Analyst summary – 12 Feb 2016

Last week we wrote about handsome share price gains (10-35%) for many of the base metal miners (Anglo American, Glencore, Antofagasta) who benefited from a weaker US dollar (a boon for commodity prices) on fading expectations the US Fed could raise interest rates at all in 2016. Yay! Good news for markets, cheap money for longer! Well, yes and no. With interest rates now negative in a growing faction of major countries and having to be discussed in the US, markets decided this week to focus on the cocktail of woes now facing the key banking sector and which could see it face another crisis-like situation akin to 2008: Negative interest rates, China slowdown, US recessionary risk, oil market depression, struggling business models, increased regulatory burden, rising bad loans. This saw the sector take a beating with the like of Lloyds, Barclays, RBS and HSBC down 5 to 11%, although some bargain-hunting has seen them regain poise around multi-year lows.

The silver lining (pun very much intended) to the week’s risk-off sentiment was that major reversals in safehaven metals Gold and Silver, which have been turning up since mid-January, gathered pace with Gold rocketing back above $1200 for the first time in 9-months and posting its strongest up-day in 7 years yesterday. Silver was equally strong, although yet to better the highs of last October. The upshot is that it was the turn of precious metals miners Randgold Resources and Fresnillo to figure among the week’s top gainers (+14% and 19% respectively). Part safehaven seeking as a port in a storm, part short-squeeze (short positions being closed in a hurry) and part technicals – key levels triggering fresh trading. No surprise they are the UK Index ‘s top performers year to date (+45% and +23% respectively), versus the index -11%.

As we move into the weekend, sentiment has improved a touch, with the major indices making some progress from their lows, even if they remain in Feb downtrends. This could bode well for next week, as the Chinese return from their week of New Year celebrations and the US takes a break on Monday for Presidents’ Day. Results season rumbles on and the UK banks report at the end of the month. The price of oil remains a real bugbear for sentiment on account of the global supply glut and stalemate between producer nations. However, with major indices  down 10 to 20% already year to date, after accelerating lower in February, have the markets got a multitude of worries off their chests? Is it now all out there in the open? Has the clear-out been and gone? Could there be recovery potential from here? Roll on Monday!

Mike van Dulken, Head of Research