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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | MPC raises GDP forecasts sharply - Stocks track mixed performance on Wall Street
- Sterling and long-term yields rise after Inflation Report
- Market commentary divided on outlook for Bank Rate
- Insurers and miners lead gains
techMARK 2,830.24 -0.22%
FTSE 100 6,671.47 -0.02%
FTSE 250 16,064.91 -0.08%
Stocks underperformed equity benchmarks on the Continent, tracking the mixed start to trading seen on Wall Street.
Be that as it may, without a doubt the focus of the session was on the presentation of the Bank of England’s Quarterly Inflation Report and the Monetary Policy Committee's revamped ‘forward guidance’.
The essence, arguably, did not change. Bank is still striving to achieve a balanced and sustained economic recovery.
However, the focus of the new policy architecture is now, squarely, on the need to reduce the amount of excess slack in the economy - given that it is a waste of resources, as Carney said. With that aim in mind, the MPC also unveiled a range of indicators with the aim of better gauging the degree of spare capacity in the economy.
Yet what most moved markets was the shift seen in the BoE’s macroeconomic forecasts.
The UK economy is now seen expanding at a 3.4% pace this year, well ahead of the 2.8% estimated in November and above even most private forecasters best guesses. That sent sterling noticeably higher in foreign exchange markets and yields on 10-year Gilts up by 8 basis points to 2.82%.
The FTSE 100 ended the day just 2 points higher at 6,675.03.
As a result of all of the above, some observers thought that the MPC was implicitly sanctioning forecasts that interest rates would rise earlier than the MPC had previously been thinking, at some point in 2015.
Nonetheless, measuring excess spare capacity is quite difficult. Hence, the MPC’s new framework could conceivably be more dovish than at first appeared to be the case, as Capital Economics pointed out.
Having said that, and to be seen at the other end of the range of opinions, some now expect a first increase in the main policy rate to arrive by as soon as this year.
In parallel, even if theoretically more precise analysts questioned the benefit of presenting such a complex framework.
Critically, in any case, Carney stressed that if and when the times comes that the economy can sustain higher interest rates, the Bank Rate will then rise only gradually and any increase in rates will be limited.
Insurers lead gains, miners do well
Mining stocks were in demand after the better-than-expected data from top metals consumer China. Glencore Xstrata, Anglo American, Rio Tinto and Antofagasta all traded higher. Analysts pointed the improved prospects for the sector this year.
Standard Chartered was one of the day’s best performers after appointing a new head of its private banking unit and unveiling plans to sell its Swiss private bank as part of its strategy of narrowing its regional focus. According to The Wall Street Journal, the move followed a comprehensive review by the group.
Outsourcing solutions and distribution specialist Bunzl gained on the back of an upgrade to ‘buy’ by analysts at Bank of America Merrill Lynch.
Africa-focused explorer Tullow Oil was a heavy faller after saying that while revenues rose in 2013 profits fell in the face of a £200m increase in exploration write-offs. Oil peers Shell and BP also ended the day lower.
Consumer products giant Reckitt Benckiser said it exceeded its targets after “another strong year” in 2013, but warned that markets conditions have become more challenging. The company beat estimates for revenues, margins and net debt.
Data centre services group Telecity saw its shares dive as much as 12% in early trading after predicting 2014 revenue would be below that forecast by some analysts. At least two brokers highlighted the risk posed by the firm’s high levels of capital expenditure. |
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| | FTSE 100 - Risers
Antofagasta (ANTO) 927.00p +2.66%
Legal & General Group (LGEN) 231.70p +1.80%
Bunzl (BNZL) 1,416.00p +1.80%
Standard Chartered (STAN) 1,292.50p +1.77%
Ashtead Group (AHT) 827.50p +1.47%
Sports Direct International (SPD) 718.00p +1.41%
Tesco (TSCO) 323.10p +1.38%
Rio Tinto (RIO) 3,506.00p +1.33%
Glencore Xstrata (GLEN) 337.20p +1.31%
Babcock International Group (BAB) 1,412.00p +1.22%
FTSE 100 - Fallers
Tullow Oil (TLW) 793.00p -6.21%
Persimmon (PSN) 1,387.00p -3.28%
Randgold Resources Ltd. (RRS) 4,610.00p -2.02%
Amec (AMEC) 1,090.00p -1.98%
Sage Group (SGE) 420.10p -1.87%
Land Securities Group (LAND) 1,042.00p -1.70%
Barclays (BARC) 260.20p -1.70%
Unilever (ULVR) 2,362.00p -1.42%
United Utilities Group (UU.) 742.50p -1.33%
Royal Dutch Shell 'A' (RDSA) 2,116.00p -1.28%
FTSE 250 - Risers
African Barrick Gold (ABG) 251.50p +4.79%
Kenmare Resources (KMR) 15.90p +3.25%
Ocado Group (OCDO) 580.00p +3.02%
UDG Healthcare Public Limited Company (UDG) 341.30p +2.80%
Cable & Wireless Communications (CWC) 55.20p +2.70%
IP Group (IPO) 184.80p +2.67%
esure Group (ESUR) 279.50p +2.38%
Laird (LRD) 312.00p +2.30%
Ashmore Group (ASHM) 344.70p +2.16%
Playtech (PTEC) 740.00p +2.14%
FTSE 250 - Fallers
Telecity Group (TCY) 659.50p -9.66%
Genus (GNS) 1,223.00p -3.93%
Cairn Energy (CNE) 199.00p -3.73%
Imagination Technologies Group (IMG) 179.00p -2.88%
Oxford Instruments (OXIG) 1,513.00p -2.76%
Tullett Prebon (TLPR) 332.60p -2.43%
Serco Group (SRP) 402.70p -2.38%
UK Commercial Property Trust (UKCM) 77.85p -2.32%
3i Infrastructure (3IN) 133.20p -2.27%
AL Noor Hospitals Group (ANH) 842.00p -2.21% |
| | The Fundamentals of Stock Market Highs | | How to Know when the Bull Market Ends - Given that the stock market rally has now lasted nearly five years and in view of new all-time highs, many market participants are faced with the question when will there be a top at the major share indexes. After all, everybody wants to exit the market near a high and lock in their profits before the market turns downwards again. Read more. |
| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | European stocks little changed after BoE forward guidance - Carney changes BoE's forward guidance
- European industrial output rises less than forecast
- Chinese exports increase
- Italy’s Letta and Renzi discuss future of government
FTSE 100: 0.04%
DAX: 0.65%
CAC 40: 0.52%
FTSE MIB: 1.30%
IBEX 35: -0.10%
Stoxx 600: 0.75%
European stocks were little changed after the Bank of England changed its forward guidance.
BoE Governor Mark Carney renewed his pledge to keep interest rates at a record low today as he presented the quarterly inflation report.
However, he changed the central bank’s so-called forward guidance following a faster-than-expected pick up in employment.
The Bank had vowed to hold the benchmark rate at a record low of 0.5% at least until the unemployment rate fell to 7%, but now that it is 0.1% off the threshold, the BoE has been forced to switch its stance.
Carney said today he the Bank will need to consider a list of factors before raising interest rates gradually. The focus on the guidance is now squarely focused on the need to absorb all the spare capacity in the economy.
The range of indicators for raising the interest rate depend mainly on: the unemployment rate; the degree of participation in the labour market; the average number of hours worked and the extent of involuntary part-time working; surveys of spare capacity in companies; labour productivity and wages.
“Needless to say, this 'second phase' of guidance lacks the simplicity of the previous one,” said Capital Economics. “And there is a clear concern that, in putting more focus on the general degree of spare capacity, it simply replaces the unemployment rate with an even more unpredictable, and much less observable, economic concept.”
European industrial output, Chinese trade
European industrial production climbed 0.5% year-on-year, compared to a 2.8% increase in November and the consensus forecast of a 1.8% gain, the European Commission's statistical office unveiled.
On a month-on-month basis, production dropped 0.7% in December from a rise of 1.6% the month before, surprising analysts who had expected a 0.3% fall.
In China, the General Administration of Customs revealed exports increased 10.6% percent in January from a year earlier. Economists had predicted a 0.1% advance. Imports were up 10%, exceeding the 4% jump that had been forecast. This resulted in a trade balance of $31.86bn, surprising analysts who had expected a slight decline from the $25.64bn surplus registered in December.
Italy’s Letta signals he won’t buckle to pressure to resign Italian Prime Minister Enrico Letta has indicated he has no plans to step down despite pressure to resign and let his party’s chief Matteo Renzi take over.
The PM met with Renzi today to discuss the future of the European nation’s government. A new programme will be presented at 18:00 in Rome.
“Enrico Letta will present ‘Commitment Italy,’ a proposed coalition pact for the parties that support the government,” Letta’s office said in an e-mailed statement to Bloomberg after their meeting.
Renzi said he would make his comments tomorrow.
Miners rally
A gauge of commodity producers posted the best performance of the 19 industry groups in the Stoxx 600 including Rio Tinto and Glencore Xstrata. It followed the positive Chinese trade data and comments from Goldman Sachs which said: "We expect the miners to continue to perform well in the immediate short-term, as the market focuses on better cashflow from volume growth, weaker FX, cost reductions and capex cuts."
ING Groep and Societe Generale SA rose strongly after reporting fourth-quarter profit that beat analysts’ estimates.
Aluminium producer Norsk Hydro gained after reporting fourth-quarter sales ahead of market expectations.
WM Morrison jumped after Bloomberg said that its founding family is considering taking the supermarket group private. The Morrison family, who are thought to hold around 9-10% of the UK grocer, are said to have spoken to a number of private-equity firms to gauge their interest.
Heineken edged higher after saying it expects sales to increase in 2014.
Telecity Group declined after posting 2013 earnings that fell short of consensus.
Telenor dropped as the telecommunications operator reported fourth-quarter earnings that trailed analysts’ predictions.
The euro fell 0.32% to $1.3594.
Brent crude futures rose $0.028 to $108.710 per barrel, according to data from the ICE. |
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| | US Market Report | | US stocks rise for fifth straight day - House increases debt ceiling
- Bullard 'optimistic' about growth
- China trade surplus widens
Dow Jones: 0.18%
Nasdaq: 0.40%
S&P 500: 0.23%
US stocks made small gains on Wednesday morning with the benchmark S&P 500 rising for the fifth straight day as investors reacted to comments from Federal Reserve policymakers and upbeat data from China.
Meanwhile, the US House of Representatives has passed an increase in the government’s borrowing limit. The House voted 221-201 to waive the $17.2trn debt limit for just over a year, after Republicans gave up on their attempt to win concessions from the Democrats in return.
“In the see-saw that is the ‘risk on and risk off’ view that the markets have been taking recently, the risk is most definitely back on again,” said Farhan Admad, Trader at Tradenext.
Markets were extending Tuesday’s strong performance after new Fed Chair Janet Yellen expressed her commitment to continue tapering stimulus in the face of an improving labour market. Yellen, who was making her first report on monetary policy since taking over the Fed this month, said that the Fed would continue to scale back asset purchases in “measured steps”.
Meanwhile, investors were also focusing on remarks made by St Louis Fed President James Bullard who said he was “optimistic about the prospects for this year” and that growth could come in at 3% “or better”. Speaking on a panel at the New York Stock Exchange, he also said that the Fed will likely return to more “traditional” monetary policy given the recent drop in the unemployment rate.
Sentiment was also lifted today by a higher-than-expected trade surplus in China after exports rose by more than expected in January. Export growth accelerated to 10.6% from 4.3% previously, while import growth rose to 10% from 8.3%. This resulted in a trade balance of $31.86bn, surprising analysts who had expected a slight decline from the $25.64bn surplus registered in December.
Twitter gains
Twitter advanced strongly after saying it is testing a redesign of its profile pages that mimics the look of Facebook’s timelines.
Tractors and agriculture machinery giant Deere & Co. fell after saying that demand for farm equipment is “moderating” as it predicted a slowdown in sales.
Amazon.com Inc. declined after UBS lowered its rating of the online retailer to ‘neutral’ from ‘buy’.
FireEye dropped as the technology company estimated a first-quarter loss that trailed market expectations. |
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| | Newspaper Round Up | | Westhouse upgrades African Barrick Gold to 'neutral' Westhouse Securities has upgraded its rating for African Barrick Gold from ‘sell’ to ‘neutral’ after its annual results, saying that it is confident that the gold miner will hit production targets this year.
Production rose 3% in 2013 to 641,000 ounces (koz) while cash costs fell 12% to $827 per ounce (oz).
“ABG has underlined its continued operational improvements with production and costs for FY2013 both beating guidance. The ongoing review has enabled the company to maintain its robust cash position and so continue its dividend,” said analysts Rob Broke and Nick Hatch.
The company is also guiding to production of 650-690koz at a cost of $740-790/oz in 2014, well ahead of Westhouse’s initial forecasts of 630koz at $816/oz.
Broke and Hatch have now lifted these estimates “to reflect our increased confidence in the management team’s ability to optimise its operations”. They said that the new guidance is “realistic”.
During 2013, African Barrick Gold said it realised $129m of the targeted $185m of costs savings, with the remainder anticipated during 2014.
“These savings have been realised with impressive speed, which suggests that there may be further areas to trim beyond the original targets, especially at Bulyanhulu. As a result, we believe there is some upside risk to our forecasts as the year progresses.”
The analysts hiked their target on the stock from 160p to 225p, but said that it now looks “fairly priced at current levels”, hence the new ‘neutral’ recommendation.
The shares were trading 5.1% higher at 252.32p in afternoon trade. | | |
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