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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | Equities waver as long-term yields rise - ADP employment report surprises to the upside
- Traders brace for Friday's US jobs report
- Sage races ahead
The FTSE ended the session slightly lower after the latest US ADP payrolls number came in ahead of forecasts, which pushed long-term bond yields higher both Stateside and in the UK, thus effectively caping any upward momentum in stocks.
Private sector payrolls expanded by 215,000 last month, according to ADP, coming in comfortably ahead of the 170,000 forecast by economists, while October´s figures were revised up modestly. Nevertheless, and as Barclays Research points out, the above data series is volatile and revision prone. As well, it is not very useful when trying to anticipate the official non-farm payrolls data from one month to the next.
Even so, investors were wary that a stronger-than-expected increase in non-farm payrolls could prompt the Federal Reserve to begin scaling back stimulus even as soon at its next meeting on December 17-18th or in January.
The median (not average) expectation from economists polled by Bloomberg continues to Fed tapering beginning in March, but traders are still a tad nervous and equities have come a very long way year-to-date.
Very much worth noting, as far as UK gilts are concerned, speaking in the afternoon ratings agency Standard&Poor´s (S&P) chief rating officer, Moritz Kraemer, indicated that S&P will be analysing the sustanability of UK growth.
In particular, they want to determine if the current pattern of growth would warrant a rating action one way or another. Strikingly, he said that: “we observe that some of the growth is similar to the growth before the crisis, which was in many people's minds linked to a very buoyant property market.”
Acting as a backdrop, in the morning investors were treated to some rather worrisome data on the Eurozone´s service sector, which according to survey compiler Markit points to France heading back into recession in quarter four and Italy about to register a “staggering” [Markit dixit] tenth consecutive quarter of economic contraction.
Overnight the latest Chinese service sector figures revealed slowing growth momentum, HSBC anounced.
A modestly lower-than-expected UK service sector purchasing managers´ survey managed to knock cable off its perch atop the 1.64 level.
The Markit/CIPS UK purchasing managers´index (PMI) came in at 60 for November, compared to 62.5 a month earlier and the consensus estimate for a reading of 62.
The Fed´s Beige Book is due out this evening.
Sage Group races to the top of the leaderboard
Sage Group gave the top tier index a boost with a near 7% rise in its share price on the back of a divi raise and predicted revenue growth of six per cent for 2015.
However, gains were limited by a raft of stocks going ex-dividend, including the Aberdeen Asset Management, London Stock Exchange, National Grid, Severn Trent and Tate&Lyle.
In other macro news, the government is set to later today unveil its two-year infrastructure spending plan, which is expected to include £375bn-worth of investment in energy, transport, communications, and water projects. The insurance sector is also widely predicted to be planning an investment of £25bn.
The government is also due to significantly alter its policy of renewable energy subsidising, according to the BBC, with plans to scale back its contributions to both onshore wind and solar energy, while increasing its support to offshore wind power. Overall spending is not expected to differ.
Sage Group races to the top of the leaderboard
Although Sage Group’s annual pre-tax profit was broadly flat at £164.1m, this was a reflection of the cost of non-core disposals, with revenue for the period rising 4% to £1.26bn, driven by growth in premium support contract upselling and renewals, software subscriptions and payment services. The firm proposed a final ordinary dividend of 7.44p per share, bringing the total ordinary dividend to 11.32p per share, up 6% on the prior year.
Tesco shares ended the day slightly lower after the company posted a disappointing result for the third quarter. The supermarket chain said like-for-like sales in the period had fallen 1.5% due to a grocery market that had become more difficult since the summer due to pressure on consumer finances. Analysts at Credit Suisse, however, had this to say: “[Tesco] has today reported negative like-for-like in every country for the second consecutive quarter. But, the outlook appears robust and we think this shows Tesco is more on top of its business than perhaps some give it credit for.
Randgold Resources rose strongly after Investec upgraded the stock to 'buy' with a 5,095p target.
Meanwhile, Standard Chartered fell heavily after saying a "challenging year" has resulted in a "significant impact" on its performance in the second half and as such income for the full year is expected to be broadly flat on 2012. Nevertheless, Investec highlighted that it is the cheapest British bank on a fundamental basis, something which it sees as an “anomaly.” |
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| | FTSE 100 - Risers
Sage Group (SGE) 372.90p +7.34%
Tullow Oil (TLW) 876.00p +2.58%
Melrose Industries (MRO) 287.40p +2.53%
Rio Tinto (RIO) 3,262.50p +1.95%
Antofagasta (ANTO) 767.00p +1.72%
easyJet (EZJ) 1,407.00p +1.52%
BAE Systems (BA.) 420.70p +1.06%
Aggreko (AGK) 1,600.00p +0.95%
BHP Billiton (BLT) 1,818.50p +0.94%
WPP (WPP) 1,329.00p +0.91%
FTSE 100 - Fallers
Standard Chartered (STAN) 1,338.50p -6.46%
Aberdeen Asset Management (ADN) 461.40p -4.61%
Pearson (PSON) 1,295.00p -2.78%
Severn Trent (SVT) 1,663.00p -2.35%
Bunzl (BNZL) 1,340.00p -2.26%
National Grid (NG.) 748.50p -2.03%
Experian (EXPN) 1,077.00p -1.82%
Centrica (CNA) 331.30p -1.69%
Lloyds Banking Group (LLOY) 76.76p -1.59%
Reed Elsevier (REL) 859.50p -1.38%
FTSE 250 - Risers
Drax Group (DRX) 743.00p +8.63%
RPC Group (RPC) 528.00p +4.35%
St. Modwen Properties (SMP) 364.20p +3.44%
Computacenter (CCC) 659.50p +3.05%
Interserve (IRV) 653.00p +2.83%
TalkTalk Telecom Group (TALK) 269.80p +2.31%
Balfour Beatty (BBY) 263.70p +2.29%
Ladbrokes (LAD) 171.90p +2.26%
Telecom Plus (TEP) 1,810.00p +2.20%
Home Retail Group (HOME) 191.00p +2.03%
FTSE 250 - Fallers
BBA Aviation (BBA) 314.00p -3.83%
Electrocomponents (ECM) 270.30p -3.67%
Ashmore Group (ASHM) 371.00p -3.64%
Direct Line Insurance Group (DLG) 221.40p -3.28%
Premier Farnell (PFL) 206.00p -3.24%
Synthomer (SYNT) 222.30p -3.05%
Kenmare Resources (KMR) 19.32p -3.01%
De La Rue (DLAR) 886.00p -2.96%
LondonMetric Property (LMP) 127.30p -2.68%
Dunelm Group (DNLM) 868.00p -2.64%
FTSE TechMARK - Risers
Torotrak (TRK) 24.12p +20.62%
Gresham Computing (GHT) 133.00p +5.77%
NCC Group (NCC) 179.50p +4.21%
SDL (SDL) 281.00p +3.40%
Optos (OPTS) 181.00p +2.84%
Skyepharma (SKP) 112.50p +2.27%
Kofax (KFX) 398.25p +2.12%
Ricardo (RCDO) 600.00p +2.04%
XP Power Ltd. (DI) (XPP) 1,510.00p +2.03%
Oxford Biomedica (OXB) 2.29p +1.33%
FTSE TechMARK - Fallers
Phoenix IT Group (PNX) 128.50p -3.02%
Anite (AIE) 87.50p -2.23%
Wolfson Microelectronics (WLF) 143.50p -2.05%
Vislink (VLK) 44.50p -1.93%
RM (RM.) 110.00p -1.35%
Vectura Group (VEC) 114.50p -0.87%
IShares Euro Gov Bond 7-10YR UCITS ETF (IEGM) € 178.66 -0.55% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Stocks slide after mixed economic data - Eurozone GDP and services rise
- Euro-area retail sales fall
- UK services expand
- US new home sales and jobs increase
FTSE 100: -0.38%
DAX: -0.92%
CAC 40: -0.53%
FTSE MIB: -0.29%
IBEX 35: -0.57%
Stoxx 600: -0.58%
European equities slumped following a mixed bag of economic data in the Eurozone, the UK and the US.
GDP figures showed the Eurozone economy expanded 0.1% quarter-on-quarter in the third quarter, unchanged from its preliminary estimates and in line with market expectations.
Compared to a year ago, the economy shrank a seasonally adjusted 0.4% year-over-year in the third quarter, as expected by consensus.
The Eurozone´s service sector PMI edged up slightly to 51.2 in November from 50.9 the prior month, above the 50 level that signals expansion and forecasts for the reading to remain unchanged.
Retail sales in the euro-area unexpectedly declined 0.1% in October, compared to a rise of 0.4% in September. Economists had predicted an increase of 1%.
The reports come before the European Central Bank (ECB) holds its policy meeting tomorrow when it is anticipated to keep its monetary policy and benchmark interest rate unchanged at 0.25%.
Last month the central bank surprised markets by cutting the benchmark rate due to deflation fears.
ECB President Mario Draghi said the Eurozone "may experience a prolonged period of low inflation" and that the central bank was ready to consider using all available policy tools.
Inflation is currently sitting at 0.9%, far below the ECB’s target of just under, but close to, 2%.
The Bank of England also holds a meeting tomorrow, when it is expected to keep its current policy on hold.
UK and US data
UK service sector activity continued to expand in November, albeit at a slower pace, as new business rose at a rapid pace. The Markit/CIPS UK purchasing managers´index (PMI) came to 60, compared to 62.5 a month earlier and the consensus for a reading of 62. Nevertheless, it held above the 50 level that signals expansion.
US new home sales rose 25.4% month-on-month to 444,000 units in October, beating expectations for 429,000. In September sales fell 6.6% to 354,000, the lowest level observed since April 2012.
US ISM non-manufacturing composite PMI fell unexpectedly to 53.9 in November, compared to 55.4 in October and the consensus forecast of 55. A reading above 50 signals expansion.
US employers added 215,000 new jobs in November, above the previous month's 184,000 and the consensus forecast for 170,000.
US mortgage applications fell 12.8 per cent in the week to November 29th, compared to drop of 0.3 per cent a week earlier.
The Federal Reserve is monitoring economic data to assess US recovery as it judges when to begin scaling back its monthly $85bn bond-buying programme.
The central bank has indicated that a tapering of stimulus could come as soon as its next policy meeting on December 17th-18th.
“I still think this unlikely as we haven’t really seen evidence that the improvement is sustainable, but that won’t stop investors hedging their bets and reducing their exposure to risk assets, gold and US Treasuries, as we’ve seen this week,” said Alpari UK analyst Craig Erlam.
Vestas Wind, Elekta
Vestas Wind Systems dropped after saying its Marena Renovables project in Mexico has been further delayed.
Elekta slumped after the maker of radiation-surgery equipment reported second-quarter operating profit that missed forecasts.
Standard Chartered declined after saying full-year operating profit at its consumer-banking unit will fall at least 10% due to weakness in Korea.
Peugeot advanced after Goldman Sachs added the shares to its ‘conviction-buy’ list, citing a capital increase, asset disposals and a probable alliance in China. Renault also edged higher after the broker upgraded the carmaker to ‘neutral’ from ‘sell’.
Sage Group rallied after saying it expects to see revenue growth of 6% by 2015.
Euro weakens
The euro fell 0.22% to $1.3558.
Brent crude futures rose $0.115 to $112.750 per barrel, according to ICE data. |
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| | US Market Report | | Strong Private Payrolls Data Giving Markets Stimulus Jitters The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment turning modestly negative from overnight trading on the back of surprisingly strong private payrolls data. The data could intensify anxiety concerning premature withdrawal of the Fed stimulus, especially as the itinerary for withdrawal is being hinged on the employment market. With more economic catalysts to follow during the session, including data on new home sales and service sector reading and the Beige Book, the market mood could change depending on how these pan out.
U.S. stocks retreated on Tuesday, as stimulus fears intensified amid the release of solid monthly auto sales data. The major averages opened lower and moved roughly sideways till early afternoon trading, with the Nasdaq Composite briefly moving above the unchanged line. Selling intensified in the mid-session, sending the averages steadily lower. In the afternoon, the averages consolidated once again before trimming some of their losses in late trading.
The Dow Industrials ended down 94.15 points or 0.59 percent at 15,915 and the S&P 500 Index closed 5.75 points or 0.32 percent lower at 1,795, while the Nasdaq Composite Index closed at 4,037, down 8.06 points or 0.20 percent.
Twenty-one of the thirty Dow components closed lower, with DuPont, Visa, Home Depot, Goldman Sachs, and Boeing leading the slide. On the other hand, Exxon Mobil and Cisco Systems saw some strength.
Transportation, biotechnology, gold, basic material and financial stocks were among the worst performers of the session.
On the economic front, U.S. auto sales rose notably in November, thanks to huge discounts offered by the car companies. According to estimates, auto sales came in at a seasonally adjusted annual rate of 16.4 million rate, well ahead of expectations.
The Dow Industrials dropped below its 21-day MA currently at 15,892 yesterday, although it subsequently broke above the level. If economic data soothes stimulus worries, the index could regain its momentum and make an attempt at the 15,960 and 16,007 level. Further upward, the index has also resistance around 16,007 and 16,070. Near term support for the index is around its 21-day MA and the 15,819 and 15,745 levels. Bob Evans reported second quarter non-GAAP earnings of 35 cents per share on revenues of $332.60 million. For 2014, the company now expects non-GAAP earnings of $2.60-$2.65 per share. The results trailed expectations and the guidance was weak.
United Natural Foods reported first quarter earnings of 56 cents per share, up from the year-ago’s adjusted earnings of 46 cents per share. Net sales rose 13.6 percent to $192 million. The earnings exceeded estimates, while the revenues were about in line. The company affirmed its previous 2014 guidance, which calls for net sales of $6.65 billion to $6.78 billion and GAAP earnings of $2.40-$2.50 per share.
Kinder Morgan said it anticipates strong growth in 2014 across the Kinder Morgan family of companies. The company also said it expects dividends of $1.72 per share for 2014, up 10 percent from its 2013 budget target of $1.57 per share.
Aeropostale, Guess? Inc. , New York & Co. , Synopsys and Wet Seal are among companies due to report their financial results after the close of trading. |
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| | Broker Tips | | Standard Chartered, Travis Perkins, Micro Focus Investec said it sees a “clear positive outlook” for Standard Chartered in 2014 despite the company saying it expects flat annual revenue.
In a trading update on Wednesday, the financial services firm admitted a challenging year had resulted in a significant impact on its performance in the second half and as such income for the full year is expected to be broadly flat on 2012.
It said currency depreciation would reduce income and profit growth by around 1%, while costs were expected to rise by a "low single digit percentage".
The net interest margin for the group has been "slightly" down on last year, with high levels of liquidity in many of its markets affecting margins.
However, Investec recommended a ‘buy’ rating, saying it sees a brighter year ahead, driven by a sharp re-acceleration in wholesale banking revenues with substantially curtailed margin and “own account” headwinds.
“Today’s news is poor, but the outlook, underpinned by a strong pipeline and greater margin stability, appears robust,” the broker said.
“On 9.1 times estimated 2014 earnings per share (EPS), it is the UK’s cheapest bank which, in our view, remains an anomaly.”
Although it lifted its price target from 1,413p to 1,592p, Deutsche Bank was somewhat disappointed with the capital markets day from Travis Perkins, with no mention of a hoped-for cash return and further fuel for market worries for the General Merchanting division.
Despite a confident performance from new management, analyst Glynis Johnson bemoaned the lack of "revolution" and said new targets for return on capital employed implied little movement to forecasts.
"[Travis Perkins] remains a well-run, well-positioned business. However, with margin upside in its largest division guided to be constrained and increased pressure from fixed price retailers we see more limited scope for earnings upgrades," she said.
Trading at over 12.5 times 2015 earnings, she saw limited value in the stock and reiterated her 'hold' recommendation.
New Chief Executive John Carter guided to retaining sector-leading margins in its General Merchanting business but no margin expansion, which the analyst said she believed would leave the market disappointed by the lack of operational leverage this implies for this the group’s main business, and concerns over the impact on pricing competition from fixed price retailers such as trade DIY and multi-channel competitors on its smaller-customer base.
Applications testing-software provider Micro Focus has a very valid business strategy but the company´s strategic decision not to focus on half-year targets means investors have to place a high degree of faith in management´s ability to control the ups and downs in each division, analysts at Investec wrote on Wednesday.
That is no mean task in an outfit which delivers over 300 products and has five divisions, which means there are myriad moving parts for investors to try and track.
As well, the shares are trading near the broker´s price target of 850p, or 11 times their estimated enterprise value/earnings before interest expense and amortisation (EV/EBIA) multiple, and there is a lack of catalysts to justify a higher multiple.
For those reasons, Investec has moved to a 'Hold' on the stock from a 'Buy' previously.
Worth noting is that management was at pains at the most recent analyst meeting to highlight the importance of not over-focusing on any one operational data point in a period, Investec explained, as well as offering only modest guidance so as not to introduce forecast risk.
Furthermore, the firm´s targets already supprt sharholder returns of between 15% and 20% per year based on cash return and EPS growth. | | |
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