Financial market research and analysis

The great start to 2018 continued overnight, with US markets hitting fresh record highs as investors positioned themselves ahead of earning season, which begins on Friday. Optimism that current lofty valuations will be supported by decent earnings and perhaps even more importantly, by strong forward guidance, lifted the markets. The Dow Jones jumped 102 points to finish at 25,385, the Nasdaq gained 0.1% and the S&P rose 0.1% hitting a new record high of 2751, as it continues to enjoy the best start to a year since 1987. The S&P is so far up 2.7% in 2018 and if the January Effect holds true then 2018 could be a boon year for US equity indices.

Technically the rally in the S&P looks strong. In the case of any pullback, support can be found at 2700, then in the region of 2670, which is a good 70 points away.

Retailers in focus as Sainsbury to report

FTSE futures are taking the lead from US and are once again pointing to a strong start for Britain’s top index although the drive appears to be losing some momentum. The FTSE continues to hover around its all-time high reached on Monday of 7732.

Retailers, which have been in focus at the beginning of the week, will remain under the spotlight on Wednesday as both Sainsbury and SuperGroup are set to give updates. Following Morrisons better than expected sales figures over the crucial Christmas period, investors will be hopeful that Sainsbury can achieve a similar feat. However, it is worth keeping in mind that Sainsbury sales momentum can be erratic on occasions.

Construction output and Taylor Wimpey reporting

After a quiet start to the week for UK economic releases, the calendar on Wednesday lends itself to greater volatility in the UK markets. Construction output data is expected to show an increase of 0.7% month on month in November. This comes following heavy falls of 1.6% and 1.7% in September and October. Consequently, construction firms will be under the spotlight but also because Taylor Whimpey is expected to report. Taylor Wimpey said in November that it was on target to hit full year expectations so perhaps we could expect the trading update to centre on the strength of demand and how this is feeding through to the order book moving into 2018.

Manufacturing and industrial production to boost the pound?

Other macroeconomic data points of interest will be manufacturing production and industrial production for November. Manufacturing in October only rose by an anaemic 0.1% which was surprising given the stronger PMI’s. The soft data (PMI) for November points to a pick up in activity with November’s manufacturing PMI increasing at the second fastest pace in 3 ½ years. This is mainly due to increased overseas demand thanks to optimism surrounding continued global growth.

The pound fell heavily early on Tuesday as PM Theresa May’s political woes weighed on sentiment for sterling. However, the pound remains firmly above $1.35. A surprise on the upside for manufacturing and industrial production today, could boost sterling back towards resistance seen at $1.3580.