The Brexit Economy Overshoots Its New Runway

It was a revealing week for the political and financial world with the ongoing storm in a teacup over the third runway proposed for Heathrow. Indeed, it got the green light, in line with what you might expect for a project which will cost billions, and is in line with the May Government’s “Spend, spend, spend” approach. According to this philosophy new infrastructure is regarded as the key driver for boosting the economy.

However, unlike Hinkley Point or HS2, this project has a massive “Nimby” component, exacerbated by Bremoaners with an axe to grind from the Referendum result. Interestingly, Richmond MP Zac Goldsmith went through with his threat to resign on the new runway news, and stand as an independent. Presumably, on the basis that he can achieve more outside the party to block the Heathrow expansion, than he did from within? Ironically, British Airways owner, International Consolidated Airlines (IAG) which has opposed the new runway, saw its shares rise in the aftermath of the Government announcement.

The degree to which the Government was involved or not in the decision by car maker Nissan to not only stay in the UK but actually expand operations was unclear. Cynics implied a sweetheart deal had been brokered. One can guess this will be leaked in the Sunday papers?

Presumably despite all the threats and bleating from Nissan it could not pretend that the weaker Pound since the summer did anything other than cut the cost of its manufacturing base and make operating in this country all the more attractive. The rise in Q3 GDP to 0.5% versus expectations of 0.3% may have been a lagging indicator according to some, but for now the alleged post Brexit tsunami is yet to materialise.

The revelation of the week for the stock market was that despite rumours to the contrary the banking sector is far from dead. The way was led by Barclays (BARC) which managed to announce a 35% rise in pretax profits, even though on the face of it the group’s drive to refocus on core banking is still a work in progress. What was noticeable is that after this week’s gains the shares have now recouped the sharp knee jerk losses sustained in the wake of the June 23 vote.

Lloyds Banking (LLOY) unveiled flat profits near £2bn. The main headline here was how the Government has sold down more of its stake in the Black Horse bank – presumably at a loss given the way the shares are some 20p below the breakeven level. Speaking of losses, if there is something which can be relied upon it is RBS (RBS) costing the taxpayer money. Our 73% stake in the legacy issues bank continues to be a source of frustration, if not embarrassment in the form of a £469m loss. Indeed, it won the banking sector wooden spoon this week given the way even Deutsche Bank (DBK.DE) managed to notch up a modest profit.

As far as the price action to look out for over the next week is concerned it will be worth seeing whether Gold can clear recent $1,276 zone resistance given the way that retail traders are long up to the eyeballs of the metal? This would usually be classed as a cue to sell into strength. A break of the 10 day moving average at $1,265 can be regarded as bear signal which might lead to the $1,200 zone. In the currency markets Dollar /Yen at 105.30 has managed to rise against a so called Gravestone Doji daily candle, something which suggests there is momentum to take the cross towards its 200 day moving average at 107.25.

Sterling / Dollar watchers will note the way the 10 day moving average at $1.2226 has been capping the price action. Below this one would be looking to a sub $1.20 target to retest the Flash Crash floor of $1.1950 from October 7.

Outstanding charts among the FTSE 350 included Kaz Minerals (KAZ), where above the 10 day moving a journey to 350p. Mining giant Rio Tinto (RIO) looks to be making good on its recent push to new 52 week highs with a possible 3,300p December price channel target. Despite its losses RBS (RBS) looks to be heading towards a July resistance line projection target at 220p while its 50 day moving average at 188p holds.

For the small caps the highlights included Hurricane Energy (HUR) with the completion of a Horizontal Sidetrack Well. Recent support for the shares has come in above the 50 day moving average at 36p. While this holds one would be looking to the top of a trend channel from June at 55p by the end of this year. Russia focused nickel miner Amur Minerals (AMC) managed to break through its 50 day moving average at 3.18p to highlight the chance of a push to 6p at a near term triangle formation top on its daily chart. Finally, shares of Canadian Overseas Petroleum (COPL) appeared to be headed towards 14p while recent 10p support is held, on speculation regarding its Liberia Asset.