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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: Mining shares, upbeat UK data boost equities A rally in mining shares and better-than-estimated reports on UK manufacturing and industrial output gave London stocks a boost on Wednesday.
Mining giants Anglo American, Rio Tinto and BHP Billiton were among the biggest risers on the FTSE 100, driven by an increase in gold and copper prices and an upgrade from Morgan Stanley. The broker improved its stance on all three stocks, as it lifted its view on the European metals and mining sector to 'attractive' from 'in line'.
UK manufacturing output climbed 0.5% month-on-month in August compared with a 0.8% decline in July and analysts' expectations for a 0.3% gain, the Office for National Statistics revealed. The rebound was buoyed by increased car production.
Industrial output was up 1% month-on-month in August, ahead of forecasts for a 0.3% rise and following a 0.4% fall in July, boosted by a 6.0% gain in the mining and quarrying sector.
"The Bank of England is likely to take some comfort from August's rebound in industrial production, but it will be concerned by the underlying weakness of manufacturing," said Howard Archer, chief UK and European economist at IHS Global Insight.
"The data are unlikely to hugely change market belief that the Bank of England will not be raising interest rates before late-2016, although we believe a move in the first half of the year is still very likely and would not rule out a move in February."
The BoE will announce its latest policy decision along with its meeting minutes on Thursday, and the market will be looking for hints on the timing of the first interest rate increase.
NIESR said it does not expect the BoE to vote in favour of a rate rise this month, as it reported UK gross domestic product expanded 0.5% quarter-on-quarter in the three months to September, the same as the preceding three months.
"Economic growth remains reasonable and, although we do not expect the Bank of England's Monetary Policy Committee to vote to raise rates at its October meeting, we continue to expect the first rise in Bank Rate in the first half of 2016."
Elsewhere, Germany's industrial production rose 2.3% year-on-year in August, missing analysts' expectations for a 3.3% gain. Compared to the previous month output in August fell 1.2%, trailing estimates for a 0.2% rise.
Meanwhile, the Bank of Japan opted against extending its stimulus measures, even though its inflation target is under threat amid slumping exports and a decline in oil prices.
In company news, International Consolidated Airlines and EasyJet dropped on rising oil prices and a downgrade by Credit Suisse. "We can see the close correlation between airlines and the oil price, with much of their recent outperformance resulting from the renewed weakness in the oil price," said Credit Suisse, as it cut its stance on European airlines to 'benchmark' from 'overweight'.
Brent and West Texas Intermediate pared earlier gains, falling 0.02% to $51.91 per barrel and 0.6% to $48.24 per barrel, respectively. The dip came after weekly inventory data showed US stockpiles of crude oil and petroleum products at a new record high.
SABMiller was on the front foot as it rejected AB InBev's third formal bid of £42.15 per share, up from two initial offers of £38 and £40.
Tesco reversed an earlier decline after reporting a 55% drop in first half operating profit that was better than analysts had expected and after saying the supermarket is on track to make annual profits in line with last year.
Marks & Spencer slumped after JPMorgan Cazenove downgraded the stock to 'neutral' from 'overweight' and cut its price target to 550p from 600p.
Sports Direct fell after RBC Capital Markets downgraded the company to 'sector perform' from'outperform' and cut its price target to 850p from 900p. |
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| | Market Movers
techMARK 3,013.88 -1.65%
FTSE 100 6,328.16 +0.03%
FTSE 250 17,019.25 -0.66%
FTSE 100 - Risers
Anglo American (AAL) 662.60p +9.67%
Antofagasta (ANTO) 574.50p +6.98%
Rio Tinto (RIO) 2,474.50p +6.94%
BHP Billiton (BLT) 1,106.00p +4.39%
Glencore (GLEN) 123.00p +4.37%
Aberdeen Asset Management (ADN) 340.20p +3.97%
Standard Chartered (STAN) 738.10p +3.36%
Centrica (CNA) 236.30p +2.78%
Royal Dutch Shell 'B' (RDSB) 1,812.00p +2.58%
Tesco (TSCO) 196.85p +2.45%
FTSE 100 - Fallers
International Consolidated Airlines Group SA (CDI) (IAG) 554.00p -5.54%
easyJet (EZJ) 1,667.00p -5.28%
Carnival (CCL) 3,284.00p -4.62%
Hikma Pharmaceuticals (HIK) 2,162.00p -4.34%
Sports Direct International (SPD) 742.00p -4.32%
TUI AG Reg Shs (DI) (TUI) 1,214.00p -4.26%
Marks & Spencer Group (MKS) 499.30p -3.89%
Shire Plc (SHP) 4,316.00p -3.77%
Smith & Nephew (SN.) 1,119.00p -3.62%
London Stock Exchange Group (LSE) 2,467.00p -3.41%
FTSE 250 - Risers
Vedanta Resources (VED) 505.00p +13.10%
Kaz Minerals (KAZ) 121.70p +11.75%
Evraz (EVR) 89.50p +9.55%
Rotork (ROR) 190.00p +8.63%
Tullow Oil (TLW) 240.70p +7.89%
Weir Group (WEIR) 1,393.00p +5.69%
Ophir Energy (OPHR) 104.70p +5.65%
Drax Group (DRX) 263.20p +5.28%
Petra Diamonds Ltd.(DI) (PDL) 97.30p +4.34%
Premier Oil (PMO) 86.80p +4.20%
FTSE 250 - Fallers
BTG (BTG) 548.00p -8.82%
Indivior (INDV) 215.80p -7.97%
Hays (HAS) 147.50p -5.08%
Man Group (EMG) 156.10p -4.82%
Rightmove (RMV) 3,590.00p -4.39%
Foxtons Group (FOXT) 229.60p -4.33%
Wizz Air Holdings (WIZZ) 1,909.00p -4.21%
B&M European Value Retail S.A. (DI) (BME) 327.60p -3.65%
Aldermore Group (ALD) 265.10p -3.60%
Stagecoach Group (SGC) 327.40p -3.56%
FTSE TechMARK - Risers
Consort Medical (CSRT) 939.00p +1.24%
CML Microsystems (CML) 350.00p +0.72%
SDL (SDL) 369.50p +0.61%
Oxford Instruments (OXIG) 617.00p +0.33%
Spirent Communications (SPT) 75.50p +0.33%
Dialight (DIA) 666.00p +0.30%
IShares Euro Gov Bond 7-10YR UCITS ETF (IEGM) € 203.07 +0.04%
FTSE TechMARK - Fallers
NCC Group (NCC) 256.00p -6.91%
DRS Data & Research Services (DRS) 12.00p -5.88%
Torotrak (TRK) 6.50p -3.99%
Filtronic (FTC) 6.75p -1.82%
Ricardo (RCDO) 888.50p -1.28%
BATM Advanced Communications Ltd. (BVC) 19.50p -1.27%
E2V Technologies (E2V) 237.50p -0.84%
KCOM Group (KCOM) 91.25p -0.82%
Oxford Biomedica (OXB) 7.75p -0.64%
XP Power Ltd. (DI) (XPP) 1,660.00p -0.60% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks end off their best levels of the day European equity markets edged higher, underpinned by strength in the basic resources and oil and gas sectors, as investors shrugged off disappointing factory data from Germany and Spain and ahead of the release of the latest FOMC minutes tomorrow. The benchmark Stoxx Europe 600 index finished 0.14% higher, France’s CAC 40 was up by the same percentage and Germany’s DAX by another 0.68%. Front month Brent crude futures ended the session 0.49% lower at $49.35 a barrel. Oil prices surged on Tuesday after the US Energy Information Administration estimated that crude production was likely to continue to decline through next August. Analysts at Credit Suisse and SocGen contributed to the better tone in the commodities space, telling clients they expected to see a stabilisation in prices. On the downside, though, airline stocks such as Easyjet, Ryanair, IAG and Deutsche Lufthansa were under the cosh as higher oil prices drive up fuel costs and following a downgrade of the sector by Credit Suisse. “The weakness in the US dollar can in some ways explain some of the current upside, both in equities and most importantly commodities,” said Brenda Kelly, head analyst at London Capital Group. “The Fed’s failure to act in September and the weaker than expected jobs numbers last week have essentially pushed expectations for a rate hike to at least the end of the first quarter in 2016 and even then it’s precarious given the poor first quarter GDP growth we’ve come to expect from the US on the basis of bad weather.” Miners also got a lift from a bullish note by Morgan Stanley, which upgraded its stance on Rio Tinto, BHP Billiton and Anglo American as it lifted its view on the European metals and mining sector to ‘attractive’ from ‘in line’. As far as the sector as a whole is concerned, the broker said stable data from China in the last few months with a potential uplift from recent financial and administrative stimulus policies should increase conviction that the 19% commodity price uplift by 2017 in the bank’s base case deck is achievable. On the corporate front, SABMiller rose after it said Anheuser-Busch InBev was “very substantially undervaluing” the London-listed brewer with its latest offer of £42.15 per share. Volkswagen shares pushed higher after chief executive Matthias Mueller said in an interview with a German newspaper that the company would launch a recall for cars affected by its diesel emissions crisis in January and complete the fix by the end of next year. Supermarket retailer Tesco reversed early losses to trade a little higher. Although it posted a 55% drop in first-half operating profit, the figure still came in above analysts’ expectations. Brewer Diageo nudged lower after saying it has sold its interests in Desnoes & Geddes and Guinness Anchor Berhad to Heineken NV and bought additional shares in Guinness Ghana Breweries. Shares in retailer Marks & Spencer fell after JPMorgan Cazenove downgraded the stock to ‘neutral’ from ‘overweight’. Figures released before the start of the session by the Economy Ministry showed German industrial production unexpectedly fell in August, at its fastest pace in a year. Output dropped 1.2% month-on-month after a revised 1.2% increase in July and against expectations for a small increase. Factory output in Spain dropped 1.7% over the month in August. “Overall, the latest data support our view that the euro-zone recovery is unlikely to gain pace in the coming quarters, implying that inflation will remain very weak,” Capital Economics said in a research report sent to clients. |
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| | US Market Report | | US open: Dow jumps over 120 points as oil prices provide boost to equities US stocks rallied early on Wednesday, taking the lead from worldwide equity markets and as oil prices extended gains.
Shortly before 1500 BST, the Dow Jones Industrial Average was up 125 points to 16,915.66, while the S&P 500 and the Nasdaq were five and 27 points higher respectively.
Oil extends gains
Oil prices extended Tuesday's rally, with West Texas Intermediate gaining 1.58% to $49.31 a barrel, while Brent rose 1.72% to $52.83 a barrel.
"This stronger oil price should provide strength to currencies with export linked commodity exports," said FXTM research analyst Lukman Otunuga.
"Despite the inspiration gained by WTI bulls, the global themes concerning the decline in commodity prices, the slowdown in Asia and continual concerns over the pace of growth in Europe and Japan have not changed."
Elsewhere, European stocks gained, while Asian equity markets edged higher on Wednesday after the Bank of Japan opted against extending its stimulus measures.
Japan's central bank decided by an 8 to 1 vote to leave the bank's policy target unchanged and reiterated its pledge to increase base money at an annual pace of 80trn yen (£436bn) via asset purchases.
The dollar declined 0.26% and 0.48% against the yen and the pound respectively but rose 0.28% against the euro, while gold futures climbed 0.04% to $1,147.71.
In company news, Yum Brands plunged 18.7%, after the owner of KFC and Pizza Hut cut its earnings outlook for the year late on Tuesday, citing a slower-than-expected recovery in China.
Mining group Freeport-McMoRan jumped 7.78%, while Constellation Brands rose 1.84% after its quarterly results topped expectations.
"The food quality scandal in China continues to dent demand in the country that has been contributing the most to the restaurant chain's growth," said CMC Markets' analyst Jasper Lawler.
On the economic data front, the Mortgage Bankers Association said its seasonally adjusted index of application activity, which covers home purchase demand and refinancing demand, soared 25.5% in the week ended 2 October. |
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| | Broker Tips | | Broker tips: M&S, European airlines, Sports Direct Marks & Spencer was under pressure after JPMorgan Cazenove downgraded the stock to 'neutral' from 'overweight' and cut its price target to 550p from 600p.
The bank said it expects another quarter of negative like-for-like performance from M&S in General Merchandise and it's also concerned that LFL growth in the food business is becoming harder to achieve.
"Whilst we continue to like the self-help story and see the potential for ongoing gross margin gains, we do think that M&S has less opportunity to reduce opex growth guidance than in previous years."
This, combined with ongoing pressure on International profits led JPM to downgrade its full-year pre-tax profit estimate for 2016 to £666m from £706m.
It said this leaves the bank 6% below Bloomberg consensus and implies only 1% pre-tax profit growth in 2016, versus its forecast for 6% growth at Next.
JPM added that the new target offers only 6% upside to the current share price.
European airline stocks fell sharply on Wednesday, dragged lower by rising oil prices and a downgrade by Credit Suisse.
"We can see the close correlation between airlines and the oil price, with much of their recent outperformance resulting from the renewed weakness in the oil price," said Credit Suisse, as it cut its stance on European airlines to 'benchmark' from 'overweight'.
Beyond lower fuel costs, CS said the fall in the oil price has also benefitted airlines through the boost it has given to consumer incomes. It said this was particularly true for budget airlines, which are predominantly consumer plays, as opposed to the flag-carriers where up to half of revenue is corporate-related.
Still, the bank said that if oil prices were to stabilise or stage a modest recovery, one of the most significant tailwinds airlines have recently enjoyed would fade away. In addition, it argued that there are some signs that capital discipline is deteriorating: capex to sales has increased and historically a low oil price has been associated with an increase in competition, it said.
It said that while valuations are still attractive on 12-month forward P/E relatives and earnings momentum is positive, the latter is at levels where it has historically rolled over, with earnings revisions boosted by the falling oil price.
"On top of that, the sector is overbought," it added.
Oil prices surged on Tuesday after the Organisation of Petroleum Exporting Countries forecast big cuts to oil investments that are expected to slow production and reduce global crude supplies. In addition, the Energy Information Administration estimated that crude production in September was down 120,000 barrels a day from August and said output is likely to continue to decline through next August.
RBC Capital Markets downgraded Sports Direct to 'sector perform' from 'outperform' and cut its price target to 850p from 900p.
The Canadian bank said Sports Direct's already-dominant position in UK sportswear retailing means that its long-term growth increasingly will have to come from other areas such as International, online growth and mainstream fashion.
It said that two years ago it looked as if Sports Direct would become the international consolidator of the sector following its acquisitions in Austria and the Baltics. However, it now expects growth to be more moderate as its own brands are less well known and it will take time to improve the merchandising and the product offer of international stores.
In addition, it noted that Sports Direct sources the majority of its product from Asia in US dollars and as such, will face a dollar sourcing headwind on own-label product from full-year 2017, which the bank expects to constrain gross margin and possibly volume growth. |
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