ETX Capital Daily Market Bite, 5th June, 2013: Fed Tapering Nerves Creep Back In; Stocks Dn
June 5, 2013 11:42 am
June 4th 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Questions over the effectiveness of “Abenomics” in Japan slapped the Nikkei index in overnight trade, setting the European market up for a weak open this Wednesday morning. Japan’s PM Abe underwhelmed the market with his “third arrow” speech which outlines plans the long term economic boost for the country.
At the same time, Federal Reserve tapering nerves creep back in the market after yesterday’s relative calm. Fedspeak rattled investors’ cage after hawkish comments from Kansas City Fed head Esther George who is for tapering asset purchases, saying it’s the next step to undertake. Traders are now cutting risk exposure ahead of US jobs data which will undoubtedly be one of the strongest gauges of upcoming Fed policy. Second-guessing the Fed’s next move is fast becoming the markets’ latest hobby so expect profit taking before today’s US ADP report.
Even then, it’s likely we will only find some stability in price-action after Friday’s jobs report as it should provide markets greater clarity of upcoming Fed policy. Moreover, before Friday’s jobs report, markets must contend with euro zone GDP figures and services PMIs, due soon. And on Thursday, we have the Bank of England and the European Central Bank’s policy meetings.
Back to “Abenomics” and the “third arrow” which was fired overnight (the first two arrows were comprised of monetary policy from the Bank of Japan and government spending) Abe’s long-term plan involved stimulating energy and agriculture markets, lower corporate taxes, tackle deregulation and encourage foreign investment. But there was little on pushing government pension funds to increase their exposure to domestic equities and overseas assets. Abe’s policies will be tested at next month’s elections for the Upper House; expect more volatility for the Nikkei ahead of this event.
Over in Australia, GDP was weaker than expected, expanding at a rate of 2.5% in Q1 versus expectations of 2.7% – a clear sign of waning Chinese growth impacting the resource rich economy of Australia. The Aussie mining boom is easing on the back of this, production costs are rising and miners are investing in less projects. This GDP report places pressure on the RBA who kept policies unchanged yesterday but may have to budge in the coming months despite their view that the Aussie dollar remains too strong.
In corporate news, UK supermarket giant Tesco is in a bit of hot water Wednesday after reporting a slide in sales for the Q1. UK sales fell 1% for the period, worse than the 0.7% drop expected by the market whilst sales dropped 5.5% in Europe. Putting the Europe to aside given the challenging conditions in the beleaguered euro zone economy, the slide in UK sales is more worrying for investors.
The recent pick-up in UK consumer confidence and retail sales are in sharp contrast with Tesco’s grim outlook this morning. The supermarket giant makes up around two thirds of its revenue and profit from its domestic UK market. So, after announcing its plans to exit the US market and reinvest £1billion in the UK, the market is clearly disappointed the company hasn’t been able to demonstrate success via its ongoing restructuring plan.
This poor performance will raise questions about the company’s growth strategy, the momentum behind it and shareholders will undoubtedly scrutinise management at Tesco after this report. That said, for long-term investors, betting on Tesco’s recovery could be the right strategy so now could be the right time to pick-up the stock.
Tesco retains its market-share as the dominant UK supermarket, it continues to roll-out smaller convenient stores, there is evidence of positive sales in its main food business and it’s formidable online operation continues to eat into the market share of its rivals.
June 4th 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Questions over the effectiveness of “Abenomics” in Japan slapped the Nikkei index in overnight trade, setting the European market up for a weak open this Wednesday morning. Japan’s PM Abe underwhelmed the market with his “third arrow” speech which outlines plans the long term economic boost for the country.
At the same time, Federal Reserve tapering nerves creep back in the market after yesterday’s relative calm. Fedspeak rattled investors’ cage after hawkish comments from Kansas City Fed head Esther George who is for tapering asset purchases, saying it’s the next step to undertake. Traders are now cutting risk exposure ahead of US jobs data which will undoubtedly be one of the strongest gauges of upcoming Fed policy. Second-guessing the Fed’s next move is fast becoming the markets’ latest hobby so expect profit taking before today’s US ADP report.
Even then, it’s likely we will only find some stability in price-action after Friday’s jobs report as it should provide markets greater clarity of upcoming Fed policy. Moreover, before Friday’s jobs report, markets must contend with euro zone GDP figures and services PMIs, due soon. And on Thursday, we have the Bank of England and the European Central Bank’s policy meetings.
Back to “Abenomics” and the “third arrow” which was fired overnight (the first two arrows were comprised of monetary policy from the Bank of Japan and government spending) Abe’s long-term plan involved stimulating energy and agriculture markets, lower corporate taxes, tackle deregulation and encourage foreign investment. But there was little on pushing government pension funds to increase their exposure to domestic equities and overseas assets. Abe’s policies will be tested at next month’s elections for the Upper House; expect more volatility for the Nikkei ahead of this event.
Over in Australia, GDP was weaker than expected, expanding at a rate of 2.5% in Q1 versus expectations of 2.7% – a clear sign of waning Chinese growth impacting the resource rich economy of Australia. The Aussie mining boom is easing on the back of this, production costs are rising and miners are investing in less projects. This GDP report places pressure on the RBA who kept policies unchanged yesterday but may have to budge in the coming months despite their view that the Aussie dollar remains too strong.
In corporate news, UK supermarket giant Tesco is in a bit of hot water Wednesday after reporting a slide in sales for the Q1. UK sales fell 1% for the period, worse than the 0.7% drop expected by the market whilst sales dropped 5.5% in Europe. Putting the Europe to aside given the challenging conditions in the beleaguered euro zone economy, the slide in UK sales is more worrying for investors.
The recent pick-up in UK consumer confidence and retail sales are in sharp contrast with Tesco’s grim outlook this morning. The supermarket giant makes up around two thirds of its revenue and profit from its domestic UK market. So, after announcing its plans to exit the US market and reinvest £1billion in the UK, the market is clearly disappointed the company hasn’t been able to demonstrate success via its ongoing restructuring plan.
This poor performance will raise questions about the company’s growth strategy, the momentum behind it and shareholders will undoubtedly scrutinise management at Tesco after this report. That said, for long-term investors, betting on Tesco’s recovery could be the right strategy so now could be the right time to pick-up the stock.
Tesco retains its market-share as the dominant UK supermarket, it continues to roll-out smaller convenient stores, there is evidence of positive sales in its main food business and it’s formidable online operation continues to eat into the market share of its rivals.
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