FTSE nears big 6100 test after bullish start to 2013

The FTSE 100 rallied 0.5% on Friday after a strong set of US jobs numbers helped to encourage higher appetite for risk, meaning the FTSE 100 finishes its first new trading week of 2013 with a gain of over 2.5%.

The short term resolution to the US fiscal cliff, positive US jobs data and relatively low volumes have all played a hand in supporting risk appetite and pushing the FTSE 100 to its highest levels since 8th May 2011.

US jobs data for December met forecasts today with non farm payrolls growing at 155,000 from an upwardly revised 161,000 in November. Private payrolls saw a similar upward revision for November and came in at 168,000 last month, beating forecasts. The US unemployment rate surprisingly remained flat at 7.8%, having seen Novembers fall to 7.7% be revised to 7.8%. With investors trading firmly on their front foot this week, they took the positives from the US jobs numbers and this supported equities going into the close.

6100 a Crucial Level for the FTSE
The UK index strongly broke through the psychologically important 6000 level but now faces a big test at the 6100 level, where strong resistance lays.

With most traders returning to their desks next week after a long festive break, we should see heavier volumes return and therefore we will learn much more about market sentiment and whether the FTSE can overcome this obstacle. A close above 6100 by the end of next week will be a positive sign for both the FTSE 100 and blue chip UK stocks. The FTSE 100 has failed at this level on each of the previous four attempts and so another failure at 6100 could see investors start to bank their gains on masse after a rally from the lows of June 2012 and this could spark a price correction in London.

Miners and Financials in Favour
It is the core risk appetite sectors that have led the charge higher, as one would expect from the US Fiscal Cliff relief rally and positive US jobs data. The FTSE 350 mining sector closes the week higher by 3% despite bouts of profit taking in the sector today. Financial stocks have also been in demand this week, with the banking sector also rallying 3% to close at its highest levels since May 2011.

Of course the US debt situation is far from resolved and US politicians will soon be entering into tough and no doubt market sensitive talks aimed at agreeing aggressive spending cuts and raising the US debt ceiling by February. So whilst this week’s gains are there for all to be enjoyed, it would be naïve to think that the US fiscal situation and seeming bi-partisan harmony on Capitol Hill is locked in.

Tesco, Sainsburys and Morrisons all set to report next week
Next week we will also learn much more about the Tesco turnaround story. After a £1bn investment into turning around the world’s third largest retailer and re-focusing its efforts on its core markets, shareholders will see how the company – along with its main UK competitors – fared in the festive season sales.

We saw clients look to sell out of both Morrisons and Sainsbury’s earlier this week fearing the worst in the numbers and this sentiment has continued into the weekend. Clients did however show optimsim towards Tesco and the numbers they may report next week.

Kantar shows Tesco’s market share has fallen to 30.7% from 31% in 2012 but this fall would have been worse were it not for the last quarter of 2012 which saw the retailer regained lost market share. At the same time, of the last 20 months has seen Tesco suffer a run of 19 monthly sales decline. In this sense, investors will be hoping Tesco sets the tone for 2013 by reporting a strong set of numbers.

Sainsbury’s was the star performer in this sector last year and their outperformance has raised the bar of expectations. In this sense, they have the most to lose next week if their numbers fail to meet expectations.