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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: FTSE ends up as market ignores US GDP - FTSE 100 closes up 20 at 6,871
- US Q1 GDP comes in below expectations
- Smith & Nephew in focus
techMARK 2,809.39 +0.34%
FTSE 100 6,871.29 +0.29%
FTSE 250 15,954.82 +0.12%
UK stocks settled higher after rising early on and staying fairly steady throughout the afternoon, despite the release of a worse-than-expected US GDP reading.
The FTSE 100 closed up 20.07 points at 6,871.29, the highest closing level seen for several weeks.
Chris Beauchamp, a Market Analyst at IG, said: "The FTSE has remained confidently in positive territory all day, flirting with a push towards 6,900. Risk assets are in favour, with miners boosted by a more optimistic outlook on the Australian economy, but the impact of holidays in parts of Europe should still be taken into account.
"M&A is still the key driver of the FTSE, with Smith & Nephew under the microscope today as Stryker keeps the world guessing over whether it will launch an attempt on the company."
The FTSE was largely unaffected by this afternoon's news that US GDP shrank by an annualised rate of 1% in the first quarter of 2014, according to revised estimates from the Department of Commerce.
The figures surprised analysts, who had expected the initial estimate of 0.1% growth to be revised lower to -0.5% and follows a 2.6% rate of expansion in the fourth quarter of 2013.
Beauchamp described it as a "relative non-event", adding that the reading "showed decent consumer spending, and most people have now moved on to wondering whether the second quarter can show a nice bounceback".
That came as it was revealed initial US weekly unemployment claims fell by 27,000 to reach 300,000 during the week ending on May 24th, according to the US Department of Labor. The consensus estimate had been for a reading of 318,000.
The four-week moving average dropped by 11,250, to hit 311,500.
Rates need to rise "sooner rather than later", says MPC's Weale
Back in the UK, Martin Weale, a member of the Bank of England's Monetary Policy Committee (MPC), has said that policymakers will need to lift interest rates from record-low levels "sooner rather than later".
In an interview with the Financial Times that will likely bring forward expectations of a rate raise, Weale said the central bank must act soon to avoid a sharper and more painful tightening in policy in the future.
"If you want to have baby steps you do have to start sooner," he told the UK paper.
In other UK macro news, the Treasury today revealed that 7,313 homes at a total value of £1bn have so far been sold under the Help to Buy mortgage scheme.
In March the scheme contributed to around 3.5% of mortgage completions.
"Despite the apparently low take-up, this scheme is far from trivial," argued Rob Wood, Chief Economist at Berenberg. "The indirect effects are much more important. Like an iceberg, the part visible above water grossly understates its true size."
The news sent housebuilders into the red, with several analyts saying the data indicates the scheme has had a limited effect.
"Looking at usage data available today, there is further evidence the scheme is unlikely to be inflicting significant damage, or fuelling a London bubble," broker Investec said in a note to clients.
Consultants Ernst&Young were of a similar opinion, writing that "curtailing the scheme would do nothing to dampen the factors pumping up the London market - domestic and foreign cash buyers, rapid population growth and planning restrictions".
Italian bonds
Italy sold €7.5bn of bonds maturing in five and 10 years. The Rome-based Treasury allotted €3bn of debt due in September 2024 at an average yield of 3.01%, the lowest for similar-maturity securities since Bloomberg started compiling the data in 1991.
The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.13% yesterday, matching the least since the formation of the currency bloc in 1999, according to Bank of America Merrill Lynch indexes.
Smith & Nephew driven higher by Stryker bid talk
Medical device maker Smith & Nephew was a high riser again after reports yesterday suggested that US peer Stryker was working on a bid for the firm. While the rumours were denied by Stryker, Smith & Nephew's share price was continuing to extend gains this morning after Credit Suisse said it sees "merger synergies of about 160-195p/S&N share" if the hypothetical deal were to go ahead.
The UK group also this afternoon announced that it has completed the acquisition of ArthroCare Corporation, a medical device company with a highly complementary sports medicine portfolio. The purchase price was $48.25 per share paid in cash.
IMI was trading higher after UBS lifted its rating on the stock from 'neutral' to 'buy', saying that growth rates at the engineering group have the potential to double in the medium-term.
DIY retailer Kingfisher dropped despite hailing a "strong start to the year" as 20% growth in retail profits in the first quarter came in shy of analysts' expectations. Group sales growth of 6.1% also failed to impress.
Aggreko the temporary power and temperature control services group, was a heavy faller after saying that interim Chief Executive Officer Angus Cockburn will be replaced on a permanent basis by Centrica board member Chris Weston. Cockburn, who stepped in after previous boss Rupert Soames quit earlier this year, is "keen to seek fresh challenges", the company said.
Housebuilder Barratt Developments led housebuilders and related companies lower following the release of the latest data on the Help to Buy scheme, which, according to analysts, indicated it has had a limited impact.
On the second tier, Man Group leapt after it confirmed it is in talks to buy US money manager Numeric Holdings. The world's largest publicly traded hedge-fund manager said the discussions are "ongoing and may or may not lead to a transaction". Numeric, which uses quantitative analysis to make investments, manages $13.9bn. |
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| | FTSE 100 - Risers
Smith & Nephew (SN.) 1,029.00p +3.57%
IMI (IMI) 1,608.00p +3.01%
William Hill (WMH) 355.20p +2.57%
Rolls-Royce Holdings (RR.) 1,035.00p +1.87%
Morrison (Wm) Supermarkets (MRW) 202.20p +1.66%
Centrica (CNA) 336.30p +1.66%
Fresnillo (FRES) 835.00p +1.64%
Sainsbury (J) (SBRY) 340.60p +1.52%
Pearson (PSON) 1,164.00p +1.48%
Admiral Group (ADM) 1,428.00p +1.42%
FTSE 100 - Fallers
Kingfisher (KGF) 397.00p -4.86%
Aggreko (AGK) 1,671.00p -4.46%
Barratt Developments (BDEV) 359.90p -2.44%
Persimmon (PSN) 1,326.00p -2.21%
Johnson Matthey (JMAT) 3,274.00p -2.09%
Travis Perkins (TPK) 1,685.00p -1.92%
Prudential (PRU) 1,390.00p -1.14%
easyJet (EZJ) 1,548.00p -1.09%
ARM Holdings (ARM) 918.00p -0.81%
Next (NXT) 6,625.00p -0.75%
FTSE 250 - Risers
esure Group (ESUR) 264.50p +5.80%
Evraz (EVR) 109.20p +5.20%
Ladbrokes (LAD) 150.40p +5.10%
Man Group (EMG) 99.55p +5.01%
Domino's Pizza Group (DOM) 554.00p +4.23%
Tate & Lyle (TATE) 701.50p +4.00%
Go-Ahead Group (GOG) 2,202.00p +3.82%
Dairy Crest Group (DCG) 450.00p +3.45%
Rathbone Brothers (RAT) 2,053.00p +3.27%
Premier Oil (PMO) 351.50p +2.93%
FTSE 250 - Fallers
Redrow (RDW) 266.80p -4.10%
De La Rue (DLAR) 843.50p -3.49%
ITE Group (ITE) 232.00p -3.01%
Genesis Emerging Markets Fund Ltd Ptg NPV (GSS) 527.00p -2.95%
Berkeley Group Holdings (The) (BKG) 2,238.00p -2.70%
Fisher (James) & Sons (FSJ) 1,301.00p -2.69%
Howden Joinery Group (HWDN) 321.00p -2.61%
Taylor Wimpey (TW.) 108.30p -2.61%
Galliford Try (GFRD) 1,118.00p -2.61%
Rank Group (RNK) 156.00p -2.50% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks little changed after US growth data - US GDP contracts
- US weekly jobless claims fall
- Eurozone still fragile, says Linde
- Russia, Kazakhstan and Belarus sign treaty
FTSE 100: 0.29%
DAX: 0.00%
CAC 40: -0.02%
FTSE MIB: -0.35%
IBEX 35: -0.21%
Stoxx 600: 0.06%
European stocks were little changed after US data showed the world's biggest economy shrank more than expected.
US gross domestic product (GDP) shrank by an annualised rate of 1% in the first quarter of 2014, according to revised estimates by the Department of Commerce today, representing the first quarterly contraction in three years.
Analysts had expected the initial estimate of 0.1% growth to be revised lower to -0.5% following a 2.6% GDP expansion in the fourth quarter of 2013.
However, Capital Economics said it believed there was "nothing to worry about". "For a start, the downward revision is almost entirely because inventories were a much bigger drag on growth than previously thought," the economist said.
"[…] But that bigger first-quarter drag means that we are likely to see a bigger bounce back in the second quarter."
Separately, initial weekly unemployment claims fell by 27,000 to reach 300,000 during the week ended May 24th, according to the US Department of Labor. The consensus estimate had been for a reading of 318,000.
Another report showed US pending home sales fell 9.4% year-on-year in April following a 7.5% drop a month earlier. Economists had pencilled in an 8.7% decline.
ECB's Linde says Eurozone still fragile
Bank of Spain Governor Luis Linde has warned that the Eurozone economy continues to be "fragile" and that "important efforts" are still needed, albeit the "gentle recovery" started in 2013.
The European Central Bank (ECB) member pointed out that the recent weak reading in the region's GDP for the first three months of the year "illustrates the still fragile and uneven character of this economic improvement in the euro-area".
The ECB is scheduled to announce its next monetary policy decisions on June 5th. President Mario Draghi has said the ECB is ready to act if necessary to boost the stagnant recovery.
In other European news, Spain's first quarter GDP growth was confirmed at 0.4% quarter-on-quarter, but revised down to 0.5% year-on-year from the original reading of 0.6%.
Italy sold €7.5bn of bonds maturing in five and 10 years. The Rome-based Treasury allotted €3bn of debt due in September 2024 at an average yield of 3.01%, the lowest for similar-maturity securities since Bloomberg started compiling the data in 1991.
The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to 2.13% yesterday, matching the least since the formation of the currency bloc in 1999, according to Bank of America Merrill Lynch indexes.
Meanwhile, Russia, Kazakhstan and Belarus signed a treaty today creating a vast trading bloc which they hope will challenge the economies of the European Union (EU), the US and China. The move comes amid EU and US sanctions placed on Russia over the turmoil in Ukraine.
Kingfisher slides after Q1 results
Kingfisher slumped after reporting first quarter profit that fell short of analysts' expectations. Man Group gained after confirming it is in talks to buy US money manager Numeric Holdings. Electricite de France declined after Exane BNP Paribas downgraded the French utility to 'neutral' from 'outperform'.
Tate & Lyle retreated after posting full-year profit that missed the consensus estimate. UbiSoft Entertainment advanced after saying its Watch Dogs game broke the company's record for first-day sales. Aggreko dropped after appointing Centrica's Chris Weston as Chief Executive Officer.
The euro rose 0.21% to $1.3619. Brent crude futures increased $0.444 to $110.300 per barrel, according to the ICE. |
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| | US Market Report | | US open: Stocks rise after US GDP and jobs data US stocks advanced as investors weighed reports on economic growth and jobs.
US gross domestic product (GDP) shrank by an annualised rate of 1% in the first quarter of 2014, according to revised estimates by the Department of Commerce on Thursday, representing the first quarterly contraction in three years.
The figures surprised analysts who had expected the initial estimate of 0.1% growth to be revised lower to -0.5% and follows a 2.6% GDP expansion in the fourth quarter of 2013.
The Bureau of Economic Analysis said the sharper-than-expected downwards revision was mainly due to lower private inventory investment than previously estimated, as well as the impact from poor weather.
Despite the headline 'miss', the market reaction to the figures was relatively subdued, suggesting that a negative surprise was largely priced in.
Capital Economics believes there is "nothing to worry about".
"For a start, the downward revision is almost entirely because inventories were a much bigger drag on growth than previously thought," the economist said.
"[…] But that bigger first-quarter drag means that we are likely to see a bigger bounce back in the second quarter."
Separately, initial weekly unemployment claims fell by 27,000 to reach 300,000 during the week ended May 24th, according to the US Department of Labor. The consensus estimate had been for a reading of 318,000.
Another report showed US pending home sales fell 9.4% year-on-year in April following a 7.5% drop a month earlier. Economists had pencilled in an 8.7% decline.
In company news, Hillshire Brands climbed after Tyson bid $50 a share in cash for the meat producer.
Abercrombie & Fitch Co. gained as the clothing retailer posted a first quarter loss that was narrower than expected by analysts.
The US 10-year yield fell one basis point to 2.43%. West Texas Intermediate crude futures rose $0.349 to $103.080 per barrel, according to the ICE. |
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| | Broker Tips | | Broker tips: Lloyds, Smith & Nephew, IMI, Imagination Technologies Broker Oriel said Lloyds Banking Group's offloading of TSB should enhance net interest margin for the bank and, with a rising dividend yield, has reiterated its 'buy' recommendation on the bank.
"This improvement should become apparent once TSB is deconsolidated, which will depend on how quickly Lloyds sells down its stake."
Credit Suisse has kept its 'neutral' stance on medical device maker Smith & Nephew (S&N) but has said it sees upside to the share price if the rumoured takeover by US peer Stryker were to go ahead.
The bank said that, assuming industry-typical merger synergies of around 9-11% of sales of the acquired entity - applied solely to S&N's Advanced Surgical Division - "we mechanically calculate a value of the merger synergies of about 160-195p/S&N share".
IMI was trading higher after Swiss bank UBS lifted its rating on the stock from 'neutral' to 'buy', saying that growth rates of sales at the engineering group have the potential to double in the medium term.
"An organic sales compound annual growth rate (CAGR) of 3% over the last decade has not been impressive. However, we forecast a doubling of growth with an organic CAGR of 6.4% out to 2018," UBS said.
Analysts at UBS have raised their price target on chipmaker Imagination Technologies from 200p to 250p as it looks forward to full-year results on June 24th.
UBS said it believed delivery on a strong recovery in licensing in the second half, after two years of licensing weakness, is the "key next step" for the investment case. | | |
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