There will be perhaps three main questions on investors’ minds over the coming week: can the rally continue? Among a slew of US economic data, will the country’s economic recovery stay on track? And is the UK finally going to lose its AAA rating?
The first two questions are intertwined, with reports due on the US labour market and manufacturing (both on Friday), a first estimate of fourth quarter US GDP (Wednesday) and the Federal Reserve’s policy meeting midweek – where no major action is expected – both setting the tone for markets and providing clues as to US economic health.
Rally reality check?
Markets have rallied strongly since the start of the year. The bulls, supported by small improvements in global growth and the fading of threats to the stability of the eurozone, US and China, now proclaim the start of a ‘great rotation’ out of bonds and into shares. But more bearish investors are increasingly fearful that a correction is due. Prominent among those is Investec fund manager Alastair Mundy who told Citywire: ‘People appear to be more bullish now than 2009 even though there is far more downside risk now. We could see lots of stocks then, such as jeweller Signet and [housebuilder] Travis Perkins which have quadrupled since, and are much closer to fair value so we see far less upside than in 2009.’
Markets will also be dictated by the continuing output of corporate earnings releases. In the US, bellwether companies including Caterpillar, Amazon, Ford provide numbers.
And in Europe, multinational Spanish banking groups Banco Santander and BBVA are among the major companies providing updates which will also provide an insight into the strength of the eurozone economy. Inflation numbers for the euro bloc (Thursday) will add to that picture.
But it’s the world’s major energy companies that will really be in focus over the coming days, perhaps helping to answer another question for investors: is it time to invest in big oil again?
In the US Exxon Mobil and Chevron provide updates, while in the UK Royal Dutch Shell (RDSb.L) publishes fourth quarter and full-year 2012 numbers on Thursday.
Stockbroker Charles Stanley says that after a tough year for oil companies, barring a slump in the oil price, 2013 could prove an ‘inflexion point’. They say: ‘Although we do not expect the sector’s results to provide a spur to share prices, we do anticipate that the strategic changes by the majors to enhance their upstream capability will become a positive catalyst during 2013’.
Shell, says Societe Generale, is now a ‘buy’ opportunity. They describe it as ‘an undervalued portfolio of high quality, long life, low decline assets’, while offering hope for income-hunters: ‘the board can afford to be more generous with its 2013 dividend preannouncement on 31 January, and we forecast a 3.5% increase’.
If only FTSE corporate reports could divert attention from the UK’s weak finances. The news that the UK economy contracted by 0.3% in the fourth quarter of 2012 unleashed a chorus of comments that the UK would soon lose its prized triple-A rating. The ratings agencies have repeatedly threatened to withdraw Osborne's AAA safe haven and concerns over the rating have contributed to sterling's slump so far this year.
The coming week brings little major economic data to change perceptions of the UK economy with the manufacturing PMI for January due on Friday.
As always world markets will be more concerned with China, where a manufacturing PMI report is due on the same day. Economists expect it to provide further evidence that the world’s second largest economy is rebounding.
FTSE 100 diary
There are several prominent Citywire Top Stocks among companies reporting this week. Citywire Top Stocks is monthly compilation of the top 10 holdings of five leading UK fund managers.
On Tuesday British Land (BLND.L) (Regents Place development shown above) publishes a trading statement.
The next day, United Utilities (UU.L) will provide a trading update.
Thursday is the busiest day of the week, with interims due from Vedanta (VED.L), BSkyB (BSY.L), Diageo (DGE.L) (a Top Stock) and BT (BT.L) (Top Stock). On the same day AstraZeneca (AZN.L) (Top Stock) and Shell (Top Stock) will publish final results, while Kazakhmys (KAZ.L) and Babcock (BAB.L) are due to provide trading statements.
On Friday Tate & Lyle (TATE.L) (also a Top Stock) publishes a trading statement.