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Analyst Weekly roundup – 29 Jan 2016
UK equities have rallied back to the key 6000 level this week, taking the recovery from January lows to an impressive 7%. Sentiment has been boosted by a brace of drivers including an oil price recovery from 13yr lows and more action by accommodative central banks, which provided a shot in the arm for depressed commodity-linked names such as Anglo American (AAL; +19%) and Glencore (GLEN; +9%) and Oil majors BP (BP; +5%) and Royal Dutch Shell (RDS; +7.8%) while Travel names easyJet (EZJ), IAG (IAG) and TUI (TUI) suffered from the prospect of higher fuel costs.
On the oil side, wishful Russian talk of ‘cooperation’ and ‘meeting’ among major producer nations to put an end to the current supply glut and 18-month rout has seen the price of a barrel recover so quickly from recent lows that it is technically back in a bull market (up over 20%), even if it can’t be ignored that it remains in a longer term bear market (down over 20%) from its 2014/15 highs and OPEC has denied any such talk. Any concrete suggestions of coordinated action could provide an even bigger reaction should they materialise.
In terms of central bank help, the Bank of Japan joined the European Central Bank in taking interest rates negative in an attempt to encourage Nikkei banks to lend money rather than hoard it to get its flagging economy going. And after the US Fed pointed to ‘market concerns’ in January after what would appear to have been a premature hike in December, the era of cheap money looks set to stay which is bullish for equities while other asset classes offer meagre returns. Especially with the Bank of England nowhere near hiking this year, the European Central Bank having already hinted that it may deliver even more stimulus in March and the Bank of Japan having the option of more QE in the coming months.
Mike van Dulken, Head of Research
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