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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 gain as analysts expect QE expansion by ECB UK stocks gained on Wednesday as further quantitative easing by the European Central Bank seemed more likely after Eurozone inflation fell short of forecasts.
Eurozone inflation rose 0.1% in the year to November, unchanged from the previous month, according to the 'flash' estimate from Eurostat on Wednesday. Analysts had predicted year-on-year growth of 0.2%, adding pressure on the ECB ahead of its policy decision on Thursday. The ECB is targeting inflation of just below 2%.
ECB President Mario Draghi is expected to announce new measures to counter prolonged low inflation, including an increase in monthly asset purchases, an extension to the quantitative easing programme beyond September 2016 and a cut to the deposit rate.
"November's weaker-than-expected Eurozone consumer prices figures give a final green light for the ECB to both increase the pace of its asset purchases and cut its deposit rate at tomorrow's policy meeting," said Jonathan Loynes, chief European economist at Capital Economics.
In the UK, the British Retail Consortium revealed that a drop in British shop prices accelerated in November. Prices declined 2.1% over the 12 months to November, worse than October's 1.8% decrease.
Markit's construction purchasing managers' index declined from 58.8 in October to 55.3 in November, comfortably below the 58.5 reading analysts had expected. A reading above 50 signals an expansion while a level below that suggests growth.
Stateside, the private sector created 217,000 jobs in November, according to ADP, better than the previous month's reading of 196,000 and estimates of 190,000. The data comes ahead of the widely followed non-farm payrolls on Friday.
Meanwhile, Federal Reserve policymaker Dennis Lockhart said the case for raising interest rates this month was "compelling", although dollar strength was a risk to his outlook.
In a speech in Fort Lauderdale ahead of the Fed's two-day meeting on 15-16 December, Lockhart said: "The dollar has risen pretty substantially since mid-2014."
Earlier the Fed's Lael Brainard said the central bank should go slow in raising interest rates. Speaking at the Stanford Institute for Economic Policy Research, he said there may be confines to the Fed's ability to tighten monetary policy.
Company-wise, Shire, GlaxoSmithKline and AstraZeneca rallied as the sector got a boost from a note by Morgan Stanley, which double upgraded AZN to 'overweight' from 'underweight' and said it was among its top picks.
Helped by JP Morgan Cazenove nudging its target higher to 450p, Merlin Entertainments was on the front foot again following a well-received trading statement on Monday, in which the theme parks group confirmed it was likely to end the year on a stable footing. It said full year profit forecasts were expected to meet lowered expectations despite the continued significant weakness at Alton Towers since the crash on its Smiler ride in June.
On the downside, Meggitt slid as it looked set to be demoted to the FTSE 250 following the latest FTSE 100 quarterly review, the results of which will be announced after the close on Wednesday. Shares in the aerospace and defence engineer tumbled 20% in late October after it cautioned that full year profit would be well below forecasts due to a "marked deterioration" in its end markets.
Morrison Supermarkets was also sitting lower as the London Stock Exchange said the group is likely to be moved from the FTSE 100 to the FTSE 250 as it suffers from a price war.
Greene King jumped after posting a rise in first half pre-tax profit and revenue thanks in part to the integration of Spirit Pub Company.
Moneysupermarket.com was in the red after founder Simon Nixon sold a 5.8% stake in the comparison website, pocketing a gross £98m. |
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| UK stocks gained on Wednesday as further quantitative easing by the European Central Bank seemed more likely after Eurozone inflation fell short of forecasts.
Eurozone inflation rose 0.1% in the year to November, unchanged from the previous month, according to the 'flash' estimate from Eurostat on Wednesday. Analysts had predicted year-on-year growth of 0.2%, adding pressure on the ECB ahead of its policy decision on Thursday. The ECB is targeting inflation of just below 2%.
ECB President Mario Draghi is expected to announce new measures to counter prolonged low inflation, including an increase in monthly asset purchases, an extension to the quantitative easing programme beyond September 2016 and a cut to the deposit rate.
"November's weaker-than-expected Eurozone consumer prices figures give a final green light for the ECB to both increase the pace of its asset purchases and cut its deposit rate at tomorrow's policy meeting," said Jonathan Loynes, chief European economist at Capital Economics.
In the UK, the British Retail Consortium revealed that a drop in British shop prices accelerated in November. Prices declined 2.1% over the 12 months to November, worse than October's 1.8% decrease.
Markit's construction purchasing managers' index declined from 58.8 in October to 55.3 in November, comfortably below the 58.5 reading analysts had expected. A reading above 50 signals an expansion while a level below that suggests growth.
Stateside, the private sector created 217,000 jobs in November, according to ADP, better than the previous month's reading of 196,000 and estimates of 190,000. The data comes ahead of the widely followed non-farm payrolls on Friday.
Meanwhile, Federal Reserve policymaker Dennis Lockhart said the case for raising interest rates this month was "compelling", although dollar strength was a risk to his outlook.
In a speech in Fort Lauderdale ahead of the Fed's two-day meeting on 15-16 December, Lockhart said: "The dollar has risen pretty substantially since mid-2014."
Earlier the Fed's Lael Brainard said the central bank should go slow in raising interest rates. Speaking at the Stanford Institute for Economic Policy Research, he said there may be confines to the Fed's ability to tighten monetary policy.
Company-wise, Shire, GlaxoSmithKline and AstraZeneca rallied as the sector got a boost from a note by Morgan Stanley, which double upgraded AZN to 'overweight' from 'underweight' and said it was among its top picks.
Helped by JP Morgan Cazenove nudging its target higher to 450p, Merlin Entertainments was on the front foot again following a well-received trading statement on Monday, in which the theme parks group confirmed it was likely to end the year on a stable footing. It said full year profit forecasts were expected to meet lowered expectations despite the continued significant weakness at Alton Towers since the crash on its Smiler ride in June.
On the downside, Meggitt slid as it looked set to be demoted to the FTSE 250 following the latest FTSE 100 quarterly review, the results of which will be announced after the close on Wednesday. Shares in the aerospace and defence engineer tumbled 20% in late October after it cautioned that full year profit would be well below forecasts due to a "marked deterioration" in its end markets.
Morrison Supermarkets was also sitting lower as the London Stock Exchange said the group is likely to be moved from the FTSE 100 to the FTSE 250 as it suffers from a price war.
Greene King jumped after posting a rise in first half pre-tax profit and revenue thanks in part to the integration of Spirit Pub Company.
Moneysupermarket.com was in the red after founder Simon Nixon sold a 5.8% stake in the comparison website, pocketing a gross £98m. |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Equities decline ahead of ECB's decision European stocks slid on Wednesday after a disappointing reading on Eurozone inflation increased the odds of additional stimulus from the European Central Bank.
The benchmark Stoxx Europe 600 index was flat, Germany's DAX fell 0.63% and France's CAC 40 shed 0.18%.
As of 1634 GMT, the euro was broadly flat against the yen and gained 0.47% against the pound but fell by the same margin against the dollar, while Brent crude declined 1.86% to $43.63 a barrel.
"All of today's trading will likely matter for nought, however, when Mario Draghi finally reveals what kind of QE concoction he has been working on," said Spreadex's financial analyst Connor Campbell.
On the macroeconomic front, a 'flash' estimate released earlier by Eurostat showed inflation in the euro bloc rose 0.1% in the year to November, unchanged from the previous month and still well below the ECB's target of just below 2%.
Analysts had expected year-on-year growth of 0.2%, so the latest reading is likely to pile pressure on the ECB ahead of its policy decision on Thursday. Core inflation dropped to 0.9% from 1.1%, also weaker than expected.
Market participants are widely expecting the ECB to announce a cut to the deposit rate and an increase in the size and scope of its bond-buying programme.
"The ECB is likely to remain nervous that a further period of low inflation will lead to a bigger drop in inflation expectations and take action tomorrow accordingly," said Jonathan Loynes, chief European economist at Capital Economics.
"We continue to expect both an increase in the monthly pace of asset purchases from €60bn to €80bn and a 20bp cut in the ECB's deposit rate."
Meanwhile, according to ADP, the US private sector created 217,000 jobs in November, exceeding expectations for a 190,000 reading and up from an upwardly revised reading of 182,000 in October.
Investors will also be turning their attention to more comments from Fed chairwoman Janet Yellen and vice chairman Stanley Fischer, who are due to speak publicly over the next couple of days, ahead of the Federal Open Market Committee's meeting on 15 and 16 December.
In company news, pharmaceutical stocks gained, with Roche and GlaxoSmithKline rose 1.05% and 2% respectively after upgrades by Citigroup and Morgan Stanley. |
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| | US Market Report | | Data before December FOMC will be key, Fed's Yellen says The economic recovery Stateside was progressing well, but a rate rise come December was still not guaranteed, the president of the US central bank said on Wednesday evening.
Speaking to the Economic Club of Washington, Fed chair Janet Yellen said the economic data since October had been consistent with expectations for an improved job market, but left open the possibility that the data released before its next meeting - on 15-16 December - could still sway the Federal Open Market Committee either way. |
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| | Broker Tips | | Broker tips: IAG, BHP Billiton, AstraZeneca, GSK Clear skies lie ahead for the European Airlines sector going into the winter trading period, thanks to a favourable outlook for capacity growth and given the considerable fall in oil prices since August 2015, Nomura said.
The global macroeconomic outlook, notably in the core UK and US markets, is also "sufficiently robust to support a bullish sector outlook", the Japanese broker said in a research note sent to clients, "despite clear current political tensions in a number of territories that could hamper demand."
Analyst James Hollins said he saw no material risk of accelerated capacity expansions or yield pressures from the low price of oil on the horizon.
Furthermore, since the last time he took a look at the sector, in August 2015, the forward curve for Brent had fallen by $5 per barrel, equivalent to $50 per metric tonne for jet fuel, through to 2022.
Hollins therefore decided to revisit his 2016-19 assumptions for the cost of jet fuel utilising a spot rate of $600MT, instead of $650MT - although dollar strength since capped the upside from lower fuel prices.
The analyst bumped up his target for IAG to 800p from 750p - singling out as its top-pick - "following an underlying and Aer Lingus-related upward revision to estimates".
BHP Billiton's decision to increase copper production in fiscal year 2016 and lower cost guidance are symptomatic of some of the factors that are ailing the wider copper mining industry, as firms add tonnes in a bid to lower their unit costs, adding to the existing oversupply, Goldman Sachs said.
The miner increased its guidance for copper production in fiscal year 2016 to approximately 1.55mt from 1.5mt and projected about a 20% reduction in group costs, the broker said following the start of a copper briefing and tour of BHP's Chilean operations which started on 1 December.
However, whereas cost reductions and weaker producer country currencies should see the cost curve flatten and marginal costs fall - and hence prices too - BHP Billiton in fact guided towards higher costs at Escondida for fiscal year 2016.
Management now expects costs of $1.21 per pound, up from $1.18 per pound previously - despite a weaker Chilean peso.
While that may just be a function of the company being conservative, it is a "slight negative", analysts Eugene King, Craig Sainsbury and Christopher Jost said in a research note sent to clients.
Goldman Sachs trimmed its twelve month target on the stock to 925p from 950p previously, while staying 'neutral' on the shares.
Pharmaceutical stocks got a boost on Wednesday as Morgan Stanley double upgraded AstraZeneca to 'overweight' from 'underweight' and said it was among its top picks.
The bank, which lifted AZN's target to 5,300p from 4,300p, said it has underperformed dramatically over the past year but looks set to reap the rewards of heavy investment, at an attractive valuation.
"Consensus expectations have moderated on Astra's pipeline ($13bn in 2023, previously $16bn), giving the stock good pipeline optionality over the next 12-18 months, notably with phase 3 readouts for Brilinta, benralizumab and lynparza,and launches for three new drugs," it said.
MS raised its price target on 'equalweight' rated GlaxoSmithKline to 1,450p from 1,350p.
The bank said it reckons expectations have bottomed out after several years of continuous earnings per share downgrades, with double-digit earnings growth in full year 2016 as per management guidance. | | |
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