Last Friday’s sell off in US equities has curbed a lot of risk sentiment in the aftermath of what was a fairly mixed jobs report. The headline number missed expectations but wage growth and participation rates were a lot better. It’s a very quiet day on the macro front today so there is little for traders to watch for ahead of Janet Yellen’s testimony later in the week.
The weaker yen has helped the Nikkei to push higher overnight but thin volumes, with many regional markets closed for the Lunar New Year are keeping any real risk sentiment in check and the upside has not found its way to European shores The Bank of Japan’s Kuroda has also indicated that there were divisions amongst the BOJ in respect of negative interest rates so it’s unlikely we’ll see more of the same in the near term in a bid to buoy markets.
It’s a bank holiday in China but data released over the weekend indicated that foreign-exchange reserves there fell to the lowest level in more than three years in January, so the fears of capital flight amidst the defence of the yuan are still front and foremost and continue to knock any real optimism.
Net longs on the US dollar continue to decline for the sixth consecutive week with the dollar index residing around 96.87 and back to 116.96 against the yen. The euro is lower against the dollar but still not too far from the 3 month high scaled last week around 1.1250. Optionality and the 1.12 psychological level should cap any gains but all bets are off if European equity markets continue to slide lower. Eurozone sovereigns have been in demand lately and even more so today as the Sentix investor confidence index fell to 6.0 in February from 9.6 in January, below the consensus, 7.4 only serving to highlight the concerns surrounding European banks.
Crude oil is a beneficiary of the weaker dollar but also better bid on the usual fruitless expectations that oil producers will finally take steps to address the supply glut. Saudi Arabia's oil minister Ali al-Naimi discussed cooperation between OPEC members and other oil producers to stabilise the global oil market with his Venezuelan counterpart on Sunday.
Some benign strength in metals initially helped the miners move higher this morning coupled with a fairly upbeat trading statement from Randgold Resources. The index remains below the 5900 level capped by the 50DMA at 6048 and the technical and fundamental outlook wold imply more downside to come.
Randgold Resources (+3.58%) given that gold has been in demand and held up well amidst choppy markets, Randgold beat analysts’ expectations with up pre-tax profits of $260m for the year to December 31. While this was a lot lower than the $353m last year, production was up 6pc in 2015, Randgold said, helping it to be “one of the best year’s in the company’s history”. Raised its annual dividend by 10pc to 66 cents a share.
Arm Holdings (-2.49%) Q4 results are out on Wednesday. Neutral rating reiterated by analysts at Credit Suisse. According to Numis, it is set to show double-digit earnings growth over the next five years, as it benefits from its Internet of Things proposition and market share gains in infrastructure. Numis expects earnings per share (EPS) growth of 20% to 36.4p, as the group benefits from the stronger dollar and holds a target price of 1,350p.
Rolls Royce (-2.36%)has issued five profit warnings in the last two year and is set to cut its dividend payment to shareholders for the first time in almost 25 years. The consensus in the City is that Rolls will post underlying pre-tax profits of £1.3bn for 2015, down 20% on the previous year and below the company’s guidance of £1.325bn to £1,475bn.
WPP (-1.41%) Shares down 11% ytd. Cut to hold versus add at Investec as risks to global economic expectations rise.
Glencore (+1.86%) the worst-performing stock in London’s FTSE 100 after rival Anglo American is set to unveil a deal to bring in at least $US500 million ($707m) as part of its frantic efforts to slash its debt. In advanced talks on a “streaming” deal under which it would hand future precious metal production from a mine in Chile to American gold specialist Franco-Nevada, in exchange for an upfront payment. The agreement could be unveiled as early as this week.
We call the Dow lower to 16043 – 150 points lower from Friday’s close.