Yesterday’s upside moves in global indices were yet another symptom of volatility, this time with risk attitude firmly switched on. Today’s a different story, with the FTSE attempting a challenge on the top of its 6 week range, the question remains whether we can break higher and remove the bearish spectre that the current consolidation presents. For the time being, the index has tested the 50 DMA (just below the 6300 mark) but may well find the going tough above here unless commodity prices continue to offer upside momentum and boost producers.
The Reserve Bank of Australia decision to keep rates on hold should have in some respects given a little respite to the concerns emanating from China but in the main the lack of action was in response to the heightened speculation that the Fed are not best placed to hike interest rates in the near term. Thus the reiteration of the need for additional accommodative monetary policy from the RBA will likely cap gains in the Aussie dollar and keep the worries on slowing growth in Asia firmly anchored.
Basic resource stocks have fallen out of favour today and investor bent appears to be back on the defensive with supermarkets, (Tesco +0.83%, Sainsbury + 0.68%) harbouring much of the upside.
Anglo American – 2.66%, Fresnillo – 2.15%, Rio Tinto – 1.3%
The financial sector is also feeling the breeze this morning as a note from Barclays suggests that Fixed income, commodity and FX (FICC) trading in September slowed – this comes on top of a the statement from Morgan Stanley yesterday that global banks third quarter FICC may be lower by some 10-25%.
StanChart – 1.48%, RBS –0.4%, HSBC -1.13%
Glencore -3.35% falling for the first time in 3 days in London despite rallying in Hong Kong, the moves in this stock are not for the uninitiated, but the price has rebounded and recovered much of last week’s losses. Again the copper price will make a difference here – the December futures price for copper has fallen back today as the upside is finding it difficult to break above its 50 day moving average. Nevertheless, most brokers expect to see continued upside in the share price over the next year. The usual ‘Slowing Growth in China’ caveat seems to be the key risk to this assessment.
HSBC have noted recently that copper demand growth has been weak (China) but lacks accelerated recent deterioration. Copper demand is expected to be flat on the year but pick up is expected.
‘’Demand is not falling off a cliff, but demand growth is very low and we think a large demand rebound is unlikely. That said, we think the market over-estimates supply growth…. until the market finds comfort in a global base demand level, the copper price and copper equity prices are likely to see continued volatility’’
SAB MILLER (-1.5%) Brewing firm SABMiller, which is a bid target for rival Anheuser-Busch InBev, has reported a 2% rise in sales volumes for the three months to September.
Growth in Latin American and African drinks volumes offset declines in North America and the Asia Pacific region. Revenues fell by 9% due to the depreciation of emerging market currencies against the US dollar. Questions still remain on whether this merger will take place so it’s a combination of both profit taking and caution in today’s price decline.
Easyjet (flat) forecasting full year profits of between £675m and £700m, on the back of continued strength in passenger numbers. Presently the average broker price target over 12 months is 1981p with the majority of institutions bullish on the stock.
We are calling the Dow slightly lower at present to 16721, down 55 points from yesterday’s close. The major macro point to watch today is the US trade balance. This contracted in July to $41.9bn, the lowest in 5 months which goes some way to indicating that despite the global slowdown the US continues to strengthen. It’s expected to be $42.2bn in August.