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Mike van Dulken, Head of Research at Accendo Markets, commented in his Weekly Roundup to clients,
This was the week that US politicians finally saw the error of their ways and pulled their country back from the brink of debt default, albeit by delaying the inevitable for just a few months meaning we’re likely to see a re-run of the fiscal standoff in due course. This has nonetheless seen risk appetite get a welcome shot in the arm with the US S&P 500 and German DAX 30 making new all-time highs and others like the FTSE100 pushing on with their recovery. In addition, with markets still so addicted to easy monetary policy, there is much debate about the government shutdown having had such an impact on growth (0.6% of GDP) that the Fed will be obliged to hold back from tapering its QE3 for a good while longer, maybe even until Bernanke yields his Chairman’s seat to Yellen. So far so good.
With the government back up and running we can now expect to receive all the delayed data we missed out on during the shutdown. It all kicks off with Non-Farm Payrolls on Tuesday. While we have been deprived of key employment data since early September it is nonetheless unlikely, even if a great number, that it will make markets think that the Fed will make a move to reduce its stimulus programme any time soon. It is only one piece of data, and with so much other data still missing (maybe uncollectable and thus lost for ever) it will make it difficult for them for several months to get an idea of how the economy is really doing. Maybe only back on track by year end.
Technically the FTSE 100 is in a rising 2-week channel with support at the 6580 which we broke above and which has served as support today. The next target is the mid-September high of 6665 and then 6705 from early August. The truly bullish will likely already be eyeing the resolution of the US situation (for now) and likely continuity of easy monetary policy meaning potential for a revisit of the May highs of 6875 which was itself within a whisker of the 1999/2000 dot.com high.
Note the continued success of the Royal Mail IPO which saw a 36% pop on its debut last Friday, followed by a further 11% gain this week. It is now trading at 500p versus the 450p opening price and the 330p official sale price. Demand remains strong from those who failed to get a slice of the action (institutions and retail investors asked for too much) although note that strike action does loom, even if despite employees having a 10% vested interest (given to them for free) in the newly privatised entity. Twitter’s next and grey market already tripled the indicative value to $30bn.
Big movers this week include Hargreaves Lansdown (HL; +14.1%) despite its struggles with the Royal Mail IPO, with its shares doing well throughout the week after its interim update. Travis Perkins (TPK; +7.1%) after its recent breakout above 1720p continues to benefit from optimism surrounding the UK housing market as well as its interim statement showing goods sales growth. Associated British Foods (ABF; +7.1%) had no specific news but maintained its bounce off a trend line of 12-month rising support thanks to a bullish broker note.
Losers for the week included Burberry (BRBY; -5%) which hinted at slowing growth in China as well as the defection of their CEO to Apple. Capita (CPI -4.6%) weak on prospect of a major fund manager’s departure from Invesco leading to liquidations and the selling down of its big stake. Rolls Royce (RR.; -2.8%) giving up some ground from a recent bounce likely on a move from the more defensives to growth oriented stocks after the US resolution.
Before I go, renewed interest in Gold which finally made a breakout at $1300 above its trend line of falling highs since end-August. This was thanks to the US dicing with default and seeing less trust in the USD make the yellow metal cheaper on a relative basis and reinforce its position as a traditional safe haven. Still in a long-term downtrend, but potential for it to see a bit more volatility in the near term although we note likely resistance at the August high of $1430.
As always, enjoy your weekend.
