Spanish and French bond auctions have led to renewed optimism in the markets this week. Richard Hunter discusses, and outlines key factors to look out for in the week to come.
Markets made steady progress on renewed optimism that the European situation is edging towards resolution.
The FTSE 100 was up 1.6% for the week by midday on Friday, and has now gained 2.8% for the year. In the US, the Dow Jones was up 1.6% by close of play on Thursday, in a trading week shortened by Monday's Martin Luther King holiday.
Another successful round of Spanish and French government bond auctions lifted spirits, as did another set of strong economic figures from China, as they gave hope the authorities might be able to engineer the much-talked-about 'soft landing'. In the US, some companies' fourth-quarter updates also showed encouraging signs.
In the UK many retailers provided Christmas updates, with the inexorable growth of online shopping becoming more of a feature. ASOS reported particularly stellar growth, whilst good results from Associated British Foods (owners of Primark) and Burberry offset some rather more disappointing news from Dixons Retail.
As for the coming week, the first estimate of UK economic output (GDP) in the fourth quarter of 2011 is released on Wednesday. The economy grew by 0.6% in the third quarter, but slower growth or even contraction is expected in the fourth quarter. The National Institute of Economic and Social Research (NIESR) forecasts growth of just 0.1%.
Minutes from the Bank of England's January interest rate policy meeting are due to be released on Wednesday. In December, the decision to leave interest rates and the Bank's quantitative easing (QE) programme unchanged was unanimous. More of the same is expected this month, but comments are likely to be scrutinised closely to assess the prospect for more QE in the months to come.
Companies
Carphone Warehouse reports its third-quarter post-Christmas trading update on Tuesday. Apple's launch of its iPhone 4S during the period should help performance, with the majority purchased on contracts. However, lower margin pre-paid phone purchases usually dominate Christmas sales. Trading in Europe is likely to have proved challenging, with overall same-store sales generally expected to have declined. Prior to the update, analysts view the shares as a 'strong hold'.
WH Smith reports its post-Christmas trading update on Wednesday. A continued focus on containing costs is expected. Product-buying efficiencies and a near withdrawal from the entertainment sector continue to play their part. Given the focus on margins, strong cash generation and hopes for ongoing expansion overseas, market consensus opinion is the shares represent a 'strong buy'.
Land Securities, Sage Group and Easyjet also provide announcements this week.
Corporate Diary
Monday - Cairn Energy (TS),
Tuesday - Carphone Warehouse (TS), Land Securities (TS), Sage Group (TS), US Johnson And Johnson (Q4), US Dupont (Q4), US Travelers (Q4), US McDonalds (Q4), US Verizon
Wednesday - Britvic (TS), WH Smith (TS), US Boeing (Q4) US United Technologies (Q4), US Yahoo (Q4)
Thursday - Easyjet (TS), Mitchells & Butlers (TS), Misys (I), US 3M (Q4)
Friday -
Key: Full year results (F), Fourth quarter results (Q4), Trading statement (TS)
Economic Diary
Monday -
Tuesday - UK Government borrowing data
Wednesday - UK GDP Q4 2011 1st estimate, Bank of England meeting minutes, US Central Bank interest rate policy decision
Thursday -
Friday - US GDP Q4 2011 1st estimate
Note: This list represents what we believe are the highlights of the coming week and is not an exhaustive list of company announcements or economic events. Sources: Dow Jones news, Digital Look.
