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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: FTSE ends lower on prospect of US interest rate hike The FTSE 100 finished on the back foot on Thursday as the Federal Reserve's hawkish policy meeting minutes continued to weigh.
Minutes from the latest Federal Open Market Committee released on Wednesday revealed that an interest-rate hike in June was a possibility, with a number of participants already angling for an increase at the April meeting.
The key phrase in the minutes was that "most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the Committee's 2% objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
"Market pricing still suggests a rate hike in June is unlikely, but the odds have improved significantly following the minutes," said Jasper Lawler, market analyst at CMC Markets.
"The Fed is certainty aware of market expectations and by explicitly referencing June as a 'live meeting' are trying to massage them in the right direction. As is often the case with communications from the Fed, these minutes were an exercise in managing expectations."
Federal Reserve Vice Chairman Stanley Fischer tried to douse the flames, saying that the US requires faster potential economic growth before lifting interest rates.
"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Fischer told an economics conference in New York.
Fellow Fed policymaker William Dudley also spoke in New York but kept schtum on interest rates. Instead he focused on the importance of incoming data on the Fed's policy decisions.
Closer to home, UK retail sales figures came in better than expected. Retail sales jumped 4.2% in April compared to the same month a year ago, beating estimates for a 2.5% rise and following the previous month's 3% year-on-year increase, according to the Office for National Statistics. On a month-on-month comparison, sales in April climbed 1.5%, more than the 0.7% gain that was forecast and compared to March's 0.7% fall.
The month-on-month rebound in retail sales came despite a decline in clothing sales due to unseasonably cold weather deterring shoppers from picking up new season items.
"Clothing stores remain the main drag on growth in the retail sector, with sales hampered by unseasonal weather. However, both the volume and value of sales increased in April compared with March as lower prices boosted sales," said Melanie Richard, head of retail sales at the ONS.
Meanwhile, the Labor Department said the number of Americans filing for unemployment benefits fell a little less than expected last week. US initial jobless claims dropped by 16,000 to a seasonally-adjusted 278,000 from the previous week's unrevised level. Economists had been expecting a slightly bigger decline to 275,000.
Manufacturing conditions in the Philadelphia region unexpectedly deteriorated further in May, according to the latest report from the Federal Reserve Bank of Philadelphia. The diffusion index for current activity fell to -1.8 from -1.6 in April. Economists had been expecting the index to move back into expansion territory with a reading of 3.5.
In the eurozone, an account of the European Central Bank's 20-21 April policy meeting said the central bank needed to assess "the extent to which structural reforms affected developments in inflation, most notably with respect to their short and long-run effects, including possibly persistent disinflationary effects arising from too slow an implementation".
In company news, 3i Group rallied as it reported a 10% dividend increase after delivering a 17% rise in net asset value per share and a total return of 22% in the year to 31 March.
Banking stocks rallied on the prospect of higher US interest rates with Royal Bank of Scotland, Barclays and Standard Chartered in the black. Banks were also lifted by a poll on Wednesday showing the campaign to keep the UK within the European Union has taken an 18 percentage-point lead over the drive for it to leave.
Going the other way, mining stocks were the biggest fallers including Fresnillo, Anglo American and Glencore as metal prices declined.
A slump in oil prices also weighed on producers including Royal Dutch Shell, BHP Billiton and Tullow Oil. Brent crude fell 2.3% to $47.83 per barrel and West Texas Intermediate dropped 2.2% to £47.14 per barrel.
The decline came after the Energy Information Administration on Wednesday said US crude oil inventories rose 1.3m barrels to 541.3m barrels in the week ended 13 May, noting that this was a historical high for this time of the year.
Royal Mail was also under pressure after warning that the market remains challenging as it reported a 1% fall in full year revenue to £9.2bn.
Thomas Cook tanked after the tour operated posted a narrower loss for the first half of the year but said summer bookings were down 5% and underlying earnings for the year are expected to be at the lower end of market views. |
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| Market Movers
FTSE 100 (UKX) 6,053.35 -1.82%
FTSE 250 (MCX) 16,730.11 -0.90%
techMARK (TASX) 3,026.44 -1.30%
FTSE 100 - Risers
3i Group (III) 499.70p 2.50%
Royal Bank of Scotland Group (RBS) 226.80p 1.39%
Berkeley Group Holdings (The) (BKG) 3,092.00p 1.08%
Admiral Group (ADM) 1,879.00p 0.91%
ITV (ITV) 207.30p 0.88%
Taylor Wimpey (TW.) 197.90p 0.71%
Barratt Developments (BDEV) 559.00p 0.54%
RSA Insurance Group (RSA) 480.50p 0.36%
Shire Plc (SHP) 4,112.00p 0.34%
Barclays (BARC) 170.65p 0.15%
FTSE 100 - Fallers
Fresnillo (FRES) 1,063.00p -7.08%
Royal Dutch Shell 'A' (RDSA) 1,648.00p -4.90%
Merlin Entertainments (MERL) 411.90p -4.52%
Royal Dutch Shell 'B' (RDSB) 1,663.50p -4.45%
Anglo American (AAL) 579.30p -4.42%
Royal Mail (RMG) 488.20p -3.90%
Hargreaves Lansdown (HL.) 1,251.00p -3.77%
Glencore (GLEN) 128.10p -3.65%
Bunzl (BNZL) 2,004.00p -3.51%
InterContinental Hotels Group (IHG) 2,525.00p -3.37%
FTSE 250 - Risers
Restaurant Group (RTN) 335.70p 5.53%
Entertainment One Limited (ETO) 174.30p 4.18%
Electrocomponents (ECM) 269.50p 3.65%
OneSavings Bank (OSB) 300.50p 2.84%
Grainger (GRI) 233.10p 2.28%
Daejan Holdings (DJAN) 5,825.00p 1.84%
Virgin Money Holdings (UK) (VM.) 348.70p 1.78%
Ibstock (IBST) 210.60p 1.69%
AO World (AO.) 172.60p 1.53%
SSP Group (SSPG) 314.00p 1.29%
FTSE 250 - Fallers
Thomas Cook Group (TCG) 72.60p -18.88%
Brewin Dolphin Holdings (BRW) 256.50p -7.00%
Tullow Oil (TLW) 243.00p -6.90%
Evraz (EVR) 117.10p -6.39%
Ophir Energy (OPHR) 67.85p -5.96%
Centamin (DI) (CEY) 107.50p -5.78%
Redefine International (RDI) 44.50p -4.36%
Amec Foster Wheeler (AMFW) 446.50p -4.18%
Acacia Mining (ACA) 324.70p -4.08% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Big oil, commodities retreat, banks rise European stocks took a page out of Wall Street's book on Thursday, tracking losses Stateside following the release of more hawkish-than expected minutes of the US central bank's last rate-setting meeting late in the previous session.
Adding to negative investor sentiment perhaps, US New York Federal Reserve president William Dudley said an interest rate hike at the central bank's meeting on 15 June was possibility, although it was not a foregone conclusion.
Shares of oil and basic resource companies came under pressure as crude and commodity prices registered moderate declines, although a broad measure of the US dollar's trade-weighted value was in fact little changed.
Against that backdrop, the benchmark Stoxx Europe 600 index finished down 1.09% or 3.67 points to 333.91, France's CAC 40 was down 0.85% or 36.76 points at 4,282.54 and Germany's DAX surrendered 1.48% or 147.34 points to end the day at 9,795.89.
Front month Brent crude oil futures retreted 1.24% to $48.33 per barrel, alongside a rise of 0.20% in the US dollar spot index.
The DJ Stoxx 600 sub-index for shares of basic resources companies dropped 2.55% or 6.94 points to 265.25, as another gauge for Oil&gas shares lost 2.53% or 6.99 points to 269.11.
Travel&leisure stocks were 1.29% lower for the day following poor first-half numbers of Thomas Cook and the unexplained crash of an EgyptAir flight in the Eastern Mediterranean.
The Stoxx 600 banks sub-index closed 0.33% or 0.33 points up at 100.73.
"The Fed has put the market on notice for June, and for the moment the market doesn't like it," said Chris Beauchamp, senior market analyst at IG.
"The rug has been pulled from underneath European markets, with the news of the EgyptAir tragedy having an impact on airline and travel names. It is important to note that indices on both sides of the Atlantic are, for now, just testing the bottom end of their recent range, so it is not all going the way of the bears just yet, but there is now the very real risk that a poor finish to the week could set off a correction to rival January and February in its intensity."
Minutes from the latest Federal Open Market Committee released on Wednesday revealed that an interest-rate hike in June was a possibility, with a number of participants already angling for a hike at the April meeting.
The key phrase in the minutes was that "most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the Committee's 2% objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June."
Shares in Thomas Cook tanked after the FTSE 250 tour operator said it expects underlying earnings for the year to be at the lower end of market views, and with sentiment towards the sector dented by EgyptAir news.
French oil services firm Technip surged after announcing an all-stock merger with US-based FMC Technologies.
Drug and chemicals group Bayer slumped after making an unsolicited takeover offer for US seed company Monsanto.
Henkel edged higher after posting an increase in first-quarter profit. |
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| | US Market Report | | US open: Stocks fall as hawkish FOMC minutes continue to weigh US stocks declined on Thursday as investors continued to digest the Federal Reserve's hawkish policy meeting minutes.
The Dow Jones Industrial Average dropped 0.82%, the S&P 500 fell 0.80% and the Nasdaq shed 0.87% at 1527 BST.
Minutes from the latest Federal Open Market Committee released on Wednesday revealed that an interest-rate hike in June was a possibility, with a number of participants already angling for an increase at the April meeting.
The key phrase in the minutes was that "most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the Committee's 2% objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June".
"Market pricing still suggests a rate hike in June is unlikely, but the odds have improved significantly following the minutes," said Jasper Lawler, market analyst at CMC Markets.
"The Fed is certainty aware of market expectations and by explicitly referencing June as a 'live meeting' are trying to massage them in the right direction. As is often the case with communications from the Fed, these minutes were an exercise in managing expectations."
Federal Reserve Vice Chairman Stanley Fischer tried to douse the flames, saying that the US requires faster potential economic growth before lifting interest rates.
"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Fischer, the Fed's second-in-command, told an economics conference in New York.
Fellow Fed policymaker William Dudley also spoke in New York but kept schtum on interest rates. Instead he focused on the importance of incoming data on the Fed's economic forecasts.
Meanwhile, oil prices continued to edge lower as the US dollar weakened and government data showed an unexpected increase in US weekly crude inventories.
The Energy Information Administration said US crude oil inventories rose 1.3m barrels to 541.3m barrels in the week ended 13 May, noting that this was a historical high for this time of the year.
West Texas Intermediate crude dropped 2.9% to $46.83 per barrel and Brent fell 3.07% to $47.47 per barrel at 1530 BST.
The dollar fell 0.07% against the pound, dropped 0.04% versus the euro and slipped 0.37% versus the yen.
In economic data, the Labor Department said the number of Americans filing for unemployment benefits fell a little less than expected last week. US initial jobless claims dropped by 16,000 to a seasonally-adjusted 278,000 from the previous week's unrevised level. Economists had been expecting a slightly bigger decline to 275,000.
Manufacturing conditions in the Philadelphia region unexpectedly deteriorated further in May, according to the latest report from the Federal Reserve Bank of Philadelphia. The diffusion index for current activity fell to -1.8 from -1.6 in April. Economists had been expecting the index to move back into expansion territory with a reading of 3.5.
In corporate news, shares in seed giant Monsanto surged after German pharmaceutical group Bayer confirmed it was in takeover talks with the US company.
Wal-Mart jumped after reporting first quarter earnings and revenue that beat analysts' estimates. |
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| | Broker Tips | | Broker tips: Thomas Cook, Shell, Euromoney Credit Suisse slashed its target on shares of Thomas Cook as a result of the toll which geopolitical pressures were taking on the company's bookings.
The Swiss broker said the travel&leisure operator's first half results had been good, further pointing out that further refinancing had been achieved.
However, booking trends - impacted by geopolitical events in both source markets (Brussels) and destinations (Turkey) - had pushed booking trends 5% lower year-on-year.
As a result, the company's guidance for full-year earnings before interest and taxes had come in at between £310m to £335m, excluding a favourable tail-wind from currency translation effects to the tune of £20m (consensus: £343m).
"The c£40m difference principally reflects around £10-15m from weaker Belgian trading post the Brussels airport attack (Belgian 2015 EBIT £18m) and £20-25m from weakness in Condor (the German airline), which is adapting to material schedule changes away from Turkey and broader competitive challenges in a market facing high supply growth."
Credit Suisse also estimated bookings in Turkey had fallen by between 40% to 50%.
Analyst Tom Ramskil cut his target on the stock from 135p to 100p, but kept his recommendation on the shares at 'outperform'.
The analyst lowered his full-year reported EBIT target for the company to £320m.
Ramskil justified his decision regarding the latter on the basis that "key changes in the business remain in evidence" thereby supporting his estimates for Thomas Cook's earnings per share to continue growing at a compound annual growth rate of 23% between 2015 and 2018, albeit adding that "we fully acknowledge EPS risk remains high".
Royal Dutch Shell's latest set of full-year numbers, but cash flow was weak, Charles Stanley analyst Tony Shepard said ahead of the oil major's Capital Markets Day.
The integrated oil company's ability to ring up cash for shareholders was "extremely weak", Shepard said in a research note sent to clients.
That gave the analyst cause for concern given Shell's levels of net debt and gearing were "much higher than anticipated".
Shepard admitted the recovery in the oil price was a relief, which could boost profitability in the second half of 2016.
However, the oil company needed to turnaround its cash flow and get its gearing level below 20%, he added.
With the company's Capital Markets Day on 7 June now nearly at hand, the broker downgraded its recommendation on the stock from 'buy' to 'hold'.
"Although Shell's operational performance is improving, the higher debt suggests that the divestment plan has become more important."
Euromoney Institutional Investor has reported a weak first half but the results were in line with expectations and the company's full year guidance was maintained, Canaccord Genuity said on Thursday.
Canaccord reiterated a 'buy' rating and raised its target to 1,128p from 1,100p, citing signs of progress and a strong net cash position in Euromoney's interims.
Euromoney reported a drop in first half pre-tax profits to £23.4m from £93m, reflecting a slump in advertising revenues and weak energy and commodities markets.
Revenues fell to £194.2m from £197.7m. Underlying advertising fell by 13% and underlying event revenues by 7%.
Adjusted operating profit fell by 7% to £46.8m, with the decline in revenues and margin partially offset by favourable currency movements. The strength of the US dollar had a positive impact on the results with an average sterling-US dollar rate falling to $1.47 (2015: $1.56).
"The challenging market conditions we experienced in the last 12 months continue. Nonetheless, there are early signs of progress from the strategic actions we are taking, the comparatives are becoming less challenging and currency is on our side at the moment," the company said.
"We therefore expect, subject to currency movements, to deliver a second-half performance similar to last year's and a full-year performance in line with the board's expectations."
Canaccord noted that the company's cash flow was better than expected in the first half. Net cash of £56m, before proceeds of recent disposals, compared to a £35m forecasts.
As a result, the broker upgraded its full year net cash forecast to £91.4m from a previous estimate of £67m. Canaccord also retained its pre-tax profit forecast of £100.9m and earnings per share prediction of 62.2p.
"The shares have had a good recent run, up by 10% since the beginning of March, but they still trade on a calendarised 2017 PER of 15.0x and EV/Ebitda of 10.1x, which represents a material discount to the UK professional publishing peer group, despite Euromoney's significantly superior cash position and much higher percentage of revenues coming from high quality subscription products," said Canaccord analyst Simon Davies.
"We also view the business as an attractive Brexit hedge, given its significant exposure to US$ revenues." |
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