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If the first quarter of 2017 only proves to be a warm up, then we are in for one sensational follow up act in Q2! Already, we have seen global indices hitting all-time highs, a new President inaugurated in the US, the largest tech IPO since 2011 in the form of Snap Inc.’s $19.7bn listing, several major UK M&A deals being struck political elections in the Netherlands dashing the hopes of European populism, central bank meetings aplenty, and, of course, a little event called Brexit finally getting underway 9 months after the UK’s fateful referendum.
Yet there is still a plethora of events on the horizon, listed in detail below, that could have a profound impact on the UK’s largest companies, providing investors with ample opportunities to profit from this compelling quarter.
In the quarter’s main event, the fight between anti-EU populism and pro-EU liberalism takes a new battleground in France as voters go to the polls for the first time on 23 April, while the eventual winner will be decided in a second round vote on 7 May. The right wing and anti-EU National Front leader Marine Le Pen is expected to win the first round, however polls suggest a second round defeat by either Francois Fillon or Emmanuel Macron. The former, however, remains embroiled in a fraud scandal that could threaten his campaign, while the latter is seen as inexperienced. Could Le Pen follow Brexit and Trump to spring a third populist surprise in 12 months?
Despite delivering only the third rate hike since 2008, markets were left disappointed as the US Federal Reserve failed to increase its median forecasts for rate hikes in 2017 from 3 to 4, leading to a broad US dollar sell off. Yet across the Atlantic, central bank policy makers from the ECB and the Bank of England both showed a surprisingly hawkish turn. Could the dissenting vote to raise interest rates by the BoE’s Kristin Forbes coupled with increasingly hawkish rhetoric from continental peers signal Europe is ready to roll back accommodative policy?
Having been inaugurated as US President in January, Donald Trump has not had the best of luck with the US authorities so far. His travel ban was overturned by the judiciary, while his maiden legislative reform on healthcare was withdrawn at the 11th hour. However, in failing at his first attempt at implementing his campaign pledges, Trump is now free to follow through with more pro-business, pro-growth reforms that could help stimulate the US economy to new heights; tax reform, infrastructure spending and deregulation across the banking and energy sectors could have a profound impact on markets should Trump succeed at the second time of asking.
Over the page we analyse the best and worst UK 100 performers of the year so far. Perhaps some of the names overleaf might strike you as being out of place… Could their fortunes change in Q2? Take a look!
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As we highlighted in our opening paragraph, 2017 has already seen a whole host of not just ‘once every four years’ events, but once in a generation events. During some years, this would have been more than enough for traders. However, 2017 is providing investors with a sensational number of market-sensitive events which have already made a significant impact on the UK’s blue chip index, the UK 100 , as shown below.
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Source: AlphaTerminal (29 March)
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Some of the names in each of the tables above may look out of place. Most notably, housebuilder Barratt Developments, one of the top 10 underperformers during 2016, has so far been 2017’s joint 7th best performer (+18.1%), alongside its sector peers Persimmon (also 7th; +18.1%) and Taylor Wimpey (2nd; +25.7%). This comes after the sector had a torrid 2016, in which the unfavourable result of Britain’s EU referendum and subsequent Sterling weakness deterred investors. Fast forward through the first quarter of 2017, however, and the sector is the one of the best performing in the last 3 months. Can the Housebuilders’ recovery continue?
The same can be said of International Consolidated Airlines (4th; +21.3%). The parent group of British Airways was the 4th worst performer of 2016 (-27.8%) as the weak pound and weaker traffic grounded the sector, however the airline has made a tremendous resurgence, rising to become one of the best performing stocks of 2017.
At the other end of the performance table, BP (97th; -11%) is currently in a very different position to how it ended 2016. Having been the 11th best performer of the previous 12 months, a retracement in Crude Oil prices have left it and sector peer Shell (89th; -5.8%) find themselves in an unfortunate predicament. The same can also be said for Tesco (93rd; -7.6%) having been one of the top 20 performers in 2016. Clean up in aisle four!
Note that there is some divergence between sector peers. While both Burberry (10th; +15.9%) and Next (99th; -13.9%) are both clothing retailers, the fortune of the former is very different to the latter. This, like many other notable UK Index performance, can be attributed to the strength of Sterling in comparison with its global peers, as Burberry relies upon global exports while Next imports its wares from locations around the world. However, with the 2-year Brexit process now underway, could we see continued divergence or might a U-turn be imminent?
With the aforementioned heavyweight macroeconomic and political events just around the corner, we’ve compiled 10 of our favourite stocks that we think you should watch during 2017’s second quarter. Which do you like?
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Bullish: Barclays, Overweight, Target 629p, +17%, (2 Mar)
Average Target: 554p, +3.4% (30 Mar)
Bearish: Liberum, Sell, Target 425p, -21% (1 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Credit Suisse, Outperform, Target 1948p, +27%, (25 Jan)
Average Target: 1414p, -8.1% (30 Mar)
Bearish: Goldmand Sachs, Sell, Target 1050p, -32% (9 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Whitman Howard, Buy, Target 5100p, +33%, (21 Mar)
Average Target: 4244p, +11% (30 Mar)
Bearish: RBC Capital Markets, Sector Perform, Target 3400p, -11% (30 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Panmure Gordon, Buy, Target 875p, +36%, (6 March)
Average Target: 761p, +19% (30 Mar)
Bearish: Liberum, Hold, Target 675p, +5.1% (28 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Goodbody, Buy, Target 850p, +62%, (27 Feb)
Average Target: 586p, +12% (30 Mar)
Bearish: RBC Capital Markets, Sector Perform, Target 450p, -14% (24 Feb)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Day by Day, Buy, Target 1037p, +37%, (13 Mar)
Average Target: 667p, -12% (30 Mar)
Bearish: Barclays, Underweight, Target 480p, -28% (20 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: HSBC, Buy, Target 260p, +37%, (27 Mar)
Average Target: 205p, +7.9% (30 Mar)
Bearish: Goldman Sachs, Sell, Target 150p, -21% (13 Dec)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.
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Bullish: J.P. Morgan, Overweight, Target 280p, +33%, (20 Mar)
Average Target: 232p, +10% (30 Mar)
Bearish: Societe Generale, Sell, Target 155p, -26% (21 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Goldman Sachs, Buy, Target 400p, +37%, (9 Aug)
Average Target: 329p, +12% (30 Mar)
Bearish: Bryan Garnier, Neutral, Target 278p, -5.0% (8 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: CM Research, Buy, Target 2231p, +29%, (13 Feb)
Average Target: 1975p, +14% (30 Mar)
Bearish: Natixis, Neutral, Target 1700p, -1.7% (6 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 30 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.
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The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)
If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!
Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.
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Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet?
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AccendoFX Ltd - 1 Alie Street, London, E1 8DE (UK) - AccendoFX Ltd. is registered with the Financial Conduct Authority (FCA) No. 671133 and HMRC No. 12798406. Registered in England and Wales No. 9269365.[/vc_column_text][/vc_column][/vc_row]
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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