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Calm restored, but NFP test still to come…

CMC Markets

UK UK equities bounced slightly this morning, after a decent close from the US indices yesterday evening inspired hope that the rally may yet have further to go. All of the talk is around Friday’s key payrolls data, with the US recovery under the spotlight and speculation rife surrounding Mr Bernanke’s tapering timescale… Top of the pile in the UK today are component parts manufacturer GKN, after finding themselves on the receiving end of a price upgrade at UBS, who see fair value of 350p per share in the medium term. Shareholders of plumbing supplies group Wolseley can count themselves less fortunate, after seeing their stock fall over 4% as the group reported underwhelming Q3 profits as the result of ‘challenging conditions’ in the their European operations. US We are starting to sound like a broken record but it appears that we are heading for another day where the markets are dictated by expectations or lack thereof of further stimulus and how the Federal Reserve are likely to react to any positive or negative economic data that is released. After a night of flat trading for the futures markets we have opened with a small rise as investors clearly believe the stimulus isn’t likely to dry up just yet. Individual equities have followed the muted condition of the indices as we see General Motors Co. up only 2% after it was announced it would be re-joining the S&P 500, after dropping out in 2009 following their bankruptcy, as a replacement for H.J.Heinz Co An impressive earnings upgrade from Microchip Technology have led the shares 3% higher in early trading with first quarter expectations now at between 52-56 cents a share rather than 50-54 cent a share as previously stated. News that Salesforce.com have signed an agreement to buy e-mail marketer ExactTarget for $2.5 billion has clearly been taken as negative news by shareholders as sellers push the stock 3% lower, while ExactTarget are up over 50% on the news. An increase in profit and 3% increase in first-quarter net income by Dollar General was not enough to satisfy traders as an adjusted earnings target came in at $3.22 per share from a previous $3.30 per share guidance saw the shares slide 6.8%. FX USDJPY recovered from its drop yesterday to below 100 for the first time in nearly a month, as the Dollar responded favourably today to an increase in risk appetite across the board. Speeches due from voting FED members Sarah Bloom Raskin and Esther George later today will be followed closely for any sentiment on the tapering timescale which has dominated market activity in the last few weeks. The Australian Central Bank kept rates at 2.75%, following last month’s surprising but justifiable quarter point cut, however the board reiterated the possibility of further cuts, with a slowdown in Chinese a growth a concern for the Australian economy. According to Bloomberg data, the Aussie has declined 3.6% this year versus a weighted basket of 10 developed-market currencies. Commodities Crude oil has been pegged back today following yesterday’s weak U.S Manufacturing data and expectations that tomorrow’s EiA report will show stockpiles rose again last week in what is becoming a worrying trend for bulls. US crude now trades at a 5% discount to the recent high on May 20th, with demand side concerns weighing heaviest on prices. With Q2 U.S growth expected to slow given recent data, last week’s contraction in Chinese factory orders and a flagging European market, it’s hard to see where the boost in demand necessary to tackle rising inventories is going to come from. Copper moved higher today on supply side fears from Indonesia. The Grasberg mine controlled by Freeport-McMoRan Copper & Gold Inc looks set to remain closed for as long as 3 months to allow the completion of a Government investigation following a string of incidents including a collapsed tunnel. The mine is currently the 2nd largest globally and the shutdown could potentially cut back supply by up to 140 000 tonnes according to Macquarie Group. Despite the move, the metal is still down over 10% year to date.

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