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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 gains as Carney says interest rate cut likely after Brexit The FTSE 100 ended higher on Thursday as Boris Johnson bowed out of the race for Prime Minister and the Bank of England governor said an interest rate cut was likely after Brexit.
Johnson, the former London mayor, announced his decision not to run for Prime Minister in a speech on Thursday after Justice Secretary Michael Gove made a surprise late bid for the contest to succeed David Cameron.
Home Secretary Theresa May also threw her hat into the ring in what is now expected to be a very bloody contest, with bookmaker Ladbrokes making her the 4/7 favourite over Gove at 11/4 after Johnson's withdrawal.
"Her position as a reluctant 'remainer' may not go down well with the more ardent Brexiteers but her scepticism could well be enough to see her as an acceptable choice to the other candidates, and certainly her reputation as a safe pair of hands appears to have been received fairly well by the markets," said Michael Hewson, chief market analyst at CMC Markets.
"While the FTSE 100 looks set to finish the month and the quarter higher, and its highest levels this year, this can be largely put down to a weaker pound, as well as the rebound in commodity prices."
Nominations closed at midday. The contest was sparked by Cameron's resignation after 52% of voters decided to leave the EU last Friday. The new prime minister is expected to take over on 9 September.
Late in the session, Bank of England governor Mark Carney said the central bank is likely to slash interest rates over coming months to cushion the blow from Brexit.
Interest rates have been at 0.5% for more than seven years after being cut during the UK's downturn and financial crisis. "The committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August we will also discuss further the range of instruments at our disposal," Carney said in a speech.
The pound plunged 1.25% against the dollar to $1.3262 after Carney's speech.
In economic data, the final release of first-quarter UK gross domestic product from the Office for National Statistics confirmed growth at 0.4%, in line with expectations.
Growth on the year was confirmed at 2%, also in line with expectations.
Dennis de Jong, managing director of UFX.com, said: "Despite Brexit fears looming over the UK economy throughout June, GDP figures for the month look pretty solid. Now that the UK has voted to leave the European Union, however, uncertainty is rife and Q2's figures will go further in gauging the health of the economy."
The ONS also released data on the UK's current account which came in at £32.6bn in the three months to March, down slightly from the upwardly revised £33.96bn in the fourth quarter. Economists had expected a deficit of £28bn.
UK consumer confidence remained in negative territory in June, GfK said, with the index unchanged at -1. Analysts expected a reading of -2. Confidence was hit by concerns that economic growth could be affected following a Brexit vote.
In the eurozone, the consumer price index rose 0.1% year-on-year as energy prices improved, beating estimates of 0% and marking an improvement on the -0.1% fall the previous month. However, it remains well below the European Central Bank's inflation target of just below 2%.
In the US, initial jobless claims were up by 10,000 to 268,000 last week from the previous week's downwardly-revised 258,000, the Labor Department said. Economists had expected claims to push up to 267,000.
A measure of Chicago-area economic activity jumped in June. MNI Indicators said the Chicago purchasing managers' index rose to 56.8 from 49.3, beating expectations for a reading of 51.0. A level above 50 signals expansion while a reading below that suggests a contraction.
On the corporate front, private equity firm 3i jumped after saying it had no plans to dispose of its investment in Dutch discount retailer Action despite a number of approaches.
Heavily-weighted miners also racked up healthy gains as metals prices advanced, with Antofagasta, Anglo American, Randgold Resources and Glencore all sharply higher.
Shire was on the front foot. Although a drug being tested by the company failed to a treat a form of infant blindness as hope, it instead demonstrated positive effects on severe complications related to lung and brain damage.
Banks and housebuilders were under the cosh again amid worries about Brexit. Builders' merchant Travis Perkins was also in the red after Berenberg downgraded the stock to 'hold' from 'buy' and slashed the price target to 1,540p from 2,300p pointing to effect of Brexit uncertainty on the housing market. |
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| Market Movers
FTSE 100 (UKX) 6,478.31 1.86%
FTSE 250 (MCX) 16,245.11 1.51%
techMARK (TASX) 3,188.27 1.33%
FTSE 100 - Risers
3i Group (III) 544.50p 7.93%
SSE (SSE) 1,554.00p 5.57%
Informa (INF) 728.50p 5.27%
Antofagasta (ANTO) 465.60p 5.10%
Intu Properties (INTU) 290.10p 5.07%
Schroders (SDR) 2,356.00p 4.53%
Randgold Resources Ltd. (RRS) 8,410.00p 4.28%
RSA Insurance Group (RSA) 496.20p 4.24%
Centrica (CNA) 225.50p 4.21%
Imperial Brands (IMB) 4,068.50p 4.11%
FTSE 100 - Fallers
Royal Bank of Scotland Group (RBS) 171.60p -4.77%
Dixons Carphone (DC.) 320.00p -4.59%
Lloyds Banking Group (LLOY) 54.06p -2.63%
Whitbread (WTB) 3,492.00p -2.10%
Travis Perkins (TPK) 1,468.00p -1.94%
Babcock International Group (BAB) 904.50p -1.42%
Royal Mail (RMG) 501.00p -1.18%
Kingfisher (KGF) 322.20p -1.17%
Sky (SKY) 843.50p -1.11%
Berkeley Group Holdings (The) (BKG) 2,523.00p -1.06%
FTSE 250 - Risers
Softcat (SCT) 332.00p 10.67%
esure Group (ESUR) 286.20p 9.87%
Safestore Holdings (SAFE) 362.40p 8.28%
Amec Foster Wheeler (AMFW) 490.00p 7.62%
Sophos Group (SOPH) 209.90p 6.44%
Wizz Air Holdings (WIZZ) 1,605.00p 6.29%
OneSavings Bank (OSB) 209.10p 5.98%
Ashmore Group (ASHM) 296.00p 5.87%
CLS Holdings (CLI) 1,399.00p 5.58%
Hill & Smith Holdings (HILS) 886.00p 5.54%
FTSE 250 - Fallers
PayPoint (PAY) 903.00p -6.81%
Aldermore Group (ALD) 113.00p -6.61%
Ibstock (IBST) 130.00p -6.27%
Brown (N.) Group (BWNG) 174.60p -3.75%
Pendragon (PDG) 27.82p -3.67%
AO World (AO.) 140.00p -3.45%
Paragon Group Of Companies (PAG) 241.70p -3.32%
Mitchells & Butlers (MAB) 231.60p -3.30%
Zoopla Property Group (WI) (ZPLA) 259.60p -3.06% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks gain ground despite uncertainty European stocks reversed opening losses to trade higher in choppy markets, with investors continuing to mull over the impact of Brexit as it emerged who would be running for Prime Minister in the UK and the Bank of England dropped a heavy hint that it might ease policy further over the summer.
The benchmark Stoxx Europe 600 index jumped 1.04% and Germany's DAX was up 0.71%, while France's CAC 40 was 1.0% firmer.
Stocks in London also reversed course, with the FTSE 100 closing 1.57% higher as Justice Secretary Michael Gove and Home Secretary Theresa May announced that they would run for Prime Minister. However, former London mayor Boris Johnson said he would not be running.
The more domestically-focused FTSE 250 index was up 1.68%.
In a speech delivered on Thursday afternoon BoE Governor Mark Carney said Brexit constituted a major "regime change" but that the UK would recover.
The BoE would not hesitate to meet its responsibilities although uncertainty would remain high, he added.
In oil markets, West Texas Intermediate was down 2.32% at $48.75 a barrel and Brent crude was down 1.88% to $49.68.
In currency markets, the pound retreated 1.2% against the dollar to $1.3268.
On the corporate front, Deutsche Bank and Banco Santander were under the cosh after the Federal Reserve said late on Wednesday that they had failed US stress tests.
SABMiller traded a little lower but Anheuser-Busch InBev rallied after the Competition Tribunal of South Africa approved their combination with conditions. Meanwhile, AB InBev was to be investigated by the European Commission over whether it abused its dominant position in the Belgian beer market by hindering imports of its beer from neighbouring countries, in breach of EU antitrust rules.
Elsewhere, Legal & General nudged lower after saying it made £4bn of sales across bulk annuities, individual annuities and lifetime mortgages in the first half of the year.
Private equity firm 3i gained as it said it had no plans to dispose of its investment in Dutch discount retailer Action despite a number of approaches.
Data out earlier from Destatis showed German retail sales rose more than expected in May.
Retail sales were up 0.9% on the month versus expectations of a 0.7% increase and a 0.3% decline in April.
On the year, retail sales pushed up 2.6%, which was below economists' expectations of a 3% rise and down from an upwardly revised 2.7% gain in April.
Other data showed German unemployment fell more than expected in June while the unemployment rate held steady at its lowest level since German reunification in June. The unemployment rate came in at 6.1% in June, in line with economists' expectations. |
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| | US Market Report | | US open: Stocks rise as sentiment recovers after Brexit US stocks rose on Thursday as investor sentiment continued to recover following last week's European Union referendum.
At 1548 BST the Dow Jones Industrial Average increased 0.39%, the S&P 500 climbed 0.35% and the Nasdaq edged up 0.26%.
Oil prices fell, however, as worries about the global supply glut resumed on higher Nigerian output and concerns about Brexit. West Texas Intermediate dropped 2.1% to $48.81 per barrel and Brent crude dipped 1.6% to $49.77 per barrel at 1551 BST.
In the latest Brexit developments, former London mayor Boris Johnson said he would not run for prime minister, paving the way for contenders Theresa May, Michael Gove and Liam Fox. The new leader will be in place by 9 September when they decided whether to invoke Article 50, which begins the formal process of Britain's exit from the EU.
"The lack of progress since last week's vote is probably partially what has stabilised the markets for now but the longer this persists, the more uncertain the future is going to look," said Craig Erlam, senior market analyst at Oanda.
"Until article 50 is triggered, there remains a chance, albeit small, that new negotiations and even another referendum could take place."
In currency markets, the pound was trading up 0.03% at $1.3433. RBC Capital Markets said the shock to global risk appetite from last Friday's UK vote has faded very quickly.
On the economic data front, US initial jobless claims were up by 10,000 to 268,000 last week from the previous week's downwardly-revised 258,000, the Labor Department said. Economists had expected claims to push up to 267,000.
A measure of Chicago-area economic activity jumped in June. MNI Indicators said the Chicago purchasing managers' index rose to 56.8 from 49.3, beating expectations for a reading of 51.0. A level above 50 signals expansion while a reading below that suggests a contraction.
On the corporate front, Darden Restaurants declined after reported fourth quarter sales that missed expectations.
Pier 1 Imports slumped after announcing late on Wednesday that it had swung to a loss in the first quarter.
ConAgra Foods slid after posting fourth quarter revenues that trailed analysts' estimates. |
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| | Broker Tips | | Broker tips: Centrica, Travis Perkins, Reckitt Benckiser Centrica's 'outperform' rating was left unchanged by RBC Capital Markets on Thursday but the British Gas owner's target was cut to 250p from 280p.
RBC said it advocates Centrica's strategy, announced last July, to put customers at the centre of growth ambitions and to scale back exploration and production (E&P) exposure.
The broker said a 33% increase in oil prices over the past three months will drive improved economics in E&P and generation for Centrica, pushing earnings before interest and tax 10-20% higher than previously.
"Now that commodity prices have started to bounce and Centrica's new growth strategy is taking shape with recent acquisitions, we reiterate our 'outperform' recommendation with a new price target of 250p pre share (down from 280), reflecting the recent equity raise."
The company's raised £700m in May, which was a surprise that was poorly received by the market, RBC noted.
"While we understand strategic growth acquisitions may be difficult to pass up, we believe credit metrics were really driving the equity raise. And it worked."
RBC added that Centrica "screens well" against integrated peers, trading on an estimated 2017 price to earnings ratio of 11.5x, a 5-10% discount. The group also has a dividend yield of 5.7% in 2016, which RBC said it believes will grow in line with operating cash flows at 3-5% out to 2020.
Berenberg downgraded builders' merchant and home improvement retailer Travis Perkins to 'hold' from 'buy' and slashed the price target to 1,540p from 2,300p pointing to effect of Brexit uncertainty on the housing market.
"While we still believe that Travis has a sound long-term strategy, we are unable to maintain our Buy rating in light of the risks to UK construction activity resulting from the Brexit vote," the bank said.
It does not expect to see a scenario similar to 2008-2009 but reckoned a moderate contraction in activity was likely, meaning the group will be unable to achieve its mid-term growth ambitions.
"We believe that the recovery in residential construction output that started in late 2009 is likely to be at an end after the vote by the UK to leave the EU," said Berenberg, pointing out the market was already slowing ahead of the referendum.
Its base case is for a 10% drop in housing starts in 2017 and a 5% contraction in residential renovation.
Berenberg argued that a decline in consumer confidence and house prices could dent home improvement spending, which, unlike in 2009 onwards, does not have the cushion of a steep reduction in mortgage rates to support discretionary spending power.
The bank cut its earnings per share estimates for 2017 and 2018 by around 31% and advised investors to wait for potential political clarity in the autumn, by which time negotiations for the UK's exit from the EU might have kicked off.
Analysts at JP Morgan downgraded their recommendation on shares of Reckitt Benckiser, arguing that the boycott on its goods in South Korea would weigh on the group´s rate of growth in like-for-like sales.
To take note of, the broker shifted its stance following a strong run in the stock price over the intervening ten months, during which time the company´s shares widened their premium versus its global peers.
Indeed, the team of analysts led by Celine Pannuti said it still believed in the consumer goods giant´s "strong business fundamentals".
In particular, the analysts noted the 360 basis point step-up in the company´s margins since 2013.
Nevertheless, underlying momentum was expected to take a hit, with growth in like-for-likes slowing to 4.0%, limiting earnings upside.
"Barring any M&A, a further relative re-rating to the peer group may be difficult to achieve. We downgrade to Neutral [from 'overweight'] and move to the sideline for a better entry point," they said. | | |
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