Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients,
It’s been a few weeks since I last wrote and the FTSE100 correction has taken yet another leg down (that’s a 5.2% correction from the top). In fact the bad start to December is either here to scupper any chance of a Santa rally or give Mr Claus a better base from which to start. If anything I’m leaning more towards the latter with the UK index having corrected more than its peers before finding support at its trendline of 5-month rising lows. Maybe the last few weeks as an ugly duckling will see it benefit on a relative basis through to the holidays and into the new year.
Data-wise, this week UK House Prices continued to climb along with inflation expectations while the BoE and ECB left policy unchanged. China and US Manufacturing & Services PMIs were solid, even if US ISM figures were mixed. Eurozone PMIs showed more division and divergence and German Factory Orders were weak. US Consumer Confidence jumped and jobs data was good. Eurozone Q3 GDP was confirmed as negative along with October Producer Prices and while US Q3 GDP was good as a headline it was less impressive excluding-inventory builds. Data watching continues. Why?
This afternoon we’ve had another batch of volatility-inducing US Employment data and while 204K non-farm payroll additions in November was better than the 185K expected (solid versus last month), with unemployment down 0.3% to a 5-yr low of 7.0% (the Fed’s old target, before dismissal in favour of broader data spread) and the participation rate actually rose to 63%, there was no ADP-like big upward revision to October, personal income went negative (even if spending rose) and inflation (both normal and core) fell again and remains far from target.
Assuming the positive equity market response is the news being interpreted as QE3 taper-negative rather than economy positive, we remain confident of no tapering by the Fed in December. With inflation still to cool and stock-building flattering US GDP for the last two quarters we expect the Fed FOMC to reiterate its ‘watching of a broad range of economic indicators’ before moving and voting to maintain the status quo until late in Q1, waiting to see if there is any stock-build reversal in Q4 that hurts underlying growth. Anyway, what kind of bahh humbug present would that be from Bernanke, so close to the end his eventful but otherwise successful tenure? By the time the time is right it’ll be Yellen in the hot seat.
Expect the next FOMC minutes to again mention other measures to offset tapering (patience before rate rises, lower unemployment threshold, negative deposit rates) while simultaneously delivering the usual expectations managing threats to keep markets from getting too excited. If the Fed really is serious about tapering when its data-ducks are better aligned, expect more talk about evidence of both the economy AND markets being able to cope with less stimulus (too tight financial conditions contributed to the taper no-show in September). Mind you, we still don’t know what ‘tapering’ means, do we. $5bn out of $85bn/month? $10bn? $15bn? I guess any drop would be taken by the markets as having set the ball to tighter policy rolling.
I mentioned IPOs last time and we’re excited about another big pending US listing in the form of Hilton Worldwide (HLT) which could see the hotel giant re-list next week after a 6yr market absence, selling 112.8m shares at $18-21, raising $2.4bn of which $1.25 to pay down some of its significant $14bn debt pile (accumulated after its rescue by private equity behemoth Blackstone). The IPO could value the company at around $19bn ($31bn incl. debt) making it the sector’s biggest. Peer-based valuation would imply a small discount to the mid-point of the price range, but the range could mean anything from a 3% discount to a 7% premium. Correctly priced? Whether it should trade at a premium justified by better growth potential or a discount due to the high debt burden remains to be seen.
Note also that several of the recent UK IPOs including theme park operator Merlin Entertainments (MERL), the recently privatised Royal Mail (RMG) and London estate agency Foxtons (FOXT) could be set to benefit from the quarterly FTSE reshuffle on Weds 11 Dec with RMG’s £5.9bn market cap meaning it very likely it gains entry into the UK’s Flagship index (around #60) while MERL’s £3.5bn means it could squeeze in at the bottom, if not definitely at the top of the FTSE250, while FOXT at £818m would sit near the middle of FSE250. Vedanta (VED) and Croda (CRDA) likely losers from the top-flight. It looks like being quite a reshuffle this quarter.
As always, enjoy your weekend.
