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Another down week for the UK flagship index with a revisit to near April lows of 6215 and hand-rubbing by bargain hunters looking for a rebound. Declines driven by more intense fears over global growth (emerging + developed), with weaker Chinese weekend growth data (as suggested last week) seeing the prior Friday’s sell-off in risk assets (equities + industrial commodities) continue unabated. Further data releases and mixed statements from the US and IMF respectively, added to bearish overtones as the weak wore on although we have seen a revival of optimism today.
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Data-wise, major releases comprised weak Chinese growth and disappointments from the US in terms of manufacturing, housing and inflation. In the UK, inflation remains too high, squeezing the consumer, while Europe’s price rises are just below target. ZEW Surveys failed to inspire for Germany or Europe while US housing was very mixed (starts up, permits down, more blocks being built for those forced to rent suggesting reduced consumer confidence). Both US Empire State and Philly Fed missed consensus.
UK jobless saw an improvement (less claims, higher participation rate), but with economic growth still in a rut it just goes to highlight the significance of the current output gap. UK Retail Sales missed on account of the bitterly cold March and the Bank of England saw no change in voting against more QE to boost the economy. China announced a scramble for property ahead of a new capital gains tax which may see things slow in subsequent months, as well as reporting improved business sentiment and higher foreign direct investment, suggesting increased confidence in the world’s #2 economy.
The week saw results from UK names including Tesco, which disappointed on slower trading momentum and despite a fresh start by exiting the US. Rio Tinto was little moved by its production update, however, shipments were at odds with the weak Chinese GDP growth. Michael Page disappointed with a bad outlook. Burberry benefited from strong growth in China. Drinks sellers Diageo and SAB both saw big trading ranges on their results days. Lots more to come next week, with the investor favourites, the banks, updating (see my colleague’s observations on prior results-day volatility).
The US Q1 results season gathered pace with more of the all-important financials updating. Citigroup and Goldman Sachs beat profits and revenues estimates. However, Bank of America and Morgan Stanley put in mixed performances. In the much watched technology space Apple suffered from shipment worries (yet to report results), while Yahoo, Intel, eBay and IBM missed. Google and Microsoft beat but disappointed on falling ad revenues and a low uptake of Windows 8. Verizon beat and reiterated calls for Vodafone to sell its 45% stake in Verizon Wireless (cue more speculation). Today has seen heavyweights Schlumberger (oil services), General Electric and Honeywell all beat, while McDonalds struggled on an unhealthy drop in in underlying sales growth.
The Gold bugs’ nightmare continued with their precious yellow metal falling from $1475 at the close last week to $1320 on Tuesday (worse 2-day run in 30 yrs). This was on continued fears that the need for an inflation hedge was unnecessary justified by benign US inflation in March and despite loose monetary policy by major central banks. This saw the USD sought out as the safe haven-elect in case of troubled times, which saw commodities ($ denominated) suffer further. The $1400 level has been regained since as bargain hunters stepped in, as well as the USD weakening against EUR and GBP as some optimism returns following the 5-week market correction.
Away from the markets, newsflow dominated by the tragic events at the finish line of the Boston Marathon and the US search for the perpetrators. In nicer news, the situation on the Korean peninsula may have calmed after the North signalled it may be prepared to revert to dialogue as opposed to following through on recent military and nuclear threats. Progress! Now for the markets to resume theirs? The outlook remains as chequered as a Burberry coat lining, however the rise in volatility has resulted in an increase in trading opportunities. Whether markets rebound or fall further make sure you’re not just watching. Trading is not a spectator sport.
As always, enjoy your weekend.
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