FTSE challenges key resistance level

FTSE challenges key resistance level
by Brenda Kelly

The FTSE is up for the third consecutive day and now looks to challenge the 6450 levels last tested on 23rd October. Market participants are in a forgiving mood today It seems that even a bad set of results is not putting investors off this morning. To wit, Marks and Spencer is up 3.36% despite the fall in underlying sales of clothing and homewares. The company has however increased its dividend to 6.8p and this is likely helping to keep the proverbial wolf from the door in terms of its share price. The shares hit a high of 600p back in late May before hastily retreating 20% over the next 4 months. Given that UK retail sales growth slowed to a 6 month low in October, the market is clearly looking for a rebound in the run up to the Christmas period.

Copper production may have become less profitable but Glencore has managed to earn a few quid trading it. It also outlined plans to cut borrowings by $5-25bn by the end of the year and is to cut an additional 55,000 metric tons of copper output by year end 2017. It was somewhat inevitable that one of the miners would have to take one for the team and given the headlines surrounding the mining giant of late, the task fell to Glencore. The stock is up 4.48% and other miners, especially those with a heavy weighing to copper production have all registered gains this morning.

Copper has also risen for the 3rd consecutive day, helping to underpin the relationship between base materials and the UK benchmark.

Later sees the release of the US ADP employment number; expectations are for 183,000, slightly less than last month’s 200,000. Naturally this will be looked at as a leading indicator for the big NFP number release on Friday. As is the norm, this will be considered a pivotal print. Yet given the recent muttering from various FOMC members, anything above 120,000 is considered sufficient so even a failure to meet consensus expectations is unlikely to drive the Fed off course in their aims to tighten monetary policy.

Trade balance is also due for release – deficit of $42.7b, an improvement on last month’s number is expected here.

But of course all of that pales by comparison to the main event today. Janet Yellen testifies on bank regulation before the House Financial Services Committee, in Washington DC at 3pm this afternoon. We can expect the possible leak of sensitive information back in 2012 to be a feature but the economic outlook will be more relevant for traders- it’s unlikely she’ll be able to add to what we already know. December hike may happen. Or it may not. The market is literally pricing in a 50% chance now.

We call the Dow higher by 10 points to 17928.

Volkswagen. Das Auto.
by Ipek Ozkardeskaya

Although the German services PMI disappointed in October by falling to 54.2 from 54.5 expected, Monday’s better-than-expected manufacturing PMI keeps the sentiment somewhat upbeat in Frankfurt.

A cheaper euro is also a good reason to smile as the single currency consolidates below the 1.10 mark versus the US dollar and targets the 0.70c mark against the pound. The utmost determination of the ECB and its concrete efforts to foster inflation and growth in the Eurozone makes it easier to convince that the weakness in euro will continue to develop. The majority of European stocks trade in the green. CAC’s Technip and Airbus lead gains in Paris as Germany’s Lufthansa and RWE are ranked among the best performers in Frankfurt.

Nevertheless, the DAX underperforms its European peers as the Volkswagen emission scandal spills over the petrol powered engines for the first time and weighs heavily on the German stock index. Additional 800’000 vehicles may be affected, from the very popular Polo, Golf to Passat. Audi and Porsche models could also be affected.

The more you dig, the trickier and more complicated it becomes.

And apparently, investors’ in carmakers across Europe are not less worried about the growing VW scandal.

Even BMW, which has beaten the EPS expectation by 8.55% in Q3 and announced a 10.54%-higher-than-expected net income this week, is down by 2.35%.

Renault (-1.60%) and Peugeot (-1.33%) are falling in concert and are among the few losers in the CAC. However the glass may well be half-full for VW competitors, as they certainly have a good market share to grasp as a significant number of VW consumers will likely walk away from VW galleries. At least for the next couple of years.

VW added €2 billion to economic risks. VW wrote-off another 8% in Frankfurt as investors retreat to the side-lines to wait for the thunderstorm to calm down. The EPS estimate fell by a dramatic 70% over the past four weeks as the VW sales are expected to take a serious hit. But not only. The image of German precision, strength, security and reliance are equally damaged. At this stage, it is very difficult to value the goodwill of Volkswagen.

Shanghai’s stock gain on out-dated news

Outdated news that a link between Shenzhen and Hong Kong exchanges would start in 2015, released accidentally by China’s central bank has been enough to trigger a stock rally in Shanghai’s Composite. Interestingly, there has been little pullback after traders became aware that it was a mistake, perhaps because traders preferred to sit on their long position after the services PMI improved to 52.0 in October, a three-month high from 50. There may well be some profit taking before the end of the week.