This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
This week’s focus will clearly be on the UK CPI, Bank of England (BoE) inflation report and retail sales.
The diverging economies of the eurozone and the UK will be very important, and we can expect to see a degree of movement in the sterling crosses over the coming days. This will be the case particularly if the actual data fails to meet expectations.
Hawkish views develop
The BoE expects to hike interest rates in the second half of 2016. Better-than-expected economic data from the UK has already pushed the markets to price in a hike earlier than this, so any deviation above the 2.5% CPI year-on-year figure will further fuel this hawkish fire. The pledge to keep rates as they are until unemployment reaches 7% is also something significant to watch: if labour figures are revised higher this week, we may well see a stronger pound. In cable right now, the 1.60 level is holding firm, while the 1.59 level is the real barrier to downside.
Retail sales for the UK are not expected to bring a lot of cheer: a rise of 0.2% is expected. I would tend to discount a weak October number – most will be holding off until this month for big purchases ahead of Christmas.
The EUR/GBP pair has recovered a lot of its poise, with a bounce from the 0.83p level seeing the euro gain almost a penny in a single day. Expect to see the 0.8410 level (38.2% Fib July 2012/Feb 2012 high lows) acting as resistance. Any comments in relation LTRO from the ECB may provide the next leg down for the single currency. As it stands, the effects of the rate-cut appear to have been short-lived. The flash GDP figure for the eurozone this Thursday, expected to show a quarterly increase of 0.2%, will form much of the basis for any moves in the euro. The number expected is clearly slightly lower than the previous quarterly increase of 0.3%.
Interesting to note is that, despite the surprising rate cut from the ECB, the EUR/USD pair remains in a long-term uptrend from the July 2012 lows. Bidding is coming in at the 1.3290/1.33 levels. A close above 1.34 could put the 1.3530 level back on the agenda. One would expect that if we dip below this metric, the 200-day moving average at 1.3230 will lend a degree of support.
FTSE and Dow due for correction?
The FTSE 100 managed a weekly close at 6754 a couple of weeks back and has been in sideways mode, with a nod to the downside, since then. A break and close above 6754 on a weekly basis would give credence to a retest of the 6800 highs. Bear in mind that the Dow is trading no less than 1.5% away from the much-regarded 16,000 level. The two indices tend to work in lock-step – and nobody is actually expecting that the price action for the US index around this level will be smooth sailing. Possibly a correction in the offing for the Dow will have a similar effect over here.
A range for gold
As regards gold, the base support around $1265/70 will need to hold. Otherwise we’re going to have a retest of the lows recently seen. I’m expecting it to keep within a $100 range, with $1350 capping much of the upside in the coming weeks.
Earnings and interim report highlights
Sainsbury's is due to report on Wednesday. The supermarket group’s share price has had difficulty breaking the 400p barrier with real conviction, and is operating in a tight 10p range. The consensus is for underlying pre-tax profits of £394m, compared with £373m last year.
Burberry has had a tough time lately, with a new chief executive taking over the helm next year. First-half sales rose 17% to £1.03bn, and earnings before interest and tax are expected to reach £182m, compared with adjusted pre-tax profits of £173m last year. We saw decent support at the 1450p level recently, but a break above the 1570p mark will be needed to underpin any rallies.