WEEK AHEAD: FEB 14

Short Description

UK & European Stocks in 2022

Video Script

The prospect of higher interest rates has seen investors look to parts of the stock market that might benefit - which is presenting new trading opportunities in UK and European stocks. I’ll discuss trading on indices like the UK-100 and FT-MIB as well as rundown the economic calendar for this week. Stay tuned!

 

Hey guys, I’m Rich and a very warm welcome to another edition of the week ahead, where I look at market trends and preview upcoming market events.

 

The UK 100 CFD just reached its highest since before the pandemic in the last week, showing a rare outperformance over other major indices. A quick comparison of the charts and year-to-date performances clearly shows that European indices are doing better this year, with the UK out in front.

Why might this be? Well UK and European indices contain a lot of banks, oil companies and miners - which all fall under the category of cyclical stocks. This is different from the US indices that have a lot of technology stocks, which are categorised as growth stocks.

We all know at this point, that looking back over the past decade - technology stocks have been the best to invest in - and part of that is thanks to the low interest rate environment. If rates now need to go up a lot to curtail inflation - then we can expect a change in relative performance - and that’s what we are seeing now.

Of course there are reasons things could change back again. If central banks start to have second thoughts about raising interest rates - especially in the UK and Europe, then indices like the UK 100 and FT-MIB could come unstuck. The two main reasons to think interest rates might not up as much as currently expected is if economic growth slows or if inflation comes back down to more normal levels in the coming months.

 

OK, before I turn to the economic calendar – let me note what’s coming next in Q4 earnings season. NVIDIA, Walmart, Cisco and Shopify are big names reporting in the US, while BHP Billiton, Anglo American and Glencore are big names reporting on the commodities side in the UK.

 

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So let’s round things off with the economic calendar. Given the sharp gains in the euro following the ECB meeting, Eurozone Q4 GDP data will be one to watch. A higher number will pressure the ECB to bring forward rate hike plans. UK CPI during January could well play a part in whether the British pound can keep rising in anticipation of a third Bank of England rate hike in a row. Thursday will be the big one as far as trading dollar-forex-pairs goes with US retail sales and Fed minutes both released. It was at this meeting that the Fed laid the groundwork for a March rate hike so minutes could make it clearer how urgent US central bankers are to hike rates, and whether a 50-basis point move could be on the cards. Finally Japanese data is not typically a big market-mover but should inflation move over 1 percent in Japan, this would be big change for a nation that typically suffers from deflation- and could increase volatility in the Japanese yen.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.