Financial Market Research and Analysis

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FTSE recovers after eight days
The fact that UK supermarkets are all trading higher this morning despite slumps in sales and loss of market share would indicate that we are in the midst of a relief rally following 8 days of consecutive losses and that logic and reason can be removed from the narrative for the time being.
All three major supermarkets lost additional market share to Aldi and Lidl which saw sales growth +15.4% and 17.9% respectively. Yet shares are in demand this morning following the Kantar survey. Sainsbury (+4.26%) is powering ahead; sales rose 1.2% in the 12 weeks to December 6, with its market share increasing 0.2% year-on-year to 16.7%.

Morrison (+4.14%) and Tesco (+3.18%) both saw sales fall 3.4% over the 12 weeks.

Oil prices have steadied a little having plunged to some multiyear lows yesterday but some of this can be put down to some pull backs in the dollar ahead of the FOMC meeting this week and the fact that the demise of oil seems to be prevalent in the mainstream media.

The FTSE is up 100 points in early trade, led by the energy sector with BP +2.61% while Shell has added 3.28%. Even the shakiness of the merger between BG Group and Shell owing to lower oil prices has done little to cap gains here.
The index itself has not yet negated Monday’s losses and will likely see some barrier presented by the 6000 metric which held firm against any upside attempts yesterday.

While we cannot completely dispel the possibility, any notion that risk appetite has returned is possibly a little premature.

UK CPI came in as expected with a year on year rise of 0.1% - the first time we’ve seen inflation above zero for some 4 months- but remains quite some distance below the BOE mandate so movements in sterling have been rather muted. The pound has in fact pared earlier gains against the dollar and remains above the 72p against the single currency. The markets are not exactly expecting any sudden moves from the MPC and with currently inflation levels and future expectation levels subdued, it would seem the ‘unreliable boyfriend’ has again been vindicated in keeping rates as is.
While house prices remain elevated and continue to rise, Mark Carney is clearly confident that fiscal and not monetary policy is the key to damping this phenomenon.

Metal producers are higher despite the lack of any leading upside in the likes of copper or iron ore prices. Much of this morning’s rise could be put down to some comments from the Rio Tinto CEO who stated that many of the key players are ‘hanging on by their fingernails’ – there is an element of hope that this will lead to a pullback in production which prove positive in the longer term for metal prices.

Glencore (+2.5%) upgraded to overweight at JPM. ‘’ In our view, GLEN defined a credible strategy to generate $2.3bn of positive FCF in 2016, reverse balance
sheet risk and create value for equity holders at spot commodity prices’’

BHP Billiton (+2.33%) CS upgrade to outperform – broker considers the company valued at a discount.

Randgold Resources (-1.8%) Target price reduced by analysts at Credit Suisse from 4,040p to 3,900p.