Weekly Market Review

11-04-2016

Tax avoidance was the overriding theme last week, with Prime Minister David Cameron eventually publishing his tax returns. Chancellor George Osborne is considering doing the same.

 

The US government made a large splash of its own by legislating to prevent American companies from completing tax inversion deals. The anti-tax inversion rules, announced last week, cut down the $160bn Pfizer-Allergan deal that would have unlocked $80bn in cash held offshore. That money, which is not subject to the punishing 39% US tax rate until it is repatriated, could have been returned to shareholders through the 12.5% Irish rate. No more. Corporate taxation and tax-planning techniques are causing widespread anger among the Western public, even that which is perfectly legitimate. 

 

However, while fiscal policy remains relatively feisty, monetary policy remains very accommodating indeed. The US Federal Reserve expects just two interest rate rises this year, according to the FOMC minutes released last week. That sent the yen soaring 3.2% against the dollar, as the expected future US risk-free return was pushed lower. The Bank of England will make an interest rate decision of its own on Thursday. Of course, no change is expected.

 

It was a mixed week for global stock indices, with the FTSE All-Share increasing 0.8% in local currency price terms, the Topix dropping 1.1%, and the S&P 500 and Euro Stoxx both falling 1.2%.

 

Sovereign bond yields fell over the week, with 10-year gilts dropping five basis points to 1.36%. Credit had a volatile week, but Continental markets were supported by the European Central Bank’s bond-buying programme. The 10-year bund has fallen back to 10bps – within a whisker of its all-time low.

 

The London Stock Exchange Group’s “merger of equals” with the Deutsche Börse is coming under fire. Waves of disquiet are breaking in Germany about how a Brexit could affect the $20bn tie-up. Under the tabled proposal, the market operator would be based in London, but led by Deutsche chief executive Carsten Kengeter. Critics say the combined giant should be based in Frankfurt, given the German half is larger by market cap and the city is the home of the ECB.

 

The US first-quarter earnings season dawns this week, accompanied by muted expectations of encouraging numbers. Analysts forecast a 7% drop for the year-on-year numbers. If earnings do contract, it will be the third consecutive quarter they have done so, lending ammunition to claims of an earnings recession in the world’s largest economy. However, it is possible that the headline numbers are heavily skewed by a natural resources sector that is in disarray. Cyclical companies expanding production at inflated commodity prices, while promising high and recurring dividend payments, was never going to end well. However, as this unravels, it is heartening to see that the S&P 500 increased its earnings by more than 5% if you strip out the embattled commodity companies.

 


Bonds

 

UK 10-Year yield @ 1.37%

US 10-Year yield @ 1.72%

German 10-Year yield @ 0.10%

Italy 10 Year yield @ 1.32%

Spain 10 Year yield @ 1.52%

Economic data and companies reporting for week commencing 11 April

Monday 11 April

Final results: Vedanta Resources

Interim results: Carrs Group

 

Tuesday 12 April

UK: Retail Price Index; Consumer Price Index; Producer Price Index 

US: Treasury Budget Statement

EU: GER: Consumer Price Index

 

Wednesday 13 April

UK: BRC Sales Monitor

US: MBA Mortgage Applications; Producer Price Index; Retail Sales; Business Inventories; Crude Oil Inventories; Beige Book Fed Survey

EU: Industrial Production

Final results: Tesco; Walker Greenbank

Trading announcement: Halfords; Jupiter Fund Management

 

Thursday 14 April

UK: Bank of England Interest Rate Decision

US: Consumer Price Index; Continuing Claims; Initial Jobless Claims

EU: Consumer Price Index

Final results: JD Sports Fashion

Trading results: Burberry Group; Hays; Mothercare; Persimmon; Poundland Group; Unilever

Interim results: WH Smith

 

Friday 15 April

US: Capacity Utilisation; Industrial Production; University of Michigan Confidence (Prelim)

EU: Balance of Trade; GER: Wholesale Price Index

Trading announcement: Man Group

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