31.05.13 Friday Morning

With U.S and UK markets closed on Monday, owing to the bank holiday, there was very little market action to report on. Significantly, ECB member Asmussen assured investors that the bank will keep an accommodative monetary policy for as long as is required.

This reassurance comes following last week’s warning from the Fed regarding the tapering of stimulus, initiating a massive sell-off. Almost all of the gains seen erased on Friday were recouped by the markets after investors took advantage of lower prices and bought into the dips.

Sentiment was underpinned by the rise in the Dow Jones industrial average to another record high after data showed U.S. home prices accelerated by the most in nearly seven years in March, while consumer confidence picked up in May to its highest level in more than five years.

The strong U.S data helped Asian stocks climb, with Japanese shares leading the way. There was some concern in Australia however, with Pacific Investment Management expecting Australia’s central bank to cut borrowing costs as falling mining investment may leave a hole in the economy.

Mining shares have been somewhat unloved by investors since September 2011 when a large number began a lengthy downward trend. This has left mining stocks relatively cheap and has provided a perfect opportunity for traders to invest in the sector whilst holding back on the market on the whole whilst awaiting a deeper correction.

Meanwhile in Japan, governor Kuroda’s loose monetary policy remains the main bolster for local liquidity. Additionally, Japan's public pension fund, a pool of over $1 trillion, is considering a change to its portfolio strategy that could allow its investment in domestic stocks to grow with a rallying market.

However, it wasn’t long before concerns that the Federal Reserve will reduce debt purchases allowed the bears to come into play once again. European stocks continued their decline as investors dumped stocks and piled into the dollar. Boston head of Fed, Rosengren, said he is willing to scale back QE sometime soon if the economy continues to recover at its current pace.

Contributing to the worries, growth forecasts for both China and the Eurozone were cut today. The International Monetary Fund lowered its forecast for China’s growth to 7.75 percent this year whilst the OECD cut growth forecasts for the Eurozone and called for the ECB to consider doing more to boost growth.

Investors had been excitedly awaiting U.S GDP data all week hoping that the figures could give further clues as to when the Fed will begin its stimulus wind down.

Unfortunately the figure came out slightly lower than expected at 2.4 percent (2.5 percent expected), failing to initiate any significant moves. Jobless claims rose 354k, above the 340k estimated by the market, a sign the labour market in the US remains somewhat fragile.

Whilst the poor data does ease Fed stimulus tapering fears, with the US nonfarm payrolls due next week, yesterday’s jobless claims would suggest that it’s unlikely the unemployment rate will edge lower for the month of April.

Stock of the Week:
 

Smiths Group – British engineering company Smiths Group (SMIN.L), have received an approach for its medical division. Sources say the medical division could be worth more than £2billion. Shares have traded up to 7% higher than the week open.

Monday –

• GBP – Manufacturing PMI
• USD – ISM Manufacturing PMI

Tuesday –

• AUD – Cash Rate
• CAD – Trade Balance
• USD – Trade Balance

Wednesday –

• AUD – GDP
• GBP – Services PMI
• USD – ADP Non-Farm Employment Change

Thursday –

• AUD – Trade Balance
• CHF – CPI
• EUR – 10-yr Spanish Bond Auction
• GBP – Official Bank Rate
• GBP – MPC Rate Statement
• EUR – Minimum Bid Rate
• EUR – ECB Press Conference
• USD – Unemployment Claims

Friday –

• CAD – Unemployment Rate
• USD – Non-Farm Employment Change
• USD – Unemployment Rate

Next Week’s Notable UK Earnings:
 

Wednesday –

• RPC Group – Preliminary 2012/13 Earnings release
• Synergy Health – Preliminary 2012 Earnings Release