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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: Supermarkets drag FTSE to negative finish The majority of UK stocks ended firmly in negative territory on Wednesday, thanks to weak UK and Eurozone manufacturing data, plunging supermarket stocks and a downbeat start to trading in the US.
The FTSE 100 closed 65.20 points to 6,557.52.
UK manufacturing activity reached a 17-month low in September on weaker demand, data showed on Wednesday.
The Markit/CIPS purchasing managers' index (PMI) fell to 51.5, the lowest level since April last year, from 52.5 in August. Economists had predicted an increase to 52.7. A reading above 50 signals expansion.
"September's CIPS manufacturing survey provided another sign that the sector's recovery lost some vim in the third quarter," Capital Economics said. "However, we doubt that this summer's softening marks the beginning of a prolonged slowdown."
Across the Channel, PMI for euro-area manufacturing fell to 50.3 in September from 50.5 a month earlier, surprising analysts who had expected it to remain unchanged.
The report comes a day ahead of the European Central Bank's meeting when markets will be watching closely to see if President Mario Draghi announces stimulus measures to address the weak economy and low inflation.
Over in the States, stronger-than-expected data on private sector hiring sparked concerns that the Federal Reserve may hike its interest rates sooner than anticipated, after private employers added 213,000 new jobs in September.
The rise marked the sixth consecutive month job gains had risen above the 200,000 unit threshold.
Supermarkets drag FTSE sharply lower
Sainsbury was in the red after it cut its annual sales forecast and said it was reviewing its dividend. Its second quarter figures were better-than-expected, although it still posted a drop of 2.8% in like-for-like sales.
Sector peer Morrisons also dropped while rival Tesco saw its share price further hit after the Financial Conduct Authority notified the grocer it will be looking into the incident, alongside an independent review by Tesco's accountants Deloitte.
Tesco said it would continue to co-operate fully with the FCA and other relevant authorities considering the matter.
BG Group was knocked lower by Credit Suisse which restated its 'underperform' rating on the stock and cut its target from 1,115p to 1,050p.
Royal Mail was one of just a few stocks on the up after UBS analysts upgraded their view on Royal Mail to 'neutral' from 'sell', believing anticipated difficulties have been priced in.
Royal Bank of Scotland rose thanks in part to target increases from both Numis and Citigroup, from 368p to 370p and from 330p to 350p, respectively.
On the second tier, Afren was rising strongly after it late on Tuesday released a statement saying its ongoing independent review had found no further evidence relating to the receipt of unauthorised payments. The review is expected to be completed by mid-October. |
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| | Market Movers
techMARK 2,788.35 -0.85%
FTSE 100 6,557.52 -0.98%
FTSE 250 15,210.89 -1.10%
FTSE 100 - Risers
Royal Mail (RMG) 399.70p +1.91%
Imperial Tobacco Group (IMT) 2,679.00p +0.56%
Schroders (SDR) 2,404.00p +0.54%
Intertek Group (ITRK) 2,631.00p +0.38%
G4S (GFS) 251.60p +0.36%
Royal Bank of Scotland Group (RBS) 368.60p +0.11%
Mondi (MNDI) 1,012.00p +0.10%
Capita (CPI) 1,165.00p +0.09%
Pearson (PSON) 1,241.00p +0.08%
GlaxoSmithKline (GSK) 1,414.00p +0.07%
FTSE 100 - Fallers
Sainsbury (J) (SBRY) 234.00p -6.96%
Morrison (Wm) Supermarkets (MRW) 159.90p -4.99%
BG Group (BG.) 1,093.00p -4.12%
Johnson Matthey (JMAT) 2,825.00p -3.22%
Tesco (TSCO) 180.20p -3.22%
Weir Group (WEIR) 2,430.00p -2.88%
International Consolidated Airlines Group SA (CDI) (IAG) 357.20p -2.70%
Antofagasta (ANTO) 702.00p -2.64%
Petrofac Ltd. (PFC) 1,011.00p -2.51%
GKN (GKN) 311.50p -2.41%
FTSE 250 - Risers
Afren (AFR) 109.40p +5.70%
Countrywide (CWD) 468.00p +3.68%
Mitchells & Butlers (MAB) 367.60p +2.77%
Lancashire Holdings Limited (LRE) 653.00p +2.03%
Foxtons Group (FOXT) 219.10p +1.91%
Oxford Instruments (OXIG) 1,035.00p +1.47%
St. Modwen Properties (SMP) 371.80p +1.31%
Hiscox Ltd (CDI) (HSX) 638.00p +1.27%
Spire Healthcare Group (SPI) 292.30p +1.04%
Infinis Energy (INFI) 222.00p +0.91%
FTSE 250 - Fallers
Ferrexpo (FXPO) 105.10p -6.41%
UBM (UBM) 548.50p -5.92%
AO World (AO.) 177.00p -5.85%
Zoopla Property Group (WI) (ZPLA) 224.80p -4.99%
Evraz (EVR) 123.60p -4.92%
Just Retirement Group (JRG) 124.70p -4.88%
Lonmin (LMI) 176.80p -4.84%
Spirent Communications (SPT) 99.90p -4.49%
African Barrick Gold (ABG) 209.10p -4.43%
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks lower on weak PMIs, downgrade on Italy GDP forecast European stocks ended the session lower following the release of weaker-than-expected manufacturing data and a downgrade on Italian economic growth forecasts.
Markit's purchasing managers' index (PMI) for euro-area manufacturing fell to 50.3 in September from 50.5 a month earlier, surprising analysts who had expected it to remain unchanged. A reading above 50 signals expansion.
The report added to speculation on full-blown quantitative easing ahead of the European Central Bank's meeting on Thursday. The ECB is under mounting pressure to tackle low inflation and a weak economy.
"We think the odds that the ECB will engage in QE have risen well beyond the 50% mark, although it is not on a pre-set course," Elwin de Groot, senior Eurozone strategist at Rabobank, said in a note on Wednesday.
In the UK, the PMI for manufacturing dropped to 51.5, the lowest level since April last year, from 52.5 in August. Economists had predicted an increase to 52.7.
China's manufacturing PMI held at 51.1 in September, better than the 51 expected by analysts.
In Italy, the government said it expects gross domestic product (GDP) to shrink 0.3% this year, compared to an April estimate for an increase of 0.8%. The government also forecast a slower-than-expected recovery in 2015, with GDP growing 0.6% compared with a previous estimate of 1.3%.
In France, the government will delay a target to reduce its budget deficit to 3% of GDP until 2017 due to weak growth and low inflation, Les Echos reported. France will need to request the European Union's permission for a third delay in reaching its deficit targets, the paper added.
On a more positive note a report from ADP Research Institute showed US employers added 213,000 jobs in September, compared to 204,000 in August, beating the 205,000 estimate.
Separately, ISM's US manufacturing PMI fell to 56.6 in September from 59 the prior month, lower than the 58.5 reading anticipated by the market.
Sainsbury, Tesco
J Sainsbury declined after saying it won't see a return to growth in same-store sales this year.
Tesco's shares slumped on reports the Financial Conduct Authority has launched an investigation after the supermarket said it overstated its half-year profit guidance by £250m.
Adidas gained after announcing a plan to return as much as €1.5bn to shareholders.
Orange slid as Bpifrance is selling a stake in the phone company for as much as €595m.
The euro fell 0.10% to $1.2618. |
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| | US Market Report | | US Open: Stocks open lower amid strong private sector hiring data US markets opened lower on Wednesday, amid increasing geopolitical tension in Ukraine and signs of economic weakness in Europe.
German manufacturing activity fell while Italy cut its growth forecast, as factory prices in the Eurozone fell by the most in over 12 months in September.
Meanwhile, stronger-than-expected data on private sector hiring sparked concerns that the Federal Reserve may hike its interest rates sooner than anticipated, after private employers added 213,000 new jobs in September.
The rise marked the sixth consecutive month job gains had risen above the 200,000 unit threshold.
According to data released by the US Commerce Department on Wednesday, outlays for US construction projects fell 0.8% in August to a seasonally adjusted annual rate of $961bn, exceeding the 0.5% forecast.
Meanwhile, manufacturing slowed down in September, following the strongest rate of growth in three years as US factories settled into a more sustainable rate of expansion.
"The manufacturing outlook looks pretty good," Thomas Simons, a market economist at Jefferies LLC, was quoted as saying by Bloomberg. "Auto demand seems to be accelerating and that supports the idea that production will continue to chug along. The third quarter is looking pretty solid."
In corporate news, Tekmira Pharmaceuticals soared after the first known Ebola case diagnosed in the US was confirmed by the Center for Disease Control and Prevention late on Tuesday.
Biocryst Pharmaceuticals and Sarepta Therapeutics, both of which are working on treatments for the virus, also moved up in early trading, while Vivint Solar rallied following its initial public offering.
The 10-year Treasury note yield fell as much as 5.5 basis points early on Wednesday, while the 30-year bond yield dropped four basis points and the five-year note fell 0.05 to 1.71%. |
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| | Broker Tips | | Broker tips: Sainsbury, Royal Mail Sainsbury's mixed second-quarter results and plans for a no-stone-unturned strategic review have led broker Shore Capital to downgrade its earnings and dividend forecasts, and an "uncomfortable hold" stance.
The company guided to a 2% fall in like-for-like sales, but did not change its full year profit guidance, with consensus currently at circa £710m.
Shore's head of research, Clive Black, slashed his expectations for Sainsbury's full-year 2015 retail earnings before interest and tax by 16%, forecasting a 17% pre-tax profit fall to £645m and earnings per share (EPS) of 25.1p.
The company also followed recent pricing initiatives with news that it has reconfigured its 'Brand Match' promotion to just compare prices with Asda, no longer matching Tesco, which has a much larger own-brand offer.
Alongside results, Coupe revealed plans for a wide-ranging strategic review, with details of his plan to be provided with Sainsbury's interim results on 12 November, which has put the wind up investors that the dividend could be cut.
"With respect to one of the key features of Sainsbury's investment case, its dividend, we harbour growing concerns about its sustainability at current levels with recent trading trends and profit trajectories," said Black.
He said he believed it would take "a lot of work" to produce the level of free cash flow to support the group's current dividend stream, including central cost cuts and a further reduction in capital expenditure.
Hence, for 2016 Black has forecast a payout of 11.25p, implying a yield of 4.6%, a cut of around 35%, but admitted he may being overaggressive.
"Should Sainsbury's recent actions on pricing represent a turn of the corner in the recent sales and market share trajectory of the business then the dividend will indeed become more secure and the stock can be expected to bounce back to or near the underlying net asset value of the group, which is currently 305p," he added.
Either way, he concluded that Sainsbury's shares at current levels "feel like a poor risk-return equation", despite its "deserved" de-rating after a poor year so far to current "undemanding valuation ratios".
Letters and parcels group Royal Mail is facing multiple headwinds but there is long-term value to be found in the stock, analysts at Shore Capital believe.
Indeed, evidence from sector peers shows that conditions worsened significantly in August and September, as rival TNT continues with its city-by-city roll-out, for example. Competitive pressures also remain strong due to increased direct deliveries in the B2B and B2C segments through controlled networks.
Furthermore, weak European economies are impacting on volumes.
However, this most difficult trading period may be about to end.
In that regard, the company's latest Q1 report shows mail activities have been putting in a better-than-initially-expected performance and a positive contribution from European parcels at GLS.
Yet what should really matter for investors is the potential for the firm to achieve industry-standard margins about 100 basis points above the current achieved levels of 8%-plus, the ability to reduce costs, leverage the balance sheet and flex its market position in the UK. The dividend is well covered by the company's cash flow too.
For all of the above reasons Shore Capital has decided to retain its buy stance.
The news-flow surrounding the mail and parcel delivery sector of late has been quite negative, and merits marking down forecasts for Royal Mail, but the headwinds facing the company are baked into the price already, UBS thinks.
After UK Mail reported weak UK parcel volumes last week and on the heels of reports of adverse pan-European trading (TNT Express) the Swiss broker has decided to cut its estimate of parcel volume growth for this fiscal year at Royal Mail to 2% from 2.5%.
It has also modified its exchange rate assumptions for this year and next to 1.26 and 1.27 € per £ for this year and next.
To the new forecasts for flat EBIT margins one must add the challenges of modernising its network, its high fixed cost base - given its relatively well paid and highly unionised workforce - and the significant changes which the letter and parcel markets are undergoing.
The recent poor share price performance and valuation largely already factor-in all of the above.
Hence, analysts Dominic Edridge and Jarrod Castle have upgraded their view on Royal Mail to 'neutral' from 'sell' although their price target has been lowered to 400p from 450p. | | |
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