Monthly market review - January 2017

Indices

 

The New Year began with equity markets a touch softer but the Trump effect returned following his inauguration and we saw stocks firmer by the end of the month.

US indices punched out record highs, with the Dow Jones industrial average (Wall Street) stealing the show as it finally punched through the 20,000 ceiling.

But Dow 20k wasn’t the only story, or indeed the most important. The Nasdaq (US Tech 100) and S&P 500 (SP 500) also recorded new all-time highs as investors ploughed money into equities on the prospect of deregulation, lower taxes and higher spending.

UK shares got off to a much better start but the FTSE (UK 100) had handed back almost all its gains by the end of the month as sterling rallied. The blue chip index still managed to notch up a new record peak as the effects of a still weak pound continued to lift the market. The FTSE All-Share declined a touch as profits warnings and profit-taking bit.

The DAX (Germany 30) ended the month virtually flat while the CAC (France 40) fell despite a clutch of upbeat data from the Eurozone.

Shares

 

January saw reporting season in full swing as companies on both sides of the Atlantic reported their results from the final quarter of 2016. On the whole earnings are on the up, offering further support for indices. Highlights:

Apple

After the close on January 31st, Apple posted a record breaking quarter as earnings easily beat analyst expectations. It turns out the iPhone 7 is more popular than everyone thought it would be.

Apple posted all-time record quarterly revenue of $78.4 billion with earnings per diluted share of $3.36, sending the shares rocketing close to all-time highs as February began.

BT

A dark day for BT on January 24th, as the shares slumped 20% after the company admitted the cost of dodgy accounting in Italy is far greater than first thought. The group’s own investigation of accounting malpractice in its Italian business revealed the situation is far worse than it first thought – the bill is now thought to be around £530m, well above the £145m initially forecast.

Fiat Chrysler

Another company in the news for the wrong reasons was carmaker Fiat Chrysler, which became the latest firm embroiled in the emissions scandal after the US Environmental Protection Agency levelled charges against it. Shares in the group tanked following the announcement but then rallied.

Tesco-Booker

Shares in Tesco and Booker jumped in January after the two announced a merger deal. Despite bearing all the hallmarks of a takeover by the much-larger Tesco, the deal was hailed by investors. Vertical integration is the aim of the game and cost synergies are expected to flow.

UK retail

January also saw a blitz of Christmas trading updates from Britain’s high street. Tesco, Morrisons and Marks & Spencer delivered some impressive like-for-like sales, while JD Sports, Debenhams and Primark-owner Associated British Foods also reported decent numbers. UK retail sales have held up remarkably well since the EU referendum but cracks might be emerging. While data from the Office for National Statistics point to strong spending, BRC figures suggest it’s weaker than the official numbers claim.

 

Forex

 

Sterling rallied after Theresa May set out her stall for a clean, hard Brexit. But gains were limited as it looked more like bears giving up rather than a wave of fresh bullishness. Nevertheless the rise of January 17th was one of the largest single-day gains for GBPUSD in memory.

The US dollar eased off 14-year highs but remained firmly supported as markets still expect the Fed to raise rates more than once this year.

The euro firmed throughout January, boosted by higher yields and rising inflation and renewed optimism about growth. The ECB gave no hints about tapering but markets are seeing better prospects of the Eurozone in 2017.

Commodities

 

Crude oil had little direction through January, with the benchmark Nymex and Brent contracts failing to match December’s gains but holding clear of $50 easily. Doubts about whether OPEC will stick to its commitment to reduce output persist. Gold rallied as doubts about the Trump trade lingered. Copper led industrial metals higher throughout the month on bets of an infrastructure spending boost in the US and some firmer data out of China that saw the manufacturing PMI climb at the fastest clip in three years in December.

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