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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 retreat as BoE's Forbes ups rate hike chatter The FTSE retreated as a Bank of England policymaker said the central bank may need to raise interest rates sooner.
Kristin Forbes, an external member of the Monetary Policy Committee, said the Bank might have to tighten policy if the pound's rally over the past two years has less impact on inflation than currently estimated.
"Sterling's recent appreciation could create less drag on import prices and inflation than we might have expected if the levels of pass-through seen after the crisis persisted," Forbes said in a speech in Cardiff on Friday.
"If this plays out, monetary policy would need to be tightened sooner than based on the older models."
Separately, the BoE and GfK's August survey on public attitudes to inflation for the coming year declined to 2% compared to a May estimate of 2.2%. The BoE is targeting inflation of 2%, but the consumer price index in July rose just 0.1%.
The BoE highlighted weak inflation in its decision to keep interest rates unchanged on Thursday. Ian McCafferty was the only MPC member to vote in favour of raising rates.
Elsewhere in the UK, a report showed construction output declined in July. According to the Office for National Statistics, output in the construction industry fell 1% month-on-month in July compared with a 0.9% increase in the previous month, while analysts expected a 0.5% gain.
In the euro-area, Destatis confirmed Germany's consumer price index rose 0.2% year-on-year in August, unchanged from July.
Meanwhile, Goldman Sachs warned oil prices could fall as low as $20 per barrel as it cut its forecasts for West Texas Intermediate and Brent crude for this year and next.
"The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China's slowdown and its negative emerging market feedback loop," Goldman said.
"While not our base case, the potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater as storage continues to fill."
Brent crude was down 1.57% to $48.13 per barrel while West Texas Intermediate dropped $44.90 per barrel at 1700 BST.
On an upbeat note for markets, a report from China state news agency Xinhua said Beijing is considering injecting more than 1 trillion yuan into the economy over the next three years.
China also saw the release of credit data which showed the country's banks extended a net 810bn yuan in renminbi loans last month, down from 1480bn yuan in July, broadly in line with expectations.
FOMC, US data
The US Federal Reserve seems likely to refrain from an interest rate hike when the central bank votes at the policy meeting on 16-17 September, according to various analysts. Those who expect the Fed to keep rates unchanged, have pointed to weak inflation and the recent turbulence in global stocks, sparked by concerns about China's slowing economy.
"We expect the Fed to stay on hold and lower its GDP and CPI projections and trim its interest rate forecasts. Given that the market is still pricing in some (small) probability of a move in September, we judge such an outcome to be USD negative," said UniCredit Research managing director and global head of FX strategy, Dr. Vasileios Gkionakis.
"From a longer-term perspective, we think September or December makes little difference for the US dollar; we believe that to justify current or higher levels, the Fed would have to initiate a tightening cycle that is much more aggressive than market participants currently expect."
Amid China slowdown fears, the University of Michigan's index on consumer confidence fell to 85.7 in September from 91.9 in the previous month, falling short of analysts' expectations for a 91.1 reading.
The US producer price index, which measures the prices companies receive for goods and services, was unchanged in August after rising 0.2% in July, according to data released by the Bureau of Labor Statistics.
Companies
Mining stocks topped the FTSE 100 on hopes of Chinese stimulus with Rio Tinto, Anglo American, BHP Billiton and Glencore leading the way. Rio was also given a boost after UBS upgraded the stock to 'buy' from 'neutral' with an unchanged price target of 2,850p.
Investors seemed unfazed by Moody's decision to downgrade its outlook on Glencore to 'negative' from 'stable, citing a prolonged decline in copper prices.
WM Morrison continued to fall after reporting a slump in first-half pre-tax profits on Thursday and the sale of its convenience stores arm.
Associated British Foods, owner of the Primark discount clothing chain, was down nearly 3%, after a warning earlier this week that falling sugar prices would hit profits.
Shares in office retail giant Regus were up after a report the company could be the subject of a multi-billion pound bid from a major private equity firm. The Daily Mail reported, without citing sources, that Regus founder and chief executive Mark Dixon recently rejected a £3bn approach, said to be from Blackstone, but was open to an increased offer worth around £4bn.
Aldermore slumped following reports that two sellers, including AnaCap funds, were said to have sold 50.9m shares in the group via Deutsche Bank and RBC at 286p.
JD Wetherspoon dipped after reporting a 2% drop in full-year pre-tax profit to £77.8m.
Drax was under the cosh after Goldman Sachs downgraded the stock to 'sell' from 'neutral' and slashed its price target to 230p from 300p. |
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| | FTSE 100 - Risers
Anglo American (AAL) 739.70p +3.17%
Glencore (GLEN) 136.65p +2.82%
Rio Tinto (RIO) 2,423.50p +2.47%
Antofagasta (ANTO) 618.50p +2.32%
Fresnillo (FRES) 619.00p +1.98%
BHP Billiton (BLT) 1,078.00p +1.70%
Randgold Resources Ltd. (RRS) 3,728.00p +1.55%
Kingfisher (KGF) 365.30p +1.39%
Standard Chartered (STAN) 718.30p +0.66%
BAE Systems (BA.) 445.90p +0.61%
FTSE 100 - Fallers
Inmarsat (ISAT) 1,012.00p -3.44%
Morrison (Wm) Supermarkets (MRW) 166.00p -2.87%
Associated British Foods (ABF) 3,057.00p -2.83%
St James's Place (STJ) 864.00p -2.37%
Taylor Wimpey (TW.) 197.60p -2.23%
Persimmon (PSN) 2,083.00p -1.93%
Vodafone Group (VOD) 222.75p -1.92%
Tesco (TSCO) 182.05p -1.89%
Marks & Spencer Group (MKS) 501.50p -1.86%
Mondi (MNDI) 1,458.00p -1.82%
FTSE 250 - Risers
Kaz Minerals (KAZ) 167.00p +3.41%
Acacia Mining (ACA) 247.60p +2.57%
Ashmore Group (ASHM) 259.10p +2.49%
CLS Holdings (CLI) 1,854.00p +2.43%
Regus (RGU) 301.80p +2.41%
Genus (GNS) 1,395.00p +2.27%
Dechra Pharmaceuticals (DPH) 985.50p +1.81%
Entertainment One Limited (ETO) 272.90p +1.30%
JPMorgan American Inv Trust (JAM) 260.90p +1.24%
Domino's Pizza Group (DOM) 855.50p +1.24%
FTSE 250 - Fallers
AO World (AO.) 156.40p -3.46%
Aldermore Group (ALD) 285.60p -3.12%
Drax Group (DRX) 258.20p -2.93%
Ocado Group (OCDO) 314.80p -2.72%
Ophir Energy (OPHR) 89.05p -2.62%
Home Retail Group (HOME) 136.40p -2.57%
Brown (N.) Group (BWNG) 290.70p -2.38%
Supergroup (SGP) 1,328.00p -2.14%
Nostrum Oil & Gas (NOG) 501.50p -1.96%
NMC Health (NMC) 745.50p -1.91% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks trim weekly gains as investors remain edgy ahead of FOMC meeting European equities fell on Friday, as investors remained jittery ahead of next week's Federal Open Market Committee meeting which could result in a hike in interest rates. The benchmark Stoxx Europe 600 index closed down 1%, while France's CAC 40 and Germany's DAX both fell 1.04%.
The euro gained against the main currencies, gaining 0.25% against the dollar and climbing 0.11% and 0.39% against the yen and pound respectively.
Volatility in China and the uncertainty surrounding the outcome of next week's Federal Reserve meeting have led to big swings in global equity markets in recent weeks.
"Stock markets have continued their drift lower for yet another day, with some US economic data providing further reason for investors to trim positions at the end of a choppy week," said IG's senior market analyst Chris Beauchamp.
"The failure to make progress indicates how buying pressure has generally dissipated as we head towards the crucial Fed decision next Thursday."
Brent crude plunged 3.3% to $47.33 a barrel, as Goldman Sachs cut its 2016 oil price forecast to $49.5 a barrel from $62 and warned there is a risk prices could fall to as low as $20, noting that OPEC production has surprised sharply on the upside and Iran has the potential to ramp up in 2016.
German CPI edges higher
Germany's consumer price index advanced at a 0.2% year-on-year pace in August and was unchanged versus the prior month, confirming earlier preliminary readings and in line with analysts' expectations.
Across the Atlantic, US consumer confidence declined sharply in September, figures released on Friday showed.
The University of Michigan index fell to 85.7 in September, its lowest level in 12 months, from 91.9 in the previous month, falling short of analysts' expectations for a 91.1 reading.
The US producer price index, which measures the prices companies receive for goods and services, was unchanged in August after rising 0.2% in July, according to data released by the Bureau of Labor Statistics.
The report was the penultimate inflation reading ahead of the Fed meeting next week but failed to shed further light on the timing of the first rate hike. "We don't expect the prospect of higher US interest rates to hit the Eurozone too hard," said analysts at Capital Economics.
"But the ECB should not take any chances and certainly should not rely on higher US interest rates to lower the euro and boost the economy."
In corporate news, shares in Swiss pharmaceutical company Actelion slid 5.39% after it announced late on Thursday that it's in preliminary talks with US biotech firm ZS Pharma about an acquisition. |
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| | US Market Report | | US open: Stocks in the red as consumer sentiment tumbles to 12-month low US equity markets slid early on Friday, as consumer sentiment dropped to its lowest level in a year.m Shortly after 1500 BST, the Dow Jones Industrial Average was down 64 points to 16,266.63, while the S&P 500 and the Nasdaq were seven and 19 points lower, respectively.
Volatility in China and the uncertainty surrounding the outcome of next week's Federal Reserve meeting have led to big swings in recent weeks.
"Global volatility appears to be on the wane as we approach the end of the week, with fundamental releases somewhat thin on the ground ahead of an absolutely crucial week to come in financial markets," said IG's market analyst Joshua Mahony.
Consumer sentiment Stateside takes a hit
US consumer confidence declined sharply in September, declining to its lowest level in a year, figures released on Friday showed. The University of Michigan index fell to 85.7 in September from 91.9 in the previous month, falling short of analysts' expectations for a 91.1 reading.
The US producer price index, which measures the prices companies receive for goods and services, was unchanged in August after rising 0.2% in July, according to data released by the Bureau of Labor Statistics.
Excluding food and energy, core prices were up 0.3% in August, versus consensus expectations for a 0.1% drop month-on-month. Over the year, prices were down 0.8%.
"The August report suggests a split in producer price pressures, with goods prices and in particular energy goods being a drag," analysts at Barclays said in a note.
"Services prices, which are probably a better measure of domestically driven price pressures, were solid, however."
Elsewhere, Asian stocks ended mostly lower, as energy companies slid after Goldman Sachs warned oil prices could hit as low as $20 per barrel.
Hong Kong's Hang Seng index fell 0.27% and Japan's Nikkei 225 dropped 0.19% while the Shanghai composite rose 0.07%.
European equities slumped but remained on track for weekly gains, while oil prices fell sharply, after Saudi Arabia officials intimated they will not back an emergency OPEC meeting.
West Texas Intermediate lost 2.96% to $44.60 a barrel, while Brent dropped 2.62% to $47.64 a barrel. Gold futures slid 0.70% to $1,101.50, while the dollar was broadly flat against the main currencies. |
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| | Broker Tips | | Broker tips: Drax, Rio Tinto, Diageo Drax was under the cosh after Goldman Sachs downgraded the stock to 'sell' from 'neutral' and slashed its price target to 230p from 300p. It said that as regards the outcome of the EU's deliberations on whether to permit the proposed fixed price CfD for Drax's third unit conversion to biomass, the current share price is already discounting a best case scenario.
GS said it sees more than 60% downside in the stock if the CfD is rejected. It noted that Drax's share price is down 40% year-to-date, closing following the fall in UK power prices in 2014 and 2015.
"However, we argue that it should have underperformed UK power, as we believe the likelihood of receiving a favourable subsidy for its third unit conversion to biomass has reduced over this period."
The bank attributed this to lower power prices and negative read-across from other regulatory developments.
While Drax offers a free cash flow yield of more than 10% from 2018 versus a sector average of 7%, this is the result of very low capex and is not sustainable in the long term, added Goldman.
Rio Tinto got a boost on Friday after UBS upgraded the stock to 'buy' from 'neutral' with an unchanged price target of 2,850p.
The bank said the risk/reward scenario is improving following recent weakness in the share price, with Rio starting to show some discipline in iron ore and prices holding up surprisingly well in a seasonally weaker period.
It said Rio offers the most attractive valuation of the UK diversified miners at spot, trading at 7% free cash flow yield, and 11x price-to-earnings, with a dividend yield of 6%.
UBS said that if spot prices hold, the dividend looks well covered by cash and the balance sheet robust with 'net fearing' to fall to around 20%.
"Rio also has the highest near-term growth profile, a strong management team, and some further restructuring potential."
Exane BNP Paribas has upgraded Diageo to 'outperform' from 'neutral' and lifted the price target 10% to 1,900p.
"In a beverage sector which we continue to feel unenthusiastic about, we believe the worst is behind Diageo," said the French bank.
It noted that Diageo has performed poorly in recent years, in both an operational and share price sense. Weak consumer demand, de-stocking and poor innovation/execution were all contributory factors, Exane said.
In terms of the share price performance, it pointed out that Diageo stock has underperformed the European food, beverages and tobacco sectors by 24% in the last two years, the beverage sector by 12% and the MSCI Europe by 17%.
However, Exane said that although it may not be evident in the numbers, "a lot of sensible work" has been done by chief executive officer Ivan Menezes and his team.
It said there has been significant management change, cash conversion and sell-out have been prioritised and route to consumer has been strengthened. The bank expects these changes to become increasingly evident in results over the next 12 to 18 months. |
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