FTSE 100 Solid Ahead of Major Earnings Reports

As earnings season gets underway with several major UK companies updating investors this week, the market is positive but cautious as a new Prime Minister is set to be sworn in.

The Market Moving Events

• UK stocks are taking a cautious approach into the weekend after the Asia sell-off, and Burnham is likely to be sworn in on Monday.
• Concern among top LSE executives that Ed Miliband is likely to be the new Chancellor, which could weigh on stocks and sterling.
• Corporate reports next week concentrate on consumer discretionary and miners, as investors watch for European resilience after a flare-up in the Middle East.

UK Stocks Outperform 

British stocks are expected to open softer on the final trading day of the week after outperforming on Thursday amid a dip in tech stocks.The FTSE's greater concentration of defensive stocks with global exposure helped it post a gain, as stocks in the consumer discretionary and pharma sectors outperformed amid a rotation out of tech stocks. But after escalation in the Middle East and a broad sell-off in the Asia session, it appears traders are taking a more cautious approach. Particular to UK stocks is the expectation of a new Prime Minister on Monday, with markets still uncertain about who will be the next Chancellor.

Markets seem increasingly concerned that Ed Milliband will replace Rachel Reeves, with many top executives reportedly privately worried that he will be unfriendly to the business community. However, Burnham has kept his cards close to his chest and said he will only announce the appointment after he's formally become Labour leader. He's under no formal obligation to make any Cabinet changes on assuming the Premiership, though it's customary to do so. In the meantime, markets can digest trading updates from major earnings reports that span a wide range of sectors, including those that have supported the market recently, such as consumer discretionary (airlines) and materials (miners).

Fresinillo and Anglo Not so Golden

Next week sees production updates from Fesnillo and Anglo American on Wednesday and Thursday, respectively. Fresnillo was the darling of traders earlier this year, given its high gold production concentration and the yellow metal's high price. However, as markets have taken refuge in the dollar and Chinese gold buying has retreated in the summer, gold prices have been lower, weighing on miners, particularly Fresnillo. If miners see production drops, it could provide additional downside ahead of their full earnings reports later in the month. Traders will be hopeful that if production is sustained, profits can improve later as gold prices rise.

Ryanair Assessing European Airline Situation

The Irish budget carrier will be the first of the European airlines to report this season and will be closely watched for insight into the broader travel sector as well as for other airlines.The main concern is the impact of higher fuel costs, which could disproportionately affect low-margin carriers such as easyJet and Wizz Air. Traders will focus on the company's load factor and fuel hedging, as well as any comments on demand trends, to see if there is any slowdown in the growing European travel sector. IAG, the owner of Iberia, and Lufthansa, which has relatively high fuel usage, could react following Ryanair's earnings. Rival easyJet will post its Q3 results on Thursday, with investors looking to see if there is any divergence between the companies. 

Centrica Central to Energy Situation

The parent company of British Gas will report interim results on Thursday, with investor focus likely on how the varying prices over the last few months have affected the company's profits and outlook. Besides earnings, the company will be in focus next week as a Burnham government might take a more active role in the energy sector. Miliband's noted interest in green energy development could have implications for Centrica and its rivals.