Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 15 December 2014 at 10:49 GMT

The Week Ahead: Oil plunge fuels fear of deflation and debt

Chief Executive / Prime Wealth Group
United Kingdom
  • Market jitters over continuing oil price plunge
  • Concerns over Mario Draghi's ECB leadership
  • Greek stock market woes threaten Eurozone

By Patrick Butler

This Week’s Markets

In a Nutshell:

The FTSE was down and dirty last week, suffering the biggest five-day drop for two years, driven partly by profit-taking and partly by fears of slowdown and potential turbulence in the Eurozone.


Source FTSE 100 – week commencing 8th December

The continuing oil price plunge, coupled with worries over ECB president Mario Draghi’s authority (or lack of it) to initiate a meaningful QE programme are fuelling fears of deflation, which will massively increase the task of reducing the debt burden. On Friday, the International Energy Agency slashed its oil demand growth forecasts, arguing that the drop in prices so far has failed to stimulate increased buying.

China’s continuing slowdown, evidenced by November year-on-year Industrial Production numbers at 7.2% on Friday, compared with expectations of 7.7% will reduce further the demand-pull.

To cap it all, early presidential elections in Greece – now scheduled for later this month – could lead to a general election in which the polls show Syriza (the radical left-wing party that wants to renegotiate bail-out terms with the rest of the Eurobloc) taking a substantial share of the vote. It is not surprising that Greek ten-year bond yields are now back up at 9%. The Greek stock market fell almost 20% last week, reflecting investor fears of further political and financial instability to come. So far, other peripheral countries have not seen a knock-on effect although whether they will be spared this in the new year remains to be seen.
 As the UK faces a general election next May, severe cuts in public spending will be a long-term feature in public spending, the Institute of Fiscal Studies has warned.
Photo: Photodisc

In the UK, much of the focus has been on the scale of the deficit, with Labour's Ed Miliband and Ed Balls pledging, should Labour be elected on May 7, 2015, to keep spending under control and to reduce the deficit to zero by the end of the next Parliament. Though this may sound almost as quixotic as “abolishing boom and bust” it serves to focus attention on the reality that despite five years of austerity measures the level of government debt to GDP in the UK is more than 90% of GDP and climbing.

This week, watch out for Dixons Carphone Group interim results for the 31 weeks ended  November 1, 2014 which will be released on Wednesday, December 17. Dixons Retail Plc, the owner of the electrical companies Currys and PC World, and Carphone Warehouse Group Plc, the largest independent multi-channel telecommunications retailer in Europe, officially merged on August 7 into Dixons Carphone Group.

Prime wealth Group’s retail analyst Zhaoyu Zheng is impressed with the synergies, which she believes the combined company is already achieving. She argues that, in the short-term at least, these will achieve more for investors than the so-called “internet of things”, the use of the new media remotely to control household equipment from anywhere, a concept that the companies used, in part, to justify the merger. We expect to see strong like-for-like sales figures on Wednesday, though only a modest increase in net profits. Nonetheless, the market should be reassured that the merger is paying off, and the Group’s shares will continue to outperform the FTSE.

On Tuesday December 16 at 10am GMT, the ZEW German economic sentiment figure is released for December. We anticipate that optimism – despite the gloom on the DAX in recent days – will have increased over the past month. The figure rose to 11.50 in November from 3.60 in October, well above expectations. This month will, we believe, see another increase in positive expectations. This release, coupled with the release of the results of the UK Bank Stress Tests on the same day, which we believe will demonstrate the ability of the UK banks, in extremis, to cope with soaring interest rates, a property prices collapse, and a stock market plunge, will set the European markets up for a Santa rally. (Expect a few unpleasant surprises in the release but overall the tenor will, we believe, be positive.)

This is the last Market Wrap of 2014. The entire Prime Wealth Group team joins me in wishing all our readers and clients a happy, healthy Christmas and a prosperous New Year. See you in 2015!

Key Statistics and events

UK corporate earnings announcements: Interim Result: Cohort PLC (CHRT), Carpetright PLC (CPR), Scholium Group Plc Ord 1p (SCHO). Final Result: Clear Leisure PLC (CLP). AGM / EGM: Conroy Gold And Natural Resources PLC (CGNR), Paragon Entertainment (PEL), Kennedy Ventures Plc (KENV), Fidelity European Values Plc (FEV), Karelian Diamond Resources PLC (KDR), KEFI Minerals PLC (KEFI), BG Group PLC (BG, PROACTIS Holdings PLC (PHD), Utilitywise (UTW), Bacit Ltd (BACT), Vietnam Hldg Ltd (VNHW), Applied Graphene Materials (AGM).
UK corporate earnings announcements: Interim Result: Imagination Technologies Group PLC (IMG). Final Result: Domino Printing Sciences PLC (DNO). AGM / EGM: Edinburgh Dragon Trust Plc (EFM), Imperial Innovations Group PLC (IVO), Waterlogic Plc (WTL), dotDigital Group (DOTD), Mysale Group Plc Ord Npv (MYSL), International Biotechnology Trust Plc (IBT), COLT Telecom Group SA (COLT), Tristel PLC (TSTL). Trading Statement: Petrofac Ltd (PFC), Domino Printing Sciences PLC (DNO), National Express Group PLC (NEX).
UK corporate earnings announcements: Interim Result: Dixons Carphone (DC.). AGM /EGM: Standard Life Equity Income Trust (SLET), Sareum Holdings PLC (SAR), PXP Vietnam Fund Ltd (VNF), Mxc Capital Plc Ord 1p (MXCP), Rose Group Ltd (pre. RGI Int.) (RGI), Impact Holdings (UK) PLC (IHUK), 21st Century Technology PLC (C21), Baronsmead VCT 2 Plc (BVT), Benchmark Holdings Plc Ord 0.1p (BMK), Baronsmead VCT Plc (BDV), Volution Group Plc Ord Gbp0.01 (wi) (FAN), British Empire Securities & General Trust (BTEM), Greatland Gold PLC (GGP). Trading Statement: Volution Group Plc Ord Gbp0.01 (wi) (FAN).

UK corporate earnings announcements: AGM / EGM : Schroder Income Growth Fund Plc (SCF), Societatea Comerciala De Distributie Si Furnizare A Energiei Electrice "electrica" S.a Gdr (each Repr 4ord) (144a) (51FL) AGM / EGM, Air China (AIRC), GlaxoSmithKline PLC (GSK), Frontera Resources Corporation (FRR), LXB Retail Properties Plc (LXB), Northern Venture Trust Plc (NVT). Ex-Dividend: Octopus Aim VCT Plc (OOA), Polyus Gold International (PGIL), Polymetal International PLC (POLY), ISHARES JPMorgan USD Emerging Mkts Bond £ (SEMB), OMG PLC (OMG),

Murray Income Trust PLC (MUT), JPMorgan European Smaller Companies Trust PLC (JESC), JPMorgan European Investment Trust Income (JETI), Marston's PLC (MARS), MITIE Group PLC (MTO), ISHARES III MSCI Pacific Ex-Japan £ (SPXJ), United Utilities Group PLC (UU.), Vanguard Funds FTSE ALL-WORLD ETF $ (VWRD), Vanguard Funds FTSE ALL-WORLD ETF £ (VWRL), Vanguard Funds FTSE ALL-WORLD ETF £ (VWRL), World Trust Fund (WTR), Vanguard Funds S&P 500 ETF $ (VUSD), Vanguard Funds S&P 500 ETF £ (VUSA), Vanguard Funds FTSE Emerging Markets ETF $ (VDEM), Vanguard Funds FTSE Emerging Markets ETF £ (VFEM), Vanguard Funds UK Government Bond ETF £ (VGOV), Vanguard Funds FTSE 100 ETF £ (VUKE), JPMorgan Gbl Emerging Mkts Inc Tst (JEMI),

ISHARES III PLC MSCI Pacific Ex-Japan $ (IPXJ), ISHARES III PLC ISHARES BARCAP EURO CORP BOND EX-FIN (EEXF), ISHARES JPM $ EM BOND EUR HDG (EMBE), F&C Managed Portfolio Trust (FMPI), First Property Group PLC (FPO), ISHARES III PLC EURO CORP BOND EX-FI (EEX5), iShares JPMorgan $ Emerging Markets EUR (EEMB), Aberdeen Latin American Income Fund (ALAI), Berkeley Group Holdings (The) PLC (BKG), Carr's Milling Industries PLC (CRM), Edge Performance Vct Plc (EDGE), Gooch & Housego PLC (GHH),


UK corporate earnings announcements: AGM / EGM: Hexaware Technologies Ltd (35PJ), Uranium Resources PLC (URA), Lewis(John) PLC (BB90), Webis Holdings PLC (WEB), Wessex Exploration (WSX), BH Credit Catalysts Ltd GBP (BHCG), Romgaz (SNGR), Botswana Diamonds PLC (BOD), Henderson Value Trust Plc (HVTR), JPMorgan Japanese Investment Trust Plc (JFJ), Datang Intl Power Generation Co Ld (DAT), F&C UK Real Estate Investments Ltd (FCRE), OPG Power Ventures PLC (OPG), Societatea Nationala De Gaze Naturale Romgaz S.a. Gdr Each Repr 1ord 144a (SNG1), Symphony Environmental Technologies PLC (SYM). Trading Statement: Serco Group PLC (SRP), Keller Group PLC (KLR), Berendsen Plc (BRSN).

-- Edited by Kevin McIndoe

Patrick Butler  is chief executive of Prime Wealth Group


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