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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: Stocks erase gains as investors weigh US budget, Fed policy - Taper speculation picks up after budget deal
- Imagination Technologies drops sharply on H2 guidance
- RBS, Lloyds lead banks lower
- Defence stocks rise on US budget
techMARK 2,674.83 +0.08%
FTSE 100 6,507.72 -0.24%
FTSE 250 15,396.12 -0.10%
After a choppy session, UK markets sank into the red before the close of trade on Wednesday as investors gave a cool reaction to the budget deal Stateside, given its potential impact on the Federal Reserve’s policy decision next week.
Defence stocks in London celebrated news of the budget accord today, though weakness in the banking and mining sectors and a sell-off at Imagination Technologies dragged markets lower.
The FTSE 100, which had hit an intraday high of 6,555.57 after lunchtime, finished down 15.59 points at 6,507.72.
Chief Congressional negotiators Senator Patty Murray and Representative Paul Ryan last night worked out a deal over government spending for the next two years, reducing the sequester cuts that were scheduled to take place in 2014 and 2015. The budget still needs to be passed in both the Senate and the House, with votes expected to be held in the coming days.
"This deal doesn't solve all of our problems, but I think it is an important step in helping to heal some of the wounds here in Congress," Murray said.
According to analyst Michael Gapen from Barclays, the agreement will cut the estimated drag from fiscal policy next year in half and, if passed, will give a direct boost to economic growth and “some upside risk to our forecast of 2.4% […] in 2014”.
However, Michael Hewson, Chief Market Analyst at CMC Markets, said that while on the face of it the budget deal is positive, “it does remove one obstacle to an eventual start to a possible Fed taper next week, which could be another reason why stocks are finding it difficult to rally right now”.
Imagination tech plummets on cautious outlook, banks decline
The share price of chip group Imagination Technologies plummeted today after the firm said that shipment growth from its partners for the second half would be at a "slightly lower rate than previously seen", due to slowing growth in the higher-end smartphone market.
Banking and mining stocks were largely out of favour today as risk appetite was scaled back. RBS led banks lower after the surprise exit of Finance Director Nathan Bostock after just 10 weeks in the position. Meanwhile, Lloyds also fell after being fined £28m by UK regulators for “serious failings” relating to a staff bonus scheme.
Among miners, precious metals group Randgold Resources was the standout faller as the price of gold declined. Anglo American, BHP Billiton, Glencore Xstrata, Kazakhmys and Polymetal also finished down on the day.
Investors in the defence sectors breathed a sigh of relief today after the budget deal in Washington, which provides some certainty over military spending for the next two years. BAE Systems, Ultra Electronics and Cobham were all making decent gains by the close.
Oxford Instruments was a high riser after Andor Technology recommended its £176m takeover of the AIM-listed camera maker, putting concerns about a rival bid to bed.
easyJet was also flying high after the airline was upgraded by Goldman Sachs to 'conviction buy'. The bank cited the group's ability to grab market share in the short-haul market in Europe as legacy carriers restructure.
Postal group Royal Mail was being weighed down by a ratings cut by Nomura from ‘neutral’ to ‘reduce’ |
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| | FTSE 100 - Risers
easyJet (EZJ) 1,481.00p +2.85%
BAE Systems (BA.) 426.00p +2.55%
Sports Direct International (SPD) 771.00p +1.85%
Petrofac Ltd. (PFC) 1,189.00p +1.62%
Marks & Spencer Group (MKS) 465.60p +1.53%
SSE (SSE) 1,328.00p +1.45%
BT Group (BT.A) 372.60p +1.09%
Kingfisher (KGF) 368.00p +1.04%
Whitbread (WTB) 3,510.00p +1.01%
Rolls-Royce Holdings (RR.) 1,204.00p +1.01%
FTSE 100 - Fallers
Mondi (MNDI) 941.00p -3.49%
Royal Bank of Scotland Group (RBS) 326.90p -2.91%
Randgold Resources Ltd. (RRS) 4,051.00p -2.17%
Anglo American (AAL) 1,293.50p -1.71%
Barclays (BARC) 259.75p -1.52%
Hammerson (HMSO) 496.40p -1.51%
CRH (CRH) 1,439.00p -1.51%
Aviva (AV.) 425.70p -1.34%
Aggreko (AGK) 1,560.00p -1.33%
Rio Tinto (RIO) 3,213.50p -1.31%
FTSE 250 - Risers
Oxford Instruments (OXIG) 1,716.00p +9.58%
FirstGroup (FGP) 121.60p +4.83%
Essar Energy (ESSR) 70.00p +4.40%
Bank of Georgia Holdings (BGEO) 2,238.00p +3.61%
Menzies(John) (MNZS) 784.50p +3.29%
Domino's Pizza Group (DOM) 492.60p +3.05%
Stagecoach Group (SGC) 372.00p +2.82%
Ultra Electronics Holdings (ULE) 1,879.00p +2.62%
Wetherspoon (J.D.) (JDW) 733.00p +2.30%
Supergroup (SGP) 1,254.00p +2.28%
FTSE 250 - Fallers
Imagination Technologies Group (IMG) 190.00p -23.69%
Soco International (SIA) 384.60p -4.68%
Kenmare Resources (KMR) 19.00p -3.94%
Centamin (DI) (CEY) 43.25p -3.50%
Bwin . party Digital Entertainment (BPTY) 114.60p -3.37%
Polymetal International (POLY) 496.90p -3.33%
PZ Cussons (PZC) 367.70p -3.26%
Investec (INVP) 409.30p -3.10%
Dialight (DIA) 822.00p -2.72%
Kentz Corporation Ltd. (KENZ) 629.00p -2.71% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks fall as investors weigh US budget deal - Investors weigh US budget deal, Fed stimulus
- US mortgage applications increase
- German inflation rises
FTSE 100: -0.11%
DAX: -0.42%
CAC 40: -0.06%
FTSE MIB: -1.44%
IBEX 35: -0.85%
Stoxx 600: -0.51%
European stocks ended the session lower as investors weighed a US budget deal ahead of the Federal Reserve’s policy meeting next week.
Chief Congressional negotiators Senator Patty Murray and Representative Paul Ryan last night worked out a deal that would set spending at about $1.01trn in the current fiscal year, up from the $967bn required in a 2011 budget plan. The budget still needs to be passed in both the Senate and the House.
If passed, it will end three years of impasse and fiscal instability in Washington that culminated in October with a partial government shutdown.
The budget comes before a non-binding Friday deadline and more than a month before the January 15th date when existing funds to run many federal programmes expire.
“The agreement will cut the estimated drag from fiscal policy in calendar year 2014 roughly in half, to about 0.25% from 0.50% previously and, if passed, would lead to a modest direct boost to GDP and some upside risk to our forecast of 2.4% for real GDP growth in 2014,” according to Barclays Research.
“However, the deal does not provide for an increase in the debt ceiling past February 7th, nor does it address longer-term structural budget issues.”
Some analysts saw the agreement to support the case for a scaling back of stimulus at the central bank's policy meeting on December 17th-18th.
According to a recent survey by Bloomberg, 12 out of 35 economists believe that the Fed will begin to taper next week, nine said a withdrawal will start in January while the remaining 14 don’t expect a scaling back of stimulus until March.
US mortgage applications, German inflation
US mortgage applications rose by 1% in the week to December 6th, compared to the previous week’s decline of 12.8%.
Germany’s inflation rose by 1.3% in November, the same rate of growth as the previous month and in line with analysts’ expectations.
Elsewhere in the Eurozone, European Central Bank Governing Council member Ewald Nowotny said there are limits as to what monetary policy can still do to stimulate demand for credit to fund investments.
"Credit availability is not a problem now but what we see is that demand is very low," Nowotny, Governor of the Austrian Central Bank, told a news conference on Austrian bank stability today.
"The possibilities of monetary policy are more or less limited. It is the demand side that decides investments."
Stagecoach, BPost
Stagecoach Group advanced as the transport operator said six-month adjusted earnings increased to 14.6p per share, beating the forecast of 13.7p.
Bpost SA declined when trading in the stock resumed after being suspended late yesterday. CVC Capital Partners Ltd.’s Post Invest Europe SARL sold a 19.7% stake in Belgium’s state-controlled postal service for €580m.
The Royal Bank of Scotland slumped after confirming Finance Director Nathan Bostock will resign - less than 10 weeks after joining the board – to join Santander UK.
Imagination Technologies dropped after posting half-year sales that missed analysts’ estimates.
EADS edged higher after saying it will target a dividend payout ratio of 30% to 40%.
Natxis gained after Exane BNP Paribas SA raised its rating on the stock to ‘outperform’ from ‘neutral’
Mediolanum retreated as Fininvest SpA, the investment company of Silvio Berlusconi’s family, raised €253m from the sale of a 5.61% stake in the financial-services company.
The euro rose 0.26% to $1.3797.
Brent crude futures fell $0.229 to $109.130 per barrel, according to the ICE. |
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| | US Market Report | | US open: Stocks fall as investors assess budget impact on taper - Taper in focus ahead of Fed meeting
- Barclays sees upside risk to GDP forecasts after budget deal
- Costco misses forecasts in first quarter
Dow Jones: -0.41%
Nasdaq: -0.46%
S&P 500: -0.48%
US stocks declined on Wednesday despite the news of a budget deal in Washington as investors speculated the impact it will have on the Federal Reserve’s monetary policy decision next week.
Chief Congressional negotiators Senator Patty Murray and Representative Paul Ryan last night worked out a deal that would set spending at about $1.01trn in the current fiscal year, up from the £967bn required in a 2011 budget plan. The budget still needs to be passed in both the Senate and the House.
If passed, it will end three years of impasse and fiscal instability in Washington that culminated in October with a partial government shutdown. The budget comes before a non-binding Friday deadline and more than a month before the January 15th date when existing funds to run many federal programmes expire.
According to analyst Michael Gapen from Barclays, the agreement will cut the estimated drag from fiscal policy next year in half and, if passed, “would lead to a modest direct boost to gross domestic product (GDP) and some upside risk to our forecast of 2.4% for real GDP growth in 2014”.
However, he said that while the deal reduces the potential for fiscal brinkmanship surrounding the budget, it “does not provide for an increase in the debt ceiling past February 7th, nor does it address longer-term structural budget issues”.
Nevertheless, with Fed officials recently citing the drag that fiscal policy has had on the economy, some analysts believe that this new accord supports the case for a scaling back of stimulus at the central bank's policy meeting on December 17th-18th.
According to a recent survey by Bloomberg, 12 out of 35 economists believe that the Fed will begin to taper next week, nine said a withdrawal will start in January while the remaining 14 don’t expect a scaling back of stimulus until March.
Costco misses estimates
Costco Wholesale declined as the US warehouse-club chain said net income rose to $425m or 96 cents a share in its first quarter, up 2.2% year-on-year but below the 102 cents expected by analysts. Revenue grew 5.5% to $25.02bn but this also missed the forecast for $25.35bn.
Mastercard jumped after saying its board of directors approved an 83% dividend increase.
Avanir Pharmaceuticals dropped after the drugmaker said a phase II study of AVP for the treatment of multiple sclerosis did not meet the primary efficacy endpoint.
Cisco retreated after losing a European Union (EU) General Court bid to overturn EU approval of Microsoft Corp.’s 2011 takeover of Skype Technologies. |
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| | Broker Tips | | StanChart, Wolseley, Imagination Tech, PZ Cussons Investec has lowered its target for Standard Chartered from 1,900p to 1,700p but has retained its 'buy' recommendation, saying that it doesn't see any capital issues at the emerging markets-focused lender.
Analyst Ian Gordon said that the recent debate about capital which has weighed on the share price in recent weeks has been "contrived", highlighting that the bank's fully loaded Basel-3 core tier-1 capital ratio stood at 10.5% in June - "the strongest of any UK bank". "We expect sufficient visibility to emerge by Q1 2014 to drive both consensus upgrades and a re-rating. We see no capital issue at all."
UBS has reduced its estimates slightly for heating and plumbing products distributor Wolseley but still labelled the stock a ‘buy’ due to its “solid” long-term growth prospects, providing a small boost the share price on Wednesday.
According to the bank, Wolseley offers a “relatively low risk investment in the context of the construction sector … and we expect relatively stable earnings momentum from here, subject to unchanged FX rates”.
Jefferies has trimmed its target for chip firm Imagination Technologies Group from 392p to 364p after the company's first-half results and guidance disappointed on Wednesday.
Nevertheless, the broker maintained its 'buy' rating, saying that the current valuation - stock-trading at 15 times 2016 estimated earnings - "misrepresents the strength of the underlying fundamentals and the opportunities with MIPS in particular". It said it still sees IMG as an "attractive investment opportunity".
Panmure Gordon has reiterated its positive stance on consumer products group PZ Cussons, saying that the stock continues to trade at a discount to others in the sector after its in-line first half.
"We think the consumer environment in both developed and developing markets remains difficult for consumer goods companies and currency weakness particularly in Australia and Indonesia impacts both on costs and translation back to sterling. However, we think PZC has delivered a strong H1 performance, with accelerating top line growth in Nigeria and continued double-digit growth in Indonesia particularly encouraging." | | |
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