Financial market research and analysis

The FTSE has made gains as the global risk-on sentiment spills over into the UK. Johnson Matthey (+7%) and Royal Mail (+6%) are the biggest gainers in London as both companies’ first half results could well satisfy the market. Energy and mining stocks are upbeat but investors should keep in mind the risk of a sharp price reversal due to slippery ground in the commodities market.

Investors were positively surprised by Royal Mail’s first half results. Although the company posted soft earnings per share of £0.18 and somewhat missed the average estimate of £0.20, the 4% rise in parcel volumes in the UK and 9% increase in GLS volumes across Europe boosted hopes regarding the future of the business. On the flip side, and as expected, sales declined to £4.395 billion from £4.803 billion.

Cutting 5500 jobs led to £40 million savings over the last 12 months and helped refinance the critical transformation of Royal Mail’s core business. The accelerated cost cuts halted the decline in the revenue but more importantly the GLS parcel-delivery service seems to have started bearing fruits. The company announced a solid £342 million operating profit before deducting the transformation costs. Royal Mail is putting on solid armour to deal with the inevitable decline in letter volumes. RM gap-opened above the 200-day moving average (470p).

This is all encouraging yet on a side note, we prefer to play it cautious on profitability as Ofcom has said it will re-examine and may roll back some of commercial flexibility given to Royal Mail in 2012, as fixing higher prices, which may directly impact earnings and dent the investor appetite.

Miners are upbeat in London with Anglo American (+3.77%), Glencore (3.74%) , Randgold (+3.10%), BHP (+2.84%), Antofagasta (+2.70%) , Rio Tinto (+2.54%) and Fresnillo (2.17%) giving a significant bump to the FTSE. Recovery remains on the slippery path however as the collapse in commodity prices could rapidly flip the sentiment over.


Investors simply loved the idea of a ‘Dovish Hike’

The FOMC minutes have been hawkish as expected. Many policymakers anticipated that the economic conditions in the US would warrant a rate hike by December, they said they say lower downside risks to the global economic and financial conditions. The US equity markets gained as uncertainties around the issue diminished. Especially when considering that the October minutes dated even before the latest and strong US jobs data. The US dollar is softer against its G10 peers as Fed-hawks, heavily positioned on the long side, crystallised gains. The Fed is now broadly expected to proceed with the first rate hike in December, yet the normalisation will certainly happen smoothly. We are now talking about a ‘dovish hike’.