Financial market research and analysis

The FTSE paints a gloomy picture in London. The selling pressures on UK miners increase as copper drops 1.1% on global growth concerns. Copper slid below $2.35/lb and technically stepped into the bearish consolidation zone. The way is now open for a further slide to $2.20/lb. Given the very tight revenue margins in the mining industry, cheaper copper could trigger a fresh wave of panic among investors and be another hit on UK miners’ stock prices. Unfortunately a slower than 7%-growth in China is not hinting at any sustainable recovery yet.

Among the UK miners, Anglo American comes under the spotlight. AAL will give a production update on Thursday and is expected to announce at least 10% cut in its diamond production. As diamond unit has been the major revenue generator in the first half of the year –helping AAL to outperform its peers by a respectful 16% revenue margin despite the rout in commodity prices – the contraction of its diamond unit could weigh on second half revenues and interfere with company’s aggressive dividend policy. A good reason for some investors to walk away.

Elsewhere, Tata Steel has already announced a cut of 1200 jobs in the UK. Once again, cheap Chinese exports are to blame. Over the past 20 years, steel production in the UK contracted by 25% as a result of economic development and shift towards more sophisticated industries and services sector.

Amusingly, PM Cameron is set to discuss the issue with Chinese President Xi  during his visit in London. Frankly, there is little David Cameron and Xi Jinping could do about this structural change in UK’s economic activity other than ensuring a smooth transition in jobs market.  With a £30 billion pound investment expected from China, there could soon be approximately 4000 jobs available on the horizon.

Among the biggest losers in the FTSE, we have Pearson down by 16% after giving a profit warning. Pearson is facing difficult times due to ‘cyclical and policy-related’ challenges in the education business, especially in the US and in South Africa. Since the sale of FT, Pearson generates almost all of its revenues from its education business. Book sales may see a contraction following a bump in back-to-school demand. With so little diversification, investors are now questioning whether the decision to sell FT was a good idea and whether the cyclical character of the education business could further damage the company’s value.

Bank of Canada to remain on hold

In Canada, the BoC is expected to maintain the bank rate unchanged at 0.50%. A further easing in monetary policy is unlikely at this stage given the Liberal Party’s victory hence their plans to expand spending.

The US dollar now trades past the 1.30 mark against the Loonie and given the downside pressure on oil prices, an advance to $1.35 is just a matter of time.

Interestingly, even Saudi Arabia seems to be trapped by the dangerous game of expanding the market share at the cost of other oil producers. There is only one way to keep everybody’s head above the water: to collaborate and to favour a price recovery back to $70/80 per barrel. Unfortunately however Iran will likely be a bug in the plan.

Ferrari goes public

All eyes will be on Ferrari’s IPO at NYSE open today. Ferrari goes public from today under the ticker: RACE, with an estimated price of $52, at the top end of the expected range. The price could go well above $52 given the enthusiasm around the IPO. We could see some disproportional surge given the tight supply compared with a very enthusiastic crowd of buyers.

On the other hand, Ferrari’s IPO could happen to be a very clever business decision for Fiat Chrysler. The company is looking to turn the glamour and the exclusivity in Ferrari’s name into cash. The IPO is expected to generate $860 million and will be more than enough for developing an international growth plan for Jeep, Maserati and Alfa Romeo, with an estimated cost of $55 million.