30.08.13 Friday Morning

The main focus of investors this week has been on the rising tensions in Syria following a suspected chemical weapons attack by the Assad regime. The U.S. made clear their intentions to hold Syria accountable, whilst David Cameron - who had pledged military action against Assad - was defeated by lawmakers in what was an historic vote on Thursday night.

Both gold and oil prices have soared throughout the week with gold trading the most bullishly in 5-months, trading at a 12-week-high near the $1400 per ounce mark as lower prices boosted demand. Oil meanwhile has been climbing all week with tensions in Syria rising, but there was some relief with the price falling back after Thursday’s parliamentary vote.

Since Mark Carney joined the Bank of England on July 1st from the Bank of Canada, the U.K economy has shown encouraging signs of recovery. In what was his maiden speech as Bank of England governor, Mark Carney used the opportunity to address investors' doubts that he can keep interest rates on hold at record lows until at least late 2016. Carney introduced so-called forward guidance this month to prevent a pickup in borrowing costs from undermining the economic recovery.

Carney believes that the unemployment rate, currently 7.8 percent, plays a crucial role as an indicator as to when to consider raising rates. The BOE has forecast that the 7 percent threshold won’t be reached until at least the fourth quarter of 2016.

Meanwhile, the British Chambers of Commerce revised up its gross domestic product forecasts to predict growth of 1.3 percent in 2013 and 2.2 percent in 2014. Britain's economic prospects have picked up sharply since the start of the year. Growth of 0.3 percent in the first three months increased to 0.7 percent in the second, helped by reduced euro zone tensions and government policies to help home-buyers.

As well as rising house prices, recent economic data has shown stronger industrial output and a narrowing trade deficit, prompting the BCC to forecast that a slow rebalancing of the economy away from domestic consumption was set to continue. The business lobby group also predicts unemployment will fall steadily, reaching the 7 percent threshold at which the Bank will consider raising interest rates by late 2015 - nine months earlier than the central bank expects.

British house prices rose strongly for a fourth consecutive month in August according to data from Nationwide. Prices have been boosted by the economic recovery and the government’s new measure put in place to help first time buyers onto the property ladder. In the 3 months to August, prices rose 1.4 percent, the strongest pace since mid-2010.

Looking ahead to next week, investors will be keeping a close eye on developments in Syria. It is possible that the U.S. may consider waiting for unequivocal proof from an independent source (perhaps the UN) that the Assad regime were behind the attacks before taking any military action, especially since serious doubts emerged amongst UK lawmakers.

We also have the latest round of U.S. Non-Farm data next Friday, following on from yesterday’s U.S. data. Preliminary GDP q/q showed a 2.5 percent rise against a 2.2 percent forecast whilst unemployment claims remained steady at 331k against the 337k previous. Whilst the data is not overwhelming, it is encouraging for traders going into next week and bodes well for next Friday's non-farm employment data. 


Stock of the Week: Vodafone

Vodafone has confirmed it is in talks with U.S. company Verizon Communications over the sale of its 45% stake in their joint venture, Verizon Wireless. Reports earlier this year suggested that Verizon was looking to buy Vodafone's stake in Verizon Wireless for about $100bn (£64.5bn). However, the latest reports say that Verizon may have to pay about $130bn for the stake. Shares in Vodafone rose more than 7% on the news and Verizon climbed 3%.

Next Week’s Notable Economic Data

 

Monday:

• AUD – Building Approvals m/m @ 02:30
• GBP – Manufacturing PMI @ 09:30

 

Tuesday:

 

• AUD – Retail Sales m/m @ 02:30
• GBP – Construction PMI @ 09:30
• USD – ISM Manufacturing PMI @ 15:00

 

Wednesday:

 

• AUD – GDP q/q @ 02:30
• CAD – Trade Balance @ 13:30
• USD – Trade Balance @13:30
• CAD – BOC Rate Statement @15:00
• CAD – Overnight Rate @ 15:00

 

Thursday:

 

• AUD – Trade Balance @ -2:30
• GBP – Asset Purchase Facility @ 12:00
• GBP – Official Bank Rate @ 12:00
• EUR – Minimum Bid Rate @12:45
• USD – Unemployment Claims @ 13:30
• USD – ISM Non-Manufacturing PMI @ 15:00

 

Friday:

 

• CHF – CPI m/m @ 08:15
• GBP – Manufacturing Production m/m @ 09:30
• CAD – Employment Change @ 13:30
• CAD – Unemployment Rate @ 13:30
• USD – Non-Farm Employment Change @ 13:30
• USD – Unemployment Rate @ 13:30
• CAD – Ivey PMI @ 15:00

 

Next Week’s Notable UK Earnings

 

Tuesday:

 

• Dechra Pharmaceuticals Preliminary 2013 Earnings Release

 

Wednesday:

 

• Hargreaves Lansdown Preliminary 2013 Earnings Release

 

Thursday:

 

• Betfair Group Interim Q1 2014 Management Statement