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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 higher as investors push aside Brexit worries The FTSE 100 closed higher on Wednesday as investors pushed Brexit worries aside for the time being and sought bargains.
With the government unlikely to trigger Article 50 any time soon, traders saw an opportunity to snap up cheaper stocks following Friday's plunge in the market when Britain voted to leave the European Union.
"We could all understand the selloff seen on Friday and then again at the beginning of this week, but the storming rally on the FTSE 100, which has seen the index rally over 7% from Monday's low, is much harder to explain, other than via the usual combination of short-covering and bargain hunting," said IG senior market analyst Chris Beauchamp.
"The market has certainly been quite sanguine in its assessment of the situation, noting that, technically, nothing has really changed in the UK's relationship with the EU, and that even negotiations about negotiations have yet to start."
Prime Minster David Cameron has said he will not invoke Article 50, which formally starts the process of Britain's exit from the EU, with his successor to decide whether to go ahead with Brexit. The new leader of the Conservatives is expected to be in place by 9 September.
European leaders met for the first time in Brussels without the UK on Wednesday, insisting that Britain would have to allow freedom of movement if it wanted access to the single market.
The pound was up 1.18% against the dollar at $1.35 by 1650 BST.
"The weakness in the pound will be helping considerably given how much of the FTSE's profits are generated outside of the UK," said Craig Erlam, senior market analyst at Oanda. "Unlike the FTSE, the pound has barely recovered and continues to trade near its lows."
On the economic data front, the eurozone's headline economic sentiment measure dropped to 104.4 in June, from 104.6 in May. Analysts had forecast a reading of 104.7.
German consumer sentiment is set to improve next month but uncertainty following the UK's decision to leave the European Union could take its toll, according to data from market research group GfK. Its forward-looking consumer sentiment indicator rose to 10.1 going into July from 9.8, beating expectations for it to remain unchanged.
European Central Bank President Mario Draghi reportedly told EU leaders on Tuesday that Britain's decision to leave the EU could reduce eurozone growth by a cumulative 0.3 to 0.5% compared to previous estimates over the next three years.
In the UK, house prices rose 0.2% in June compared to a month ago, Nationwide said. It marked the same rate of growth as the previous month and was better than the 0% expected by analysts.
In the US, personal income and spending grew as expected in May, pointing to solid growth in household consumption during the second quarter, according to some economists. Personal incomes increased by 0.2% month-on-month in May following a rise of 0.5% in the month before, alongside a 0.4% jump in consumption, according to the Department of Commerce.
Economists had been expecting a rise of 0.3% and 0.4%, respectively.
US pending home sales fell more than expected in May, according to data from the National Association of Realtors (NAR). The NAR's monthly index declined 3.7% to 110.8 from a downwardly-revised 115.0 in April. This was steeper than the 1.1% drop expected by economists, with all four regions experiencing a cutback in contract activity last month.
Meanwhile, oil prices continued to climb as US weekly crude oil inventories fell more than expected and as strikes by Norwegian oil and gas workers loomed.
The Energy Information Administration said US crude inventories fell 4.1m barrels last week to 526.6m barrels. Analysts had pencilled in a 2.4m drop in barrels. However, the EIA said crude oil inventories are at "historically high levels for this time of year".
Brent crude jumped 2.5% to $49.83 per barrel and West Texas Intermediate increased 2.5% to $49.09 per barrel.
On the company front, Dixons Carphone shares dropped as it reported full year revenue that missed analysts' expectations.
Travel and leisure stocks declined, including TUI, IAG and easyJet, after a gun and bomb attack on Istanbul's Ataturk international airport killed 36 people.
McCarthy & Stone slumped as the retirement homebuilder said the UK's exit from the EU may have an impact on the timing and cost of the conversion of its order book of reservations into completions.
Shawbrook Group jumped as Credit Suisse maintained 'outperform' rating but cut its target to 235p from 380p. "We acknowledge the macro risks from Brexit (which we now reflect in estimates),and are disappointed by yesterday's announcement about past "irregularities" in asset finance lending, but believe underwriting is fundamentally robust and that current depressed valuations are overdone," said Credit Suisse.
Prudential rallied after Barclays reiterated an 'overweight' rating and target of 1609p on the stock, saying the company is its "top pick among European insurers".
Former head of the civil service Lord Turnbull, who served as a non-executive director at Prudential for almost a decade, said on Tuesday that British-based insurers may be better off outside the EU because capital rules have damaged competitiveness and constrained the sector's ability to expand. His remarks also gave peers Aviva and Legal & General a boost.
Housebuilders were sitting higher after Nationwide's better-than-expected data with Persimmon, Taylor Wimpey and Barratt Developments in the black.
Lloyds Banking Group shares fell as the company said it is to cut about 640 jobs and close 23 branches as part of its programme to cut costs and restructure the bank.
Mining stocks, including Fresnillo, Antofagasta and Anglo American, gained as metal prices rose. |
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| Market Movers
FTSE 100 (UKX) 6,360.06 3.58%
FTSE 250 (MCX) 16,002.90 3.22%
techMARK (TASX) 3,146.30 3.11%
FTSE 100 - Risers
Fresnillo (FRES) 1,584.00p 9.32%
Taylor Wimpey (TW.) 132.90p 8.93%
Anglo American (AAL) 696.90p 8.06%
Persimmon (PSN) 1,444.00p 7.44%
Berkeley Group Holdings (The) (BKG) 2,550.00p 7.37%
Aviva (AV.) 391.60p 6.99%
ITV (ITV) 177.00p 6.63%
Barratt Developments (BDEV) 405.80p 6.51%
Antofagasta (ANTO) 442.00p 6.45%
Tesco (TSCO) 170.70p 6.39%
FTSE 100 - Fallers
TUI AG Reg Shs (DI) (TUI) 845.50p -3.70%
Dixons Carphone (DC.) 336.00p -1.75%
Paddy Power Betfair (PPB) 7,935.00p -0.69%
Johnson Matthey (JMAT) 2,795.00p 0.25%
International Consolidated Airlines Group SA (CDI) (IAG) 359.30p 0.59%
SABMiller (SAB) 4,340.00p 0.70%
Lloyds Banking Group (LLOY) 55.39p 0.80%
Provident Financial (PFG) 2,310.00p 1.01%
Rexam (REX) 645.00p 1.02%
Hikma Pharmaceuticals (HIK) 2,413.00p 1.13%
FTSE 250 - Risers
Shawbrook Group (SHAW) 170.10p 21.50%
Countryside Properties (CSP) 217.20p 14.92%
Ted Baker (TED) 2,515.00p 14.79%
Allied Minds (ALM) 374.50p 13.45%
OneSavings Bank (OSB) 196.70p 9.40%
Euromoney Institutional Investor (ERM) 931.50p 9.27%
International Personal Finance (IPF) 274.90p 9.09%
Weir Group (WEIR) 1,400.00p 9.03%
BBA Aviation (BBA) 221.00p 8.76%
Virgin Money Holdings (UK) (VM.) 241.90p 8.48%
FTSE 250 - Fallers
Electrocomponents (ECM) 255.30p -2.26%
Brown (N.) Group (BWNG) 181.40p -2.00%
Bodycote (BOY) 510.50p -1.83%
Ocado Group (OCDO) 222.00p -1.77%
Carillion (CLLN) 236.10p -1.63%
QinetiQ Group (QQ.) 219.90p -1.43%
DFS Furniture (DFS) 210.00p -1.41%
McCarthy & Stone (MCS) 165.90p -0.84%
Fidessa Group (FDSA) 1,939.00p -0.82% |
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| | US Market Report | | US open: Stocks gain as Brexit shock eases US stocks gained on Wednesday as the initial panic of Brexit eased and investors sought bargains.
At 1530 BST the Dow Jones Industrial Average rose 0.99%, the S&P 500 increased 1.15% and the Nasdaq climbed 1.16%.
At the same time oil prices continued to climb as US weekly crude oil inventories fell more than expected and as strikes by Norwegian oil and gas workers loomed.
The Energy Information Administration said US crude inventories fell 4.1m barrels last week to 526.6m barrels. Analysts had pencilled in a 2.4m drop in barrels. However, the EIA said crude oil inventories are at "historically high levels for this time of year".
West Texas Intermediate crude rose 1.44% to $48.55 per barrel and Brent increased 1.16% to $49.15 per barrel at 1540 BST.
Meanwhile, US personal income and spending grew as expected in May, pointing to solid growth in household consumption during the second quarter, according to some economists. Personal incomes increased by 0.2% month-on-month in May following a rise of 0.5% in the month before, alongside a 0.4% jump in consumption, according to the Department of Commerce.
Economists had been expecting a rise of 0.3% and 0.4%, respectively.
"The good news is that an upward revision to April, coupled with the downward revisions to Q1 - bringing the monthly data into line with the quarterly numbers released yesterday - means Q2 consumption will now rise at a hefty 4.2% annualised rate even if spending is unchanged in June. With a modest 0.2% gain, consumption will be up 4.5%, contributing 3.2% to headline GDP growth. Expect all the tracking models to be revised higher," said Ian Sheperdson, chief US economist at Pantheon Macroeconomics.
US pending home sales fell more than expected in May, according to data from the National Association of Realtors (NAR). The NAR's monthly index declined 3.7% to 110.8 from a downwardly-revised 115.0 in April. This was steeper than the 1.1% drop expected by economists, with all four regions experiencing a cutback in contract activity last month.
US mortgage applications fell 2.6% in the week to 24 June compared to a 2.9% increase a week earlier, according to the Mortgage Bankers' Association.
In company news, Nike was under the cosh after reporting a 2% drop in quarterly profit late on Tuesday.
Elsewhere, Monsanto shares climbed as EU antitrust regulators indicated they could open a review of its deal with Bayer.
PrivateBanCorp's jumped after Canadian Imperial Bank of Commerce agreed to buy the company for about $3.8bn. |
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| | Broker Tips | | Broker tips: Ocado, Prudential, Shawbrook Shares in Ocado gave up much of Tuesday's gains as further downgrades were made to forecasts for the current year by Barclays and Exane BNP Paribas.
Following an analysts meeting on the day when the online grocery facilitator's mixed interim results generated a positive share price reaction, Barclays said this bounce may have been more of a rebound after selling stemming from the Brexit result rather than any particularly positive news in the statement itself.
Indeed, the bank felt Ocado delivered no "real" new news on the long-awaited international deals and no update on the 'in principle' agreement with Morrison over CFC4 (Customer Fulfilment Centre 4 at Erith in Kent).
EBITDA was around 10% below Barclays' forecast and added to cost pressures, this sparked slashing cuts to earnings per share in for this and the next two years and bringing the target down to 265p from 290p.
While the company was more specific about the opening schedule for CFC3, which is now set for autumn 2016, Barclays said Ocado's ability to sign a technology deal with an international partner "remains the main unknown".
"Fundamentally, we think Ocado has a technology proposition that works well for customers and that could be very attractive to numerous food retailers. Whether there is a price that makes economic sense for Ocado and for a potential partner is unclear although it might make sense for Ocado to price its offer very keenly to get a credible initial partner on board," Barclays said.
Barclays said it had "only limited concern" about Amazon's growing grocery presence in the UK and maintained its 'equal weight' rating on Ocado's shares.
Exane's analysts, reiterating their 'neutral' rating, also are "not especially worried by Amazon Fresh" in the near-term.
They believe Ocado has "strategic value" as the grocery market moves online but faces tough competition conditions in the UK that is pressuring profit margins, and an major new deal is being hampered as "it seems international grocers first want to explore store-picked solutions" rather than Ocado's Smart Platform logistics-platform-as-a-service.
Exane's take is that: "the issue is that retailers would rather sweat existing assets, for now. As such, it seems Ocado would countenance signing 'store-pick only' international deals, on the basis retailers will upgrade to dedicated picking facilities in time. CFC3 may change retailers' minds, but the central scenario now much more feels like international deals - and we're still awaiting the first - will be skewed to store-picked solutions."
Exane trimmed its 2016 EPS sharply to 2.17p on the delays to CFC3 and said the continued absence of a deal and the likely shift, if only temporarily, to a lower 'valueadd' store-pick model, impairs international optionality. This means the target was cut 14% to 215p.
These notes followed Societe Generale's 'sell' recommendation on Tuesday, with the French bank seeing "no reason to feel more reassured" as it still perceives a challenging market and margin trend.
SocGen expected consensus EPS could come down by at least 5% and believes AmazonFresh in the UK could expand rapidly on the back of a compelling fresh food offer and competitive pricing, which "could prove a real threat to Ocado".
Barclays reiterated an 'overweight' rating and target of 1609p on Prudential, saying the insurer is a "strong high quality business and the double digit growth story is intact".
The bank said European insurance stocks have fallen extensively but believes the recent selloff in Prudential is an opportunity to buy the "best in class insurer at an attractive valuation".
"We view Prudential as the one true large-cap growth stock in European insurance, and the compound growth of its earnings is the tangible evidence," Barclays said.
"Prudential is our Top Pick among European insurers."
Barclays added that Prudential has grown operating earnings at 13% since 2004 compared to 4% at Aviva and 8% at Legal & General.
The bank noted that Prudential's dividend increases have been "less eye-catching" than its peers but are set at a conservative level which won't be cut in stress environments.
"Prudential has grown its dividend every year since 2004, while Aviva has cut twice and Legal once. Pru's dividend has increased by 3.7x verus 2004, versus 1.5x at Aviva and 2.4x at Legal. The tortoise wins, particularly in uncertain times."
Shawbrook shares surged back 23% higher on Wednesday morning, helped by comments from Credit Suisse that the reaction to the UK's vote to leave the European Union which had seen the challenger bank lose over half of its value in the three days was "overdone".
Britain's exit from the EU has been predicted to hit banks with a lower-for-longer rate environment that will hit margins, as well as the potential for reduced growth, higher impairments and lower house prices.
On top of the implications from Britain's exit from the EU, Shawbrook on Tuesday revealed it hadfound irregularities in asset finance lending and announced that its chief financial officer had resigned after four years in the role.
Credit Suisse said it believed it was an isolated case, "rather than signalling a potentially broader weakness in historical underwriting standards which could lead to further such losses in future", as Shawbrook's local asset finance sales teams had previosuly but not longer were allowed to originate loans up to £300,000 without approval from a separate credit team.
Regarding Brexit, it has been predicted that banks large and small will be hit by the lower-for-longer interest rate environment, as well as the potential for reduced growth, higher impairments and lower house prices.
After the referendum fallout and Tuesday's news, Credit Suisse acknowledged the macroeconomic risks from Brexit by cutting its estimates for customer loan compound annual growth rate for 2015-20 by five percentage points, net interest margins (NIMs) estimates by a further 30 basis points to 5.12%
from 2018, and underlying earnings cuts of cira 9%, 30% and 38% for 2016, 201 and 2018.
However Credit Suisse's new target of 235p, down from 380p, still offers strong upside. |
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