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Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients;
So the Fed didn’t move. A no-show for T-day. Markets surprised, with few expecting nothing at all, most seeing at least some reduction in order to maintain credibility after all that build up to Sep-taper (last time I use that, promise). Risk appetite received a boost and equities and commodities rallied, but the former look set to close the key week pretty flat in the UK, in contrast to major peers many of whom are trading near all-time highs. UK index remains close to recent highs and multi-month rising support, but still has work to do.
Should we really have been surprised by the Fed? It’s been clear for many months about any move to reduce its QE3 asset purchasing stimulus programme being data dependant. While Q2 GDP was great after the upward revision, even that was to-end-June (2.5 months old) and while there have been improvements in employment et al, on the whole data remain mixed and unsatisfactory in the Fed’s eyes. Add to this taper talk since June causing financing conditions to tighten too much and a budget gridlocked Washington and a looming debt-ceiling revisit and the Fed emphasised how tapering is indeed data dependent but that there are other things to be considered before a decision is made (a bit like the reverse of BoE governor Carney’s knock-out clauses on rate rises).
We always expected a delay (see my last weekly Roundup – 30 Aug). End 2013 at the earliest but more likely early 2014. Outgoing Chairman Bernanke (‘may’ leave Jan) now even suggests that data recovery tepid enough and sufficient additional political headwinds around that tapering even in 2013 is not a given. So here we are with excessively accommodative monetary policy for a few more months and a renewed focus on every bit of data out for the US until Christmas and probably into the New Year likely, keeping things spicy. But that’s what short-term traders like. Markets that move!.
Technically, the FTSE 100 index remains in an uptrend, with rising 3-month support at 6,500 and a multi-year trend line at 6,200. In terms of resistance, Monday’s high (after we heard of a more hawkish Fed chair candidate withdrawing) at 6665, then early August high 6,715 and then late-May high 6,875 before we can think about joining US markets and the DAX in and the all-time highs group.
Big data included some weak US manufacturing and mixed housing prints, a big drop in Chinese foreign direct investment, softer UK inflation which offset some of the pressure on the BoE Governor Carney’s unappreciated forward guidance, a bounce in ZEW surveys, softer US inflation (another thing keeping the Fed from moving).
Big movers on the FTSE 100 this week were aplenty, however, stock-specific news was a little sparse. Schroders (SDR, +6.1%) making a breakout on the Fed news to exceed 4-month highs to register new all-time highs. Unilever (ULVR, +5%) did very well for a defensive stock maintaining its bounce after a 2-month decline. Shire (SHP, +4.9%) maintains its meteoric ascent since May. SAB-Miller (SAB +4.7%) was another defensive doing well, continuing its bounce from early in the month to test the key 3300p. Severn Trent (SVT) actually moved ahead of the Fed announcement on renewed bid speculation, something that surfaces from time to time in the sector.
At the other end of the index, Fresnillo (FRES; -13.5%) got a pasting on news that Mexico was mulling a new mining tax. Even a higher Gold price in reaction to the Fed couldn’t revive much from worst levels in 6 weeks. Tate & Lyle (TATE; -4.1%) persisted with its downtrend and falling highs from mid-July, with no help from a broker downgrade. Persimmon (PSN; -3.3%) despite a broker Hold reiteration. Whitbread (WTB; -3.1%) suffered from a broker initiation at Sell based on 12-month share price gains and optimism priced in. G4S (GFS; -3.0%) fell back from recent highs and below both a 21-month intersecting trend line and rising 2-month support.
This weekend sees Merkel try for a third term as Germany’s Chancellor (she hasn’t had enough?) and the quasi purse-strings holder for the Eurozone. While we know that there are political headwinds building in the US, note the quiet of late on the continent. This has been to enhance election chances, and so come Monday negotiations on further bailouts, reforms, banking unions etc. will be free to begin anew. Be prepared for a return of the Eurozone toing and froing we have to come to know and love.
Last time I mentioned the trading adage “Sell in May and go away, come back on St Ledger’s Day (14 Sept; horse race at Doncaster)”. At the time it wasn’t proving helpful for 2013 with the index flat. The same is true this week, with the index up just 62.5% by Monday (first trading day after St Ledger) and flat since. Worth the 4 ½ month wait? What is key is what you would have been missed in between (+6.8%, -12.7%, +11.9%, -4.6% and 4.3%). Fantastic moves. We know markets don’t go up or down in a straight line and that’s why we trade. As Mozart says “the real music is between the notes.
As always, enjoy your weekend.
For any commentary/analyst opinion on anything CFD/Spread Bet/financial markets-related, please contact research@accendomarkets.com
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