The Week Ahead: Volatility amid unpredictability
- 2014 a bad year for supermarkets, miners and oil companies
- Airlines had a great run and look set for further gains in 2015
- Overall environment plagued by UK election and Russia fears
The FTSE100 ended 2014 just over 2% down on the last twelve months. The overall trend masked large differences between individual performances. The supermarkets in general and Tesco in particular had a dreadful time (the latter down around 45% over the year) and the miners and oil companies suffered as commodity prices fell.
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Expect Tesco and other supermarkets to write down their property portfolios, which may well have a knock-on effect on REITS active in the commercial property market. Expect oil price softness to continue, benefiting transportation companies and high energy consumers, especially airlines.
We anticipate a volatile week and month, as traders and investors navigate the cross-currents in an increasingly unpredictable environment, both at home and abroad. In the United Kingdom the jockeying has already begun between the political parties to position themselves for the general election on May 7 this year. The result is wide open – which means that uncertainty will overhang the market – for the next four months or so, at the very least.
Russia is a major source of worry. Putin has overextended himself and needs continuous foreign distraction to divert attention from problems at home. Foreign currency reserves were down almost 25% over 2014 and now stand at $388.5bn. Over the christmas and New Year period the state had to inject capital into major banks such as VTB and Gazprombank. Most foreign investors with liquid assets have already exited a country where governance – particularly as it relates to foreign investors – appears to be deteriorating. The scale of outflows demonstrates that Russians who can are also sending their money abroad. Recession is now a certainly.
In the Eurozone, European Central Bank governor Mario Draghi is still struggling to gain sufficiently broad support on the ECB governing council for a substantial programme of quantitative easing. We expect a major announcement to be made in January. Incredibly, the ECB’s balance sheet actually shrank over 2014, contributing to the sense of drift and stagnation infecting much of the Eurozone.
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