The Week Ahead: Oil plunge fuels fear of deflation and debt
- 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
Source CNNMoney.com. 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.
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.
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),
Greene King PLC (GNK), ISHARES III PLC MSCI JAPAN SMALLCAP (IDJP), ISHARES III PLC S&P SMALLCAP 600 (IDP6), ISHARES III PLC EURO CORP BOND 1-5 (IE15), ISHARES JPMorgan USD Emerging Mkts Bond $ (IEMB), ISHARES MARKIT IBOXX EURO COVERED BOND (ICOV), ISHARES III PLC EURO GOVERNMENT BD 10-15£ (IBGZ), Halfords Group PLC (HFD), Hangar8 (HGR8), ISHARES III PLC EURO TREASURY BND 0-1£ (IBGE), ISHARES III EURO GOVERNMENT BND 5-7£ (IBGY), Artemis Aim Vct 2 Plc (AAM).
-- Edited by Kevin McIndoe
Patrick Butler is chief executive of Prime Wealth Group