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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: Real estate stocks jump as political uncertainty recedes London stocks clocked in with sharp gains at the start of the week after news broke that Theresa May would become Britain´s next prime minister and on expectations for further monetary policy easing by the Bank of Japan and Bank of England.
Theresa May would become Britain's next prime minister after David Cameron said he would resign on Wednesday and her main rival for the job quit the Conservative leadership race in yet another tumultuous day in Westminster.
That served to light a fire under real estate stocks, which saw the Footsie end the session with a gain of 92.22 points or 1.44% to 6,682.86, but the advance was dwarfed by the 528.64 point or 3.27% rise in the second-tier, and more domestically oriented, FTSE 250.
Overnight, Asian stocks finished the session with strong gains, as some market commentary referenced reports that ex-US central bank chief Ben Bernanke had met with Bank of Japan governor Haruhiko Kuroda as the reason behind speculation that the BoJ might be set to step-up its policy easing, perhaps even quite substantially.
To take note of as well, Wall Street finished on the front foot last Friday, with the S&P closing near record highs, following a strong non-farm payrolls report for the month of June, which helped to alleviate some of the doubts lingering over the outlook for the USA.
The possibility of further stimulus stoked buying interest in the mining giants, including Anglo American, Glencore, Antofagasta and BHP Billiton.
As if 17:07 BST the September COMEX-traded copper futures contract was tacking on 1.42% to $2.1490/lb..
Monday was a quiet day for macroeconomic data, with no major releases published.
The UK was also just days away from the next Bank of England policy meeting, with investors almost certain a rate cut would be announced on Thursday, as the Monetary Policy Committee looked to reduce the shock of the EU referendum decision on the UK economy.
Nevertheless, Governor Mark Carney had made his dislike of negative interest rates clear and had also indicated that the July and August MPC meetings should be considered together as a package that would likely deliver stimulus.
Some observers felt the only option is a shock cut from the current 0.5% base rate all the way down to zero, followed by quantitative easing in August, though odds are pointing to a 25 basis points cut and a revival of asset purchases as the likely option.
"A plunge in consumer confidence and evidence of markedly reduced business sentiment since the Brexit vote has enhanced the case for interest rates to be cut from 0.50% to 0.25% as soon as Thursday. To us, there seems little reason to wait on an interest rate cut front," said economist Howard Archer at IHS Global Insight, suspecting a revival of quantitative easing and end up extending its Funding for Lending Scheme in August.
Engine-maker Rolls scoops-up Spain´s ITP
In company news, Rolls-Royce has agreed to pay €720m to complete the full takeover of Spanish aero engine component manufacturer Industria de Turbo Propulsores (ITP). The FTSE 100 company, which currently owns a large minority stake in the profitable Bilbao-based business, will purchase the outstanding 53.1% shareholding in ITP from SENER Grupo de Ingeniería in eight installments over a two-year period.
RPC Group was one of the early leaders of the FTSE 250 as it unveiled a positive update on its first quarter trading - a quarter in which it continued integrating the acquisition of GCS and made an offer for BPI. The plastic products design and engineering companysaid revenues in the three months to 30 June were significantly higher than the same period last year, due to underlying growth and the contribution of acquisitions. Adjusted operating profit at constant currencies was also significantly ahead of both 2015, and management expectations.
CLS Holdings said it has exchanged contracts to buy two properties, one in Düsseldorf and one in Hamburg, for a total of €49.5m. The Düsseldorf property is to be bought for €43.6m including costs, and generates net rental income of €3.1m, reflecting a net initial yield of 7.1%. The property benefits from a high occupancy rate and presents significant scope for future rental uplifts and other asset management opportunities, CLS said. |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks rally on Japan stimulus hopes European stocks rallied on Monday on hopes of further monetary easing in Japan following the elections over the weekend.
At the close the Germany's DAX rose 2.12%, France's CAC 40 increased 1.76%, Italy's FTSE MIB gained 1.21% and Spain's IBEX 35 climbed 1.46%.
Japan Prime Minister Shinzo Abe declared victory at Sunday's elections, sending Asian equities higher. Abe said he would push ahead with Abenomics, his programme of economic reforms.
"European markets have continued where they left off on Friday boosted by speculation of further stimulus from the Bank of Japan after a victory by Japanese Prime Minister Shinzo Abe in Japanese Upper House elections at the weekend, raised expectations that an improved mandate will prompt the Japanese government to finally implement the long awaited third arrow of Abenomics.
In the UK, David Cameron announced he was stepping down on Wednesday, paving the way for Theresa May to become Prime Minister. Cameron had intended to resign as leader of the Conservative Party in September but decided to quit sooner after Andrea Leadsom bowed out of the race. The pound rose 0.32% against the dollar at $1.2996 and increased 0.48% to the euro at €1.1776 as the announcement removed the political uncertainty hanging over the Conservatives.
"We are not going to have a prolonged leadership election campaign," he said in a statement. "I think Andrea Leadsom made absolutely the right decision to stand aside. It is clear Theresa May has the overwhelming support of the Conservative parliamentary party."
Elsewhere, a better-than-expected US non-farm payrolls report on Friday continued to give the US market at boost. Many analysts said, however, that the strong jobs report is unlikely to persuade the Federal Reserve to raise interest rates any time soon in the wake of the UK's Brexit vote and low inflation.
Meanwhile, oil prices fell as data on Friday from industry group Baker Hughes showed the number rigs looking for oil in the US rose by 10 to a total of 351, adding to concerns about the global supply glut.
Brent crude declined 0.49% to $46.53 per barrel and West Texas Intermediate dropped 0.55% to $45.16 per barrel at 1634 BST.
On the company front, ThyssenKrupp gained after the German steelmaker confirmed it was in talks with Tata Steel over sector consolidation.
Shares in Italian bank Monte Paschi advanced following reports that bank rescue fund Atlante will soon take on bad loans from Monte Paschi.
Software provider Cerillion jumped after saying it secured a contract worth an initial £2.1m from a telecommunications company.
LafargeHolcim Ltd. climbed after agreeing to sell an Indian building-materials business to Nirma Ltd. for an enterprise value of about $1.4bn. |
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| | US Market Report | | US open: Markets start higher as nonfarms reading lingers US stocks opened at some of their best levels of the year on Monday, as the markets kicked off the new earnings season and investors continued to react to a surprisingly strong non-farm payrolls report last week.
The Dow Jones Industrial Average rose 0.34% to 18,208.51, while the S&P 500 index increased 0.33% to 2,137.02 and the Nasdaq 100 climbed 0.48% to 4,549.94.
"Equity markets continue to ride north helped by a US jobs report seen to quell fears about a US economic downturn and jobs market weakness, without fuelling fears about a Fed rate hike waiting in the wings," said Accendo Markets head of research Mike van Dulken.
US equities advanced on Friday after the nonfarm payrolls showed employers added 287,000 jobs in June, smashing forecasts for a 170,000 gain.
Many analysts said, however, that the strong jobs report is unlikely to persuade the Federal Reserve to raise interest rates any time soon in the wake of the UK's Brexit vote and low inflation.
Fed officials may offer clues on the direction of central bank policy on Monday with Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester due to speak later.
Elsewhere, Asian markets rallied after Japan Prime Minister Shinzo Abe declared victory in Sunday's election, saying he would push ahead with Abenomics - his economic reform programme.
The news fuelled speculation that Abe would introduce further stimulus measures to revive the flagging Japanese economy.
Oil prices were rising in early US trading, with Brent crude last up 0.49% at $46.99 per barrel and West Texas Intermediate adding 0.55% to $45.66.
On the company front, the earnings season kicked off with aluminium heavyweight Alcoa Inc. releasing its second-quarter results after the closing bell.
Analysts are anticipating a slight rise in revenue and earnings over the previous quarter, but are looking at another year-on-year decline for the company.
Cintas Corp. is also due to report its earnings after markets close. |
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| | Broker Tips | | Broker tips: Moneysupermarket, McBride, Rentokil Moneysupermarket.com Group was upgraded to a 'buy' rating from 'hold' but had its target cut to 325p from 352p on Monday by Canaccord Genuity ahead of the company's trading update later in the week.
Canaccord said it expects the financial services price comparison website to confirm it is on track to reach full year 2016 forecasts in Thursday's trading update.
The broker estimates a 7% increase in first half group revenue, driven by strong momentum in Money and Home Service. Margins, however, are likely to be held back by the previously-flagged step up in marketing spend, Canaccord said.
The Travel section, which represents 8% of group revenue, is expected to be lacklustre due to the impact from a weaker pound and softening consumer spending.
While the company's shares have fallen 18% since Britain voted to leave the European Union on 23 June, Canaccord believes price comparison platforms "should be relatively recession resistant" as customers will want to use the website to save money in a downturn.
"It has some exposure to supply of credit products (around 18% of group revenues), which might be impacted by a recession," said Canaccord's Simon Davies.
"But much of this relates to balance transfers, and demand should remain resilient, as should insurance activity."
He added: "Moneysupermarket has been significantly de-rated, and now trades on a 2017 price to earnings (PER) ratio of 15.6x (or 15.0x ex-cash) and enterprise value (EV)/EBITDA of 10.3x, backed by a dividend yield of 4.0% - and with £78m of projected 2017year end net cash, the risk to the dividend is upward (through a potential special divident).
"We nudge down our target to reflect downgrades/relative valuations, cutting from 352p to 325p. But this offers potential 32% upside, putting the shares on a 20.0x ex-cash PER, EV/ EBITDA of 13.5x (vs UK digital media peers in 14x to 18x range) and yield of 3.0%."
McBride's shares rose on Monday after Numis raised its rating on the stock to 'buy' from 'hold' and lifted its target to 191p from 183p.
The maker of retailer own brand household and personal care goods said in a trading update on Monday that it expects full year adjusted operating profit will be slightly ahead of its previous estimate.
The group said it has benefitted from cost saving initiatives, including the restructuring of the UK business.
However, the company sees full year sales lower by about £6m as a result of its decision to cut back on the number of small customers it serves.
McBride said revenues also continued to be affected by ongoing price pressures in a number of key markets, especially in the UK where the pound has plunged.
"Consequently, on a constant currency basis, group revenues for the year ended 30 June 2016 were 1.9% lower than the prior year," it said in a statement.
McBride added that there has been no impact to date on the group's day-to-day operations from the outcome of the UK's EU referendum on 24 June. The firm said it "remains too early to determine the longer-term effects on McBride's activities, of which approximately 70% are in subsidiaries based outside the UK".
The company said its 'Manufacturing our Future' strategy, through the three-stage 'Repair, Prepare, Grow' implementation plan was on track.
Numis said the update was "solid with the radical simplification programme on track, epitomised by how McBride commenced this full year with only 150 (versus 600) customers".
Things were still looking up for Rentokil despite the strong run which the shares had enjoyed year-to-date, which had seen them outperform the Footsie by 23%, analysts at RBC said.
Following recent movements in foreign exchange markets and acquistions by the company the broker bumped up its estimates for the company´s earning per share in 2016 and 2017 by 3.0% and 6.0%, respectively.
The rate of growth in organic revenues would be slightly lower over the three months to June than the 6.4% clip reported for the first quarter, analysts Andrew Brooke said in a research report published on 11 June.
Nevertheless, Brooke expected the other main trends at the pest control specialist to be unchanged.
He also expected confirmation that the synergies arising from the purchase of Steritech were on track.
Brooke highlighted five aspects of the company: Its potential for organic growth, signicant potential to continue growing its margins, improving mix, possible corporate actions and the firm´s sensible strategy.
More specifically, the analyst saw potential for Rentokill to improve its margins by more than 300 basis points over the next five years.
The same analyst also believed that there remained "significant scope" for mergers and acquisitions, "which should help drive customer density. In addition, we would not rule out a sale of Workwear at some point." | | |
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