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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 close lower on oil price slump, China worries UK stocks closed lower on Monday as oil prices tumbled again and worries over China's economic slowdown showed no signs of letting up.
Oil prices were under pressure still as analysts lowered their forecasts amid concerns about an oversupply and tensions in the Middle East.
At 1613 GMT, Brent crude plunged 4.2% to $32.18 per barrel and West Texas Intermediate dropped 3.7% to $31.95 per barrel, the first time it's traded below $32 since 2003.
Morgan Stanley warned that if rapid currency devaluation occurs, a 15% depreciation in the Chinese yuan alone could send oil into the $20s.
"Oil is particularly levered to the US dollar with betas ranging from 2-5. If the USD appreciated 5%, oil could fall 10-25%," the broker added.
Analysts at SocGen said oil prices would be significantly lower than previously expected in 2016 after the Organisation of the Petroleum Exporting Countries eliminated its production target.
SocGen lowered the 2016 forecast for the price of front month Brent oil futures from $53.75 per barrel to $42.50 and West Texas Intermediate futures from $49.75 to $40.50 per barrel.
Elsewhere, Chinese stocks declined as fears about the flagging economy persisted. Data over the weekend showed China's inflation rose to 1.6% year-on-year, as expected, compared with 1.5% the previous month. However, the producer price was unchanged at minus 5.9% in December, according to the National Bureau of Statistics.
The People's Bank of China on Monday set the yuan's reference rate against the dollar at 6.5626, up on Friday's fixing of 6.5636, but it did little to cheer the market.
"While China's yuan currency was fixed slightly firmer, note Saturday's Chinese inflation data which saw consumer price inflation edge up as expected to 1.6% but producer prices remain under pressure and fail to deliver the uptick expected by consensus," according to Mike van Dulken and Augustin Eden at Accendo Markets.
"This data will only add to hopes of more intervention by the PBoC to both buoy the equity markets as well as the flagging growth that is concerning investors worldwide."
In economic data, Sentix revealed economic sentiment in the Eurozone worsened more than expected in January. The index gauging economic confidence among investors slid to 9.6 from 15.7 in December, missing expectations for a reading of 12.2.
"Fears over China's devaluation-as an omen of a hard landing in the economy-and increased global deflation risks likely will linger in the short run," said Pantheon Macroeconomics. "But we think both equities and sentiment will recover in coming months, as the continuation of QE and a stable cyclical recovery remains important tailwinds."
The Conference Board's US labour market conditions index rose to 2.9 in December from 2.7 in November, beating forecasts for a reading of 0.4.
In company news, BAE Systems gained after JP Morgan Cazenove said it believed 2016 will be a big year for defence stocks and upgraded the stock from 'neutral' to 'overweight'.
Savills jumped after the real estate firm said underlying full year results will be ahead of previous expectations boosted by its investment management business although it warned that global economic uncertainty and rising interest rates would result in a "tempering" of transaction volumes.
Sports Direct continued to fall after warning on Friday that annual profits would be £40m lower than expected following poor Christmas sales.
Anglo American rallied on news it is poised to begin the sale of its Brazilian niobium and phosphate business.
Sage edged higher after Bank of America Merrill Lynch upgraded the stock to 'buy' from 'underperform' and lifted the price target to 660p from 400p.
Shire slumped after the London-listed pharmaceuticals company announced the purchase of US-based Baxalta for $32bn, provoking a mixed reaction from traders. |
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| UK stocks closed lower on Monday as oil prices tumbled again and worries over China's economic slowdown showed no signs of letting up.
Oil prices were under pressure still as analysts lowered their forecasts amid concerns about an oversupply and tensions in the Middle East.
At 1613 GMT, Brent crude plunged 4.2% to $32.18 per barrel and West Texas Intermediate dropped 3.7% to $31.95 per barrel, the first time it's traded below $32 since 2003.
Morgan Stanley warned that if rapid currency devaluation occurs, a 15% depreciation in the Chinese yuan alone could send oil into the $20s.
"Oil is particularly levered to the US dollar with betas ranging from 2-5. If the USD appreciated 5%, oil could fall 10-25%," the broker added.
Analysts at SocGen said oil prices would be significantly lower than previously expected in 2016 after the Organisation of the Petroleum Exporting Countries eliminated its production target.
SocGen lowered the 2016 forecast for the price of front month Brent oil futures from $53.75 per barrel to $42.50 and West Texas Intermediate futures from $49.75 to $40.50 per barrel.
Elsewhere, Chinese stocks declined as fears about the flagging economy persisted. Data over the weekend showed China's inflation rose to 1.6% year-on-year, as expected, compared with 1.5% the previous month. However, the producer price was unchanged at minus 5.9% in December, according to the National Bureau of Statistics.
The People's Bank of China on Monday set the yuan's reference rate against the dollar at 6.5626, up on Friday's fixing of 6.5636, but it did little to cheer the market.
"While China's yuan currency was fixed slightly firmer, note Saturday's Chinese inflation data which saw consumer price inflation edge up as expected to 1.6% but producer prices remain under pressure and fail to deliver the uptick expected by consensus," according to Mike van Dulken and Augustin Eden at Accendo Markets.
"This data will only add to hopes of more intervention by the PBoC to both buoy the equity markets as well as the flagging growth that is concerning investors worldwide."
In economic data, Sentix revealed economic sentiment in the Eurozone worsened more than expected in January. The index gauging economic confidence among investors slid to 9.6 from 15.7 in December, missing expectations for a reading of 12.2.
"Fears over China's devaluation-as an omen of a hard landing in the economy-and increased global deflation risks likely will linger in the short run," said Pantheon Macroeconomics. "But we think both equities and sentiment will recover in coming months, as the continuation of QE and a stable cyclical recovery remains important tailwinds."
The Conference Board's US labour market conditions index rose to 2.9 in December from 2.7 in November, beating forecasts for a reading of 0.4.
In company news, BAE Systems gained after JP Morgan Cazenove said it believed 2016 will be a big year for defence stocks and upgraded the stock from 'neutral' to 'overweight'.
Savills jumped after the real estate firm said underlying full year results will be ahead of previous expectations boosted by its investment management business although it warned that global economic uncertainty and rising interest rates would result in a "tempering" of transaction volumes.
Sports Direct continued to fall after warning on Friday that annual profits would be £40m lower than expected following poor Christmas sales.
Anglo American rallied on news it is poised to begin the sale of its Brazilian niobium and phosphate business.
Sage edged higher after Bank of America Merrill Lynch upgraded the stock to 'buy' from 'underperform' and lifted the price target to 660p from 400p.
Shire slumped after the London-listed pharmaceuticals company announced the purchase of US-based Baxalta for $32bn, provoking a mixed reaction from traders. |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks end lower as oil skids lower, China worries persist European stocks resisted an initial bout of selling pressure on Monday after Chinese stocks ended lower again overnight, but a late bout of selling sent them into the red just before the close of trading as oil prices continued to crumble.
The benchmark Stoxx Europe 600 index finished down by 0.33%, Germany's DAX lost 0.25% and France's CAC 40 another 0.49%.
As of 17:05 front month Brent crude futures were off by 5.04% to $31.94 per barrel on the ICE, as analysts came out of the woodwork with warnings they could fall below the $30 mark.
Analysts at Morgan Stanley told investors that US dollar strength alone could see oil skid down to the $20s, particularly should China opt for a large and quick depreciation of the Yuan.
Earlier on Monday, the People's Bank of China guided the yuan 0.02% higher, setting the mid-point for its daily fixing at 6.5626 against the US dollar, in a bid to stabilise the country's currency.
Fitch Ratings said officials in Beijing were unlikely to opt for a sharp depreciation in the yuan.
Perhaps, but a move by China on Monday to buy yuan in the offshore market and hamper those trying to bet on a weaker currency led to a spike in Hong Kong interbank lending rates in yuan, in turn possibly adding to the selling pressure in stocks.
Despite oversold conditions in share markets, JP Morgan recommended to clients that they sell into any rallies in stocks.
In overnight trading, the Shanghai Stock Exchange's Composite Index tumbled 5.3% while Hong Kong's Hang Seng fell 2.8%.
Over in the commodity space, prompt month West Texas Intermediate futures closed 4.51% at $31.73 a barrel, slipping below the $32 mark for the first time since December 2003.
Economic sentiment in the Eurozone worsened more than expected in January, according to the latest survey released by Frankfurt-based research group Sentix.
The index, which tracks economic confidence among investors, from 15.7 in December to 9.6, missing expectations for a reading of 12.2.
Meanwhile, the sub-index tracking expectations for the Eurozone's economy over the next six months tumbled to 6.3 in January from 18 in December, while the index tracking Germany fell to 18.1 from 22.7.
The current situation index nudged lower from 13.5 to a reading of 13.0 for December.
"This is a downbeat headline, but not unexpected given the atrocious start to the year for equities," said Pantheon Macroeconomics.
"Fears over China's devaluation - as an omen of a hard landing in the economy - and increased global deflation risks likely will linger in the short-run."
In corporate news, Air France-KLM was on the front after the airline operator said the terrorist attacks in Paris cost it €70m (£52m) in lost revenue, but added that bookings returned to normal in December.
Italian oil and gas industry contractor Saipem was a high riser throughout most of the session following reports that it could be involved in the Russian Nord Stream 2 pipeline project.
In London, housebuilder Taylor Wimpey nudged a touch lower despite reporting a strong year. |
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| | US Market Report | | US open: Stocks gain despite China market slump US stocks gained on Monday as a further slide in China's market fuelled hopes for additional stimulus measures.
The Dow Jones Industrial Average rose 0.37%, while the S&P 500 and the Nasdaq increased 0.37% and 0.41%, respectively at 1447 GMT.
Investors shrugged off another tumble in Chinese stocks amid concerns about the slowdown in the world's second largest economy.
China's inflation rose to 1.6% year-on-year, as expected, compared with 1.5% the previous month. However, the producer price was unchanged at minus 5.9% in December, according to the National Bureau of Statistics.
The People's Bank of China on Monday set the yuan's reference rate against the dollar at 6.5626, up on Friday's fixing of 6.5636, but it did little to cheer the market.
"While China's yuan currency was fixed slightly firmer, note Saturday's Chinese inflation data which saw consumer price inflation edge up as expected to 1.6% but producer prices remain under pressure and fail to deliver the uptick expected by consensus," according to Mike van Dulken and Augustin Eden at Accendo Markets.
"This data will only add to hopes of more intervention by the People's Bank of China to both buoy the equity markets as well as the flagging growth that is concerning investors worldwide."
Meanwhile oil prices remained under the cosh amid worries about an oversupply in the market and tensions in the Middle East. At 1343 GMT West Texas Intermediate crude fell 0.63% to $32.95 per barrel and Brent dropped 1.2% to $33.12 per barrel.
Morgan Stanley warned that if rapid devaluation occurs, a 15% depreciation in the Chinese yuan alone could send oil into the $20s. "Oil is particularly levered to the US dollar with betas ranging from 2-5. If the USD appreciated 5%, oil could fall 10-25%," the broker added.
On the economic data front, it's a quiet day with the only notable release being the Labor Market Conditions Index Change for December which rose to 2.9 from 2.7 the previous month. Analysts had predicted a reading of 0.4.
The Atlanta Fed's Dennis Lockhart will speak on the US economic outlook at 1740 GMT and the Dallas Fed President Robert Kaplan will speak on the economy and monetary policy at 2250 GMT.
The dollar was down 0.42% against the pound but up 0.44% against the euro and up 0.39% against the yen.
In company news, fourth-quarter earnings season begins this week, with Alcoa posting results after the close today, however those results aren't expected to be promising. It also announced a $1.5bn long-term supply contract with General Electric's aviation unit. Shares were up down 0.37% at 1449 GMT.
Tesla Motors declined after Elon Musk predicted a customer in Los Angeles will be able to "summon" their electric car via cellphone within two years. |
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| | Broker Tips | | Broker tips: BAE Systems, UK life assurers, Big Yellow JP Morgan Cazenove believes 2016 will be a big year for defence stocks and has upgraded BAE Systems from 'neutral' to 'overweight'.
The investment bank on Monday cited a major escalation in geo-political tensions as a reason why it will be a good year for the sector, as well as it being a "safe haven" as concerns grow about the global economy.
It said there were four key positives for the sector, including the rise in US and European defence spending due to the Middle East, the related refugee crisis and Russia's foreign policy when it comes to Ukraine and Syria.
JP Morgan Cazenove also said the stronger US dollar is a positive to UK defence companies, while US defence stocks perform better in an election year.
However it wasn't as upbeat in the civil aerospace sector, with structural headwinds and a weak high-end jet market.
That's compounded by the fact that a number of companies in the sector are exposed to oil and gas prices.
With that in mind, JP Morgan Cazenove upgraded BAE Systems and also increased its target from 465p to 605p.
"In recent periods (eg. 2002 and 2006), when the US defence spending was set to increase and/or there was extreme tension in the M.East, BAE traded at a 12-month forward P/E of 16-17x.
"We believe the conditions are in place for such multiple expansion to happen again."
BAE was also added to JP Morgan Cazenove's European Analyst Focus List.
Cobham, which is rated at 'overweight', also had its price target rasied from 300p to 335p, as well as Ultra Electronics, also rated at 'overweight', saw its price target rise from 2,000p to 2,210p.
Deutsche Bank adjusted its ratings on London-listed life assurers as it took a look at the UK sector, saying the outlook was uncertain on a number of fronts.
The bank said most UK life assurers continue to offer the potential for structural long-term growth with attractive dividend yields, but their share prices are currently wading through a morass of uncertainty.
Arguably the biggest question mark is the outlook for world markets, which have historically been one of the key drivers of the segment, DB said.
Other issues include Solvency II, which it thinks will prove less negative than is perhaps perceived, UK pension reform and 'Bexit' concerns.
Near-term, Deutsche expects these issues to remain a drag on performance - at least relative to European peers - with the potential for some volatility as sentiment swings back and forth.
It downgraded Prudential to 'hold' from 'buy', saying it faced the greatest amount of uncertainty, especially where slowing Asian growth and exposure to US credit markets was concerned.
"These have dominated the share price so far in 2016, but a deeper, more structural issue is that the US (40% of earnings) is also losing momentum - with net inflows set to slow to 3% by 2018."
The bank sees both St James's Place and Standard Life as strongly positioned and said they are likely to show the best underlying growth of the companies it analyses.
However, DB noted that their performances have diverged greatly, with St James's Place outperforming Standard Life by nearly 30% over the last year.
"UK pension reform and nervous equity markets are potential risks for both, but we think the risk is higher on both fronts at SJP - with a greater proportion of higher earners amongst its customers and estimated gearing of 1.2x to equity markets (vs Standard Life at 0.3x-0.4x on our estimates)," it said.
It added that with SJP trading on 22x estimated 2017 earnings versus Standard Life at 12x, the latter offers the better risk-reward.
It upgraded Standard Life to 'buy' from 'hold' and downgraded SJP to 'hold' from 'buy'.
The bank kept its 'buy' rating on both Aviva and Legal & General.
Big Yellow Group's target to double its earnings by 2022 doesn't look overly ambitious given its "outstanding" track record of growth, according to Investec on Monday.
Investec issued an 'add' rating and target of 834p to the self-storage company's stock ahead of its third quarter results on Tuesday.
"We forecast a three-year earnings per share and dividend per share compound annual growth rate of 12.2% driven by further occupancy and rental growth," said Investec analyst Alison Watson.
"Meanwhile the business model's non-reliance on the capital cycle (i.e. yield compression) is particularly attractive at this point in the property cycle."
Investec predicts earnings per share of 30.9p in the full-year 2016, rising to 34.7p in 2016 and 38.4p in 2018, implying 42% growth over three years. | | |
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