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After last week’s QE3 taper tantrum and fall from near all-time highs, the shortened week started on a calmer note with what looked like a rebound. This ultimately proved a tease and short-lived with better US data (housing, manufacturing, consumer confidence) being taken well in terms of growth/recovery rather than scaring market with worries of Fed QE3 tapering before the stronger USD sparked fears of higher bond yields and borrowing costs choking off consumer confidence. Yet another reminder of the extent to which market gains have been founded on easy monetary policy (especially in the world’s #1 economy) rather than underlying economic growth, and how sensitive the markets remain.
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A raft of other US data failed to inspire, but also failed to fuel a market rally on the expectations of continued Fed intervention, something we’ve got used to as the norm. Q1’s GDP estimate was revised down, jobless saw an uptick, home sales cooled, income/spend stuttered, manufacturing numbers were conflicting and consumer confidence rose. A real mix, leading some to question the Fed’s effectiveness, and despite the last few data points surprising strongly to the upside (good for growth, bad for QE3), they look unlikely to prevent the index from closing the week in the red. Taper on/Taper off – delete appropriately.
The IMF and OECD reminded us how fragile global growth was by cutting forecasts for major economies, while Brussels did the same by caving in twice with extension to deficit-to-GDP targets for Eurozone members to allow for an easing in austerity and focus on reforms whilst also proposing a very much watered down Financial Transaction Tax. The region’s unemployment rate remains perilous, inflation benign and confidence indicators depressed. China in focus this afternoon ahead of official PMI Manufacturing tomorrow. Consensus expecting a deterioration to stagnation in May, suggesting lacklustre domestic and global demand which would be a worry. Anything better or worse is likely to influence market direction accordingly come Monday.
With the round number 6,600 being tested as I write, there is still potential (as highlighted last week) for the correction to go as far as 6,550 – equating to a 5% decline from highs to match the digestion of the last two up-legs. Also like last week, despite a hefty round-trip (6680-6790-6580: 300pts), the UK’s flagship equity index is still down only 0.5% on the week (-35pts). What were the main movers? The table below shows the main index influencers by points both helpers and hinders. As well as the stocks which moved the most but weigh less and thus influence the index less.
|
Index Contribution |
Index Contribution |
Shares |
Shares |
|||||
| LLOY |
+4.8pts |
HSBA |
-7.4pts |
FRES |
+8.4% |
TATE |
-6.5% |
|
| FRES |
+2.7 |
SAB |
-6.7 |
POLY |
+7.4% |
EVR |
-5.8% |
|
| KGF |
+1.8 |
NG. |
-5.4 |
KGF |
+6.1% |
NG |
-5.8% |
|
| RRS |
+1.2 |
BATS |
-5.1 |
RRS |
+5.8% |
ABF |
-5.5% |
|
| SMIN |
+1.0 |
RBSb |
-4.9 |
LLOY |
+3.8% |
OML |
-4.7% |
NB: Price intraday
Positive stories include Fresnillo (FRES), Randgold Resources (RRS) and Polymetal (POLY) gaining on weaker USD and higher precious metal prices. Kingfisher (KGF) rallied on a better Q1 trading update. Smiths Group (SMIN) benefited from confirmation of an approach for its medical division. Heavyweight Lloyds (LLOY) was a help on news of it selling banking assets and continued talk of the government disposal of its stake. Negatives index moves were on account of big index weightings, bar National Grid (NG.) which suffered more from fears over its dividend, the rise in bond yields and talk of rotation from the defensive names which have rallied. Big stock moves to the downside include Evraz (EVR) on broker downgrades for the sector and likely demotion for FTSE100, Tate & Lyle (TATE) on poorly received results, Associated British Foods (ABF) among some of the defensives shunned after strong rally and Old Mutual (OML) potentially on bond market weakness.
As always, have a great weekend.
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