Financial market research and analysis

Last week’s improved risk sentiment from last week was maintained in Asian trade as oil prices bounced and expectations that more central bank action could well follow that of the ECB. Speculators cut US dollar net long positions to lowest since late October while Japanese yen net long positions have reached the highest since Feb’12, suggesting that any dovish hint from the BoJ this week could trigger a rapid sell-off in yen.

In his latest comments, BoJ Governor Kuroda said ‘Fully committed to 2% inflation target, will do whatever it takes, won’t hesitate, underlying inflation trend solid, eyeing market turbulence closely, crude oil weakness risk to global outlook.’

The major talking point this week is undoubtedly the FOMC statement. While the Fed is expected to maintain status quo, the accompanying statement is going to be the centre of attention, especially given the recent slide of oil prices below $30 and the renewed Chinese sell-off. The global macroeconomic conditions may not be appropriate for the Fed to hike 3-4 times this year as scheduled. As the Fed doves gain more field, the US dollar opened flat, the US 10-year yields remained at about 2.05%.

Oil prices are already giving back a lot of gains so we will soon see how sustainable this current equity rally really is. Fundamentally the situation is no different to how it was a number of weeks ago. Monetary stimulus is beginning to lack the teeth it once possessed yet the surge in equity indices over the past few days merely serves to underline the addiction to accommodative policy. The FTSE, having initially started proceedings oscillating the 5900 level has already begun to falter with the materials sector providing what has become a fairly habitual drag on the UK benchmark.

BP (-0.94%) sits near the bottom of the index. When even its CEO, Bob Dudley compares the current supply glut to the 1986 oil crisis and sees no let-up until 2017, you know the situation is rather serious. As long as oil producing nations continue to pump at peak levels, we may well see oil prices remain close to current levels.
Sports Direct (+1.45%) led the rebound on Friday as the FTSE 100 closed out its first positive week of 2016. BNP Paribas helped the rally with a note arguing that the pessimism had gone too far. They stated “The UK business is not broken — yet current valuation looks to imply it is, we concede that European ambitions are off the table (at least for now), but the UK business remains well positioned in an attractive segment.”

Lloyds (-1.57%) Earnings outlook amongst the best of the UK banks according to Nomura. Majority brokers are bullish on this stock with an upside target of 85.92p

3i group (+2.16%) had its price target increased by equities research analysts at Societe Generale from 630p to 650p . The brokerage presently has a “buy” rating on the stock. Societe Generale’s price target would indicate a potential upside of 49.08% from the stock’s previous close.

Kingfisher (-2.9%) is spending £800m on a five-year “transformation” plan that it says will eventually boost profits by £500m a year. Also announced plans to return £600m of capital to shareholders over the next three years.

GKN plc (-2.15%) cut to neutral vs outperform at Credit Suisse.

Diageo plc (-1.5%) set to report later this week. A weaker pound may ease the fears over profitability but rumours that North America sales are down 2%. Shore Capital had this to say “Diageo earns about 40 per cent of its profits in North America, so it will benefit from the fall in sterling bec¬ause it will be able to sell more product there in dollars. .. now expect the currency impact over the full year for the company to be between £30m and £40m less. In addition, I think Diag¬eo will say the performance in emerging markets will be still negative, but improved. This could be the nadir of the down-cycle for Diageo.”

One to Watch:

Twitter: At one point the stock had fallen 33% from the beginning of the year but has staged a weak bounce since. Now we learn it is losing four members of its executive leadership team, including its product and engineering chiefs, as the social media company tries to revive growth after its stock lost half its value in 12 months.
The quartet of executives, including product head Kevin Weil and head of engineering Alex Roetter, chose to leave the company and take some time off, chief executive Jack Dorsey said in a Twitter post. Twitter will allegedly this week add two new board members to help guide it through a turnaround.
We presently call the Dow lower by 77 points to 16016.