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Weekly Traders CFD Diary

10th November: A China Stimulus The FTSE 100 manages to follow through well on the gains of both last week, and the 250 point gain for the Dow late on Friday. The index has made it back above the 4,500 level via a triple digit gain. What has been the main driver for the bullishness is news of a $600bn economic stimulus package in China, a typically communist style move apparently learnt from its capitalist counterparts in the West.

It is the mining sector which is particularly sensitive to the Chinese economy that has made the best gains among leading shares. Of particular note are stocks like Rio Tinto (RIO) and Billiton (BLT) which are up well over 10%. While the smaller mining groups are not up so much we have gains of between 5% - 10% in the likes of Vedanta (VED) and Lonmin (LMI).
Staying in the Far East, one of the leading banking plays in this area HSBC (HSBA) which was among the first to warn of the effects of the Credit Crunch last year, has managed to put in a steady performance for Q3 despite a $4.3bn writedown. Perhaps just as importantly, we have been the outlook which was seen as offering further downside in the near and medium terms. Not surprisingly this has led to the share price being above to hold no better than flat so far this morning.
As well as HSBC’s update there was plenty of speculation regarding the state of the UK banking system over the weekend, as well as what shape it may have going forward. This centred around the possible failure of the HBOS (HBOS) / Lloyds TSB (LLOY) merger, although major shareholder Standard Life (SL.) is reportedly looking at an alternative plan.
Easily the best fundamental performance reported today came from telecoms group Cable & Wireless (CW.) which was able to reveal a 26% rise in pretax profits. While the company has put demerger plans on hold due to the volatility in the financial markets, improved margins and falling costs have underpinned its position.

November 11th : Vodafone Lowers Guidance
There was something of a hangover feeling on leading stocks this morning, as any goodwill associated with the China economy bailout yesterday was lost. This is hardly surprising given the way that China has been the big hope for the world economy in terms of being a route out of the Credit Crunch. The casualties in terms of share prices were generally those sectors that fared best yesterday. Expectation of weaker economic performance lowered the price of crude oil and oil majors, with BG Group (BG.) leading the way down with a 6% decline, and Tullow Oil (TLW) also sliding by a similar amount. Although it was true that BP (BP.) and Royal Dutch Shell (RDSB) only lost around 2%.
The mining sector felt the full force of the post China bailout disappointment, led by Rio Tinto (RIO), Billiton (BLT) and Antofagasta (ANTO). Typically the losses in share price were of the order of 3% - 5%.
The FTSE 100 was back at 4,300 by 10 a.m. even though one of its more high profile components was up over 7%. Vodafone (VOD) lowered its guidance once again with turnover ahead of forecasts, but economic conditions forcing it to reduce its revenues guidance. It remains to be seen whether the rebound in the shares is merely relief that the interim results were not worse or a shorting opportunity.
The other main corporate names reporting all saw sharp share price falls, of between 5% - 10%. Cookson Group (CKSN) suggested that the economic slowdown was starting to impact on its ceramics business, with the such weaker conditions likely to continue well into 2009. Housebuilder Taylor Wimpey (TW.) whose banking convenants have been a cause for concern said that further writedowns against land and property values may be needed.
Directories group Yell (YELL) came up with the concept of “negative organic growth” something which translated into English suggests that profits are going to shrink. In some way the worst of the bunch was hotels group Intercontinental (IHG) who suggested that last month saw a dramatic deterioration in market conditions.

12th November: A Sell Into Strength
It has not been a great surprise that the FTSE 100 has lost its initial gains through 4,300 given that there have not been that many positive drivers for leading stocks today. The main influence is arguably the price of crude oil, now below the $58 a barrel level. The fact that this market is down here and showing little sign of strength is as much a reflection of how bearish it is, as well as how negative traders have become regarding the economy. Naturally, it has been the oil majors who have suffered, once again lead by BG Group (BG.) which is down nearly 4%. BP (BP.) is down 2%, but Royal Dutch Shell (RDSB) outperforms with a loss of only 0.5%. The worst of the bunch is actually Tullow Oil (TLW) which loses 5% despite suggesting that its production in 2008 with average 67,000 barrels a day.
The stronger dollar and the economic misery ensures that Gold and metal prices are weak and that mining stocks are once again on the back foot. This is reflected by the price action of leading miners such as Rio Tinto (RIO), Billiton (BLT), and Anglo American (AAL) sporting losses of 1% - 3%, although with price action which is no way near as vicious as even a couple of weeks ago.
The main highlight as far as companies reporting is concerned is grocer Sainsbury (SBRY) which beats the market in terms of its H1 results. This is despite the presence of “challenging” conditions. The stock manages a 2% rise after delivering a second rebound this month from the mid 260p’s yesterday.
Land Securities (LAND) is also in focus, but as one might expect, not in a very positive way. The near 20% fall in NAV is bad enough, with the planned Trillium demerger being abandoned as yet another relic of the pre Credit Crunch bubble. At least the stock did manage to hold onto a 1% gain by mid morning.
There was some unadulterated good news though, this time from engineer AMEC (AMEC). It was able to boast of a £700m order book and forecast margins of 8.5% by 2010. The shares edge up 1%.
November 13th : BT Dials The Right Number
One of the problems as far as looking at fundamental analysis these days is that it can change almost as quickly as the share price. This is seen as far as the recent warning from BT Group (BT.A) regarding its Global Services unit on November 3rd. That caused a 20% decline in the stock. Today we were initially treated to a 10% rebound as the telecoms group beat Q2 expectations and cut its workforce by 10,000. Nevertheless, while the situation at the company appears to have been stabilised, it can hardly be said to have been a smooth ride for shareholders so far this month.
Elsewhere the FTSE 100 was in the negative again in the wake of US Treasury Secretary Paulson’s apparently back tracking in the wake of the calls from the US auto industry for its own bailout. This was taken very badly by the US stock market, with index losses of 5% or more. On this basis the 1% decline in the FTSE 100 so far today has not been a bad performance. The reason may be that investors have had corporate statements like BT’s to digest.
A company helping sentiment was LSE (LSE) which is apparently one of the winners in the Credit Crunch bear market. Perhaps it is panic selling / capitulation by investors which has led to a 30% rise in interim pretax profits to £127m from £97. Although overall revenues were up a staggering 70%, on a constant currency basis this translated as being only flat, and might explain the 10% decline in the share price so far today.
Currency issues also affected brewer SAB Miller (SAB) where the influence of a stronger dollar ensured that H1 profits were only up 5%. While people may always need to drink, especially in a recession, the tougher economic conditions have taken their toll and are expected to continue do so going forward into 2009.

November 14th : The Wall Street Squeeze
We had a taste of October style volatility on Wall Street as there was an intraday swing of 900 points from a low below 8,000 – near the worst levels of the Credit Crunch so far. But UK stocks have taken the news well in the sense that we are currently sporting a rise of over 150 points for the FTSE 100, with the push higher appearing to be relatively broad based. What is particularly interesting about the move is the way that the gain has been made against the latest revelations of recession in Europe, and further hefty job cuts.
Delivering the bearish news today has been RBS (RBS), now only a shadow of the great bank it once was. It announced that 3,000 of its workforce are set to be axed, with 1,000 to go in the UK. The shares were however up with the stock market by 5%. There was also no good news for Barclays (BARC) shareholders as the Mid East investors call upon to prop up the ailing bank refused to budge from the “bargain” deal they had struck, something which was quite understandable. The resulting uncertainty means that Barclays’s shares are currently languishing just a few pence above the intraday support of the year at 155p.
The main gainers among leading stocks were generally related to basic resources, something which was not too surprising given the way that crude oil has bounced up to $5 off its year lows and gold back towards the $750. The big winners include BG Group (BG.) clawing back over 5% of its recent losses and BP (BP.) up by a similar amount as it regains the 500p level.
Companies reporting which featured in similar ways in terms of price action were inter dealer broker Tullett Prebon (TLPR) and IT group Logica (LOG). Despite Tullett Prebon posting a 26% increase in revenues, and Logica upping guidance, the shares of both companies had turned negative by mid morning.
 

Research done by Blue Index, the

14/11/08

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