Daily News Report

Markets in a Flash

• Asian markets closed higher across the board overnight following the strong performance yesterday in the US.
• European equity markets are tentatively up this morning on strong European data. Real direction seams to be dampened as markets wait for the stress test results.
• Energy commodities are controlled by the bears today, while commodities in the agriculture, metals and livestock sectors are pushing higher.
• The GBP is strong today and has made gains against most other major currencies on the back of the better than expected UK GDP results. GBP/USD is approaching its 3 month high.
• The EUR/USD is testing its 1.2970 resistance at its 2 month highs as the EUR is bolstered by strong economic data.
• US equity futures are showing moderate gains suggesting a small rise at the opening bell.

News Focus

UK GDP figures better than expected

Preliminary GDP figures released today for the second quarter of 2010 show that the economy has grown nearly twice as fast as economists had expected. The statistics released by the office for national statistics show that Gross Domestic Production has grown by 1.1% in the second quarter, this is nearly twice the rate that consensus expected of 0.6%. This Q2 result follows the 0.3% expansion in Q1 and is the largest growth rate seen since Q1 of 2006. The strong growth has been fuelled by the services sector and the construction sector.

German Business Sentiment

The IFO business climate index which surveys 7000 business executives has reported a 3 year high. The 106.2 reported for July is higher than last month’s figure of 101.8 and is a huge improvement over the consensus expectation that the index would fall.

Coming up Today

EU Bank Stress Test Results

When these results are released later today it is expected that 10 out of the 91 banks tested are going to fail. The stress test results are expected to be release by the Committee of European banking Supervisors after European markets close at 1200ET.
The results of these tests are going to be crucial to the economic outlook in Europe and therefore affect the World. This means that these results will have a large effect on the markets, if fewer banks fail and their balance sheets are stronger than thought this should be bullish for the markets as it sets up the economy for a stronger recovery.

Top 10 UK Dividend Stocks

During the current economic situation investors are demanding a high return on risk in the equity markets. This is due to the uncertainty felt in the strength of the major economies. As of recently economic data has showed that the economic recovery has begun to slow, bond prices are high and equity prices are who knows where. The question is whether the economies are going to continue to grow or are going to fall back into a double dip recession.

This aversion from risk has left some strong companies looking under priced and paying very attractive dividends. The list below shows the top 10 FTSE 350 companies ranked by projected yields. Companies with dividend covers of less than 1.25 have been filtered out, along with highly leveraged companies with gross gearing excluding intangibles below -100. The companies left offer attractive yields with some degree of safety.

All of the companies, excluding Hays Plc, have a projected P/E ratio under 12 and most offer a P/E to Growth ratio of under 1. The Game group Plc which is expected to increase its dividend over the next 3 years seem an attractive proposition at this price, but as investors always say “do your own research”.

Daily News Report

Markets in a Flash
• Markets in Asian countries had mixed sessions over night. China and Hong Kong rose while Japan fell.
• The Nikkie fell as the Japanese Yen gained hurting the countries exporters.
• European equity markets are trading higher after European economic data beats expectations.
• Commodities markets are looking strong today as European data is strong. Gold falls back further from $1200.
• The USD looks weaker today after investors sought safety in the currency yesterday after Bernanke’s comments.
• US equity futures are following to European lead and are pointing to a higher open.
News Focus
After Bernanke’s comments yesterday pushed investors towards less risky assets data released today in Europe has reversed this trend. The data released has pushed the commodities and European equity markets higher while weakening the USD.
Data for July’s manufacturing and service output in the Eurozone grew faster than was expected. The index rose to its three month high of 56.7 which beat analyst expectations of 55.5 and the previous month’s figure of 56.0. The main reason for the strength of the index has come from the major economies of Germany and France. This data relieves fears of a double dip recession in the Eurozone.
Retail sales data released in the UK came in better than expected. Sales volumes for the month of June rose by 1 percent. This is a strong increase in sales and has been boosted by consumer spending related the World Cup.
Just Released
0830ET - Jobless Claims
Previous 429 K Consensus 450 K
Consensus Range 430 K to 490 K Actual 464 K
This weeks Jobless Claims figure has come in worse than previous and consensus. The figure shows that more people than expected have filed for unemployment insurance. This proves bearish for the markets as it shows that the labour market is worse than was previously thought.
Coming up Today
As the earnings season continues a number of companies report today. Ones to watch are:
• Amazon
• American Express
• Caterpillar
• Microsoft
1000ET – Existing Home Sales
Previous 5.66 M Consensus 5.260 M
Consensus Range 4.800 M to 6.200 M
After last month’s fall in home sales it is expected that this months, for June, will repeat the pattern. The fall in home sales is a reflection of the slowdown in the economy and the weak labour market. A higher than consensus number will be bullish as it may suggest the economy is in better health than economists predict.
1030ET – Natural Gas Report
The weekly report by the Energy Information Administration provides data on US natural gas stocks. A report showing a drop in natural gas stocks may signal increasing demand in the economy and see an increase in the price of the commodity.