectations, signalling the housing market has hit a soft patch. After two years of double-digit growth, falling affordability and unusually cold weather is taking its toll. However, economists remain bullish of a spring rebound with many expecting home prices to rise by 5% in 2014.

Stock of the week – Kingfisher

Shares in Kingfisher gained over 7% on Tuesday after the home-improvements retailer announced it would return “£200 million to shareholders in fiscal 2015". The DIY group that owns B&Q will pay out about £200m to shareholders this year after its financial performance experienced a revival along with the UK housing market. Pre-tax profit for the year to 1 February rose 4.1% to £744m on sales up 5.2%, in line with City estimates. Kingfisher shares, up 45% in the last year, were the biggest gainers in the FTSE 100 index on Tuesday, up 7.2% to 435p. Deutsche Bank upgraded the stock to buy from Hold.

Economic data:

 

Monday

• GBP Net Lending to Individuals
• EUR CPI Flash estimates
• USD Fed Chair Yellen Speaks

Tuesday

• CNY Manufacturing PMI
• CNY HSBC Final Manufacturing PMI
• GBP Manufacturing PMI
• USD ISM Manufacturing PMI

Wednesday

• AUD Building Approvals
• GBP Construction PMI
• USD ADP Non-Farm Employment Change

Thursday

• AUD Retail Sales
• AUD Trade Balance
• AUD RBA Gov Stevens Speaks
• GBP Services PMI
• EUR Minimum Bid Rate
• EUR ECB Trade Balance
• USD Trade Balance
• USD Unemployment Claims
• USD ISM Non-Manufacturing PMI

Friday

• USD Non-Farm Employment Change
• USD Unemployment Rate

 

Earnings:

 

Monday

• Quindell – earnings release
• YouGov – earnings release
• Bowleven – earnings release

Tuesday

• ICAP – Trading statement
• Corac Group – earnings release

Wednesday

• FirstGroup – trading update
• Domino’s Pizza – interim management statement

Thursday

• Booker Group – interim management statement
• Thornton’s – trading update
• Tate & Lyle – trading update