Analyst summary – 5 Feb 2016

This was the week for those who remained loyal to that investor favourite – the Mining sector. Anyone who dared called the bottom in late January may have shivered at a slight pullback on Mon/Tues as gains of circa 20% in certain names began to be consolidated. However, those who held firm will have been rewarded handsomely as gains were extended by another 10-35% from this week’s lows by names including Anglo American, Glencore, Antofagasta and Fresnillo. These added to a January recovery with a great start to the new month, resuming their northerly gallop thanks to a weaker US dollar (a boon for commodity prices) on fading expectations the US Fed can raise interest rates further in 2016 – good news for markets, more cheap money for longer. And as shares began to tick up, momentum only grew from short-covering, technical breakouts and brokers suggesting a bottom for certain base metals.

While the oil price remains volatile and looks set to keep driving financial markets in general, the fact it remains well off its lows is buoying resource sector sentiment despite supply glut problems remaining very much prevalent so long as stubborn producers the world over refuse to cut output. However, after the Mining sector rebound of late, as commodity prices recover slightly. could gains be built upon further in February? After big moves in just a fortnight, have the shorts been squeezed out and a major sector overhang removed? Has doom and gloom been tempered? There’s work to do, but as we asked last week, could the worst be behind us?

We may be set to close an exciting week with the UK Index -3.0%, however, we are well off Jan lows and still technically in an uptrend and thus recovery mode. And after losses of 5-10% among those other investor favourites, the Banks, Financials and Insurance (blame poor results from Swiss investment banks, China slowdown worries, euro-crisis concerns on Italian banks and anxiety about the fallout from commodity sector weakness) could depressed names like Lloyds, Barclays, Aviva, Legal & General, Prudential have their recovery turn in the sun sometime soon? Could loyalty pay off once again? And this last point is key in terms of trading. While issues remain far from resolved in many a sector and much work to do before long-term downtrends are overcome, the moves of late show that there are always attractive trading opportunities to be had along the way. So don’t be shy, don’t miss out.

Mike van Dulken, Head of Research