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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 finishes lower on UK retail sales, ECB The FTSE 100 ended lower on Thursday as investors weighed weak UK retail sales data and the European Central Bank's decision to keep policy unchanged.
UK retail sales rose less than expected in June compared to the same month a year ago as unseasonably cold weather hurt clothing stores, official data showed.
The Office for National Statistics said retail sales increased 4.3% year-on-year in June, missing forecasts for a 5.1% gain and following 5.7% growth in May. On the month, retail sales fell 0.9% in June, more than the 0.5% drop estimated and after a 0.9% rise in May.
"Following the vote to leave the EU, the strong suspicion is that consumers will face higher unemployment and less favourable purchasing power as inflation rises and earnings growth is limited by companies striving to limit their costs," said IHS Global Insight economist Howard Archer.
ECB keeps policy unchanged
The European Central Bank held fire on new policy measures, as expected by economists, but the monetary authority indicated that it may boost stimulus later this year.
The ECB's Governing Council decided to leave interest rates at 0.00%, the marginal lending facility rate at 0.25% and the deposit facility rate at -0.40%. The asset purchase programme (APP) was maintained at €80bn per month until the end of March 2017.
The ECB followed the lead of the Bank of England which last week decided against changes to policy as it awaits more data to assess the impact of the UK's vote to leave the European Union on 24 June.
In a press conference following the policy announcement, ECB President Mario Draghi reiterated that the bank was ready and willing to act if warranted. He said the ECB needed more information on the fallout from Brexit and new economic data projections, which become available at the next policy meeting in September, before considering taking further action.
Economists expect the central bank will add stimulus at the September policy meeting.
"We think the most likely option for the ECB is to extend quantitative easing beyond March 2017, possibly by six to nine months," said Barclays.
"We do not rule out further deposit rate cuts either, although we think these are less likely."
US economic data
In the US, the Labor Department said initial jobless claims unexpectedly fell to 253,000 in the week the 16 July from 254,000. Economists had pencilled in 265,000 claims.
Manufacturing conditions in the Philadelphia region unexpectedly deteriorated in July, with activity contracting, according to the latest report from the Federal Reserve Bank of Philadelphia. The diffusion index for current activity fell to -2.9 from 4.7 in June, missing expectations for an increase to 5.0. The index has been negative for nine of the past 11 months.
Sales of existing US homes unexpectedly rose in June, according to data from the National Association of Realtors. Sales were up 1.1% to a seasonally-adjusted annual rate of 5.57m from a downwardly revised 5.51m the month before. Economists had been expecting a 0.7% decline.
Separately, the US Federal Housing Finance Agency (FHFA) house prices index rose 0.2% in May from an upwardly-revised 0.3% the previous month and compared to expectations for a gain of 0.4%.
The US leading economic index rose 0.3% in June after declining 0.2% in the prior month, exceeding forecasts for a 0.2% increase.
Companies
Travel stocks EasyJet, IAG and TUI slumped as Turkey declared a state of emergency. EasyJet also reported a drop in revenue per seat and total revenue for the third quarter amid difficult trading that was hit by the terror attack in Brussels and the EgyptAir tragedy.
Mining stocks rebounded from the previous day's drop with Anglo American, Glencore, Antofagasta and BHP Billiton in the black.
UK equipment rental company Ashtead was the biggest riser on the FTSE 100 after a positive read-across from major US rival United Rentals which reported slightly improved quarterly results overnight.
William Hill gained as chief executive James Henderson stepped down with immediate effect and was replaced by Philip Bowcock following a recent poor performance by the bookmaker.
AO World rallied as the online white goods retailer reported strong growth in first-quarter revenues. |
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| Market Movers
FTSE 100 (UKX) 6,707.06 -0.33%
FTSE 250 (MCX) 17,065.98 0.28%
techMARK (TASX) 3,403.33 -0.39%
FTSE 100 - Risers
Ashtead Group (AHT) 1,185.00p 5.05%
Glencore (GLEN) 183.65p 4.23%
Antofagasta (ANTO) 495.20p 2.55%
Burberry Group (BRBY) 1,316.00p 1.86%
Anglo American (AAL) 788.50p 1.82%
Rio Tinto (RIO) 2,377.00p 1.62%
ITV (ITV) 190.50p 1.49%
Whitbread (WTB) 3,711.00p 1.37%
BHP Billiton (BLT) 938.70p 1.33%
Johnson Matthey (JMAT) 3,213.00p 1.20%
FTSE 100 - Fallers
easyJet (EZJ) 1,065.00p -5.50%
International Consolidated Airlines Group SA (CDI) (IAG) 405.60p -3.59%
Sky (SKY) 870.00p -3.28%
Next (NXT) 4,896.00p -2.76%
Dixons Carphone (DC.) 340.60p -2.27%
Marks & Spencer Group (MKS) 328.50p -2.06%
Hikma Pharmaceuticals (HIK) 2,527.00p -2.05%
TUI AG Reg Shs (DI) (TUI) 932.50p -1.79%
GlaxoSmithKline (GSK) 1,638.00p -1.74%
Direct Line Insurance Group (DLG) 342.00p -1.72%
FTSE 250 - Risers
William Hill (WMH) 304.90p 10.83%
AO World (AO.) 147.60p 9.82%
Restaurant Group (RTN) 325.40p 6.79%
Weir Group (WEIR) 1,562.00p 4.76%
Howden Joinery Group (HWDN) 433.80p 4.43%
International Personal Finance (IPF) 342.90p 4.35%
Vedanta Resources (VED) 520.00p 3.90%
Close Brothers Group (CBG) 1,232.00p 3.79%
Virgin Money Holdings (UK) (VM.) 240.00p 3.72%
Cobham (COB) 171.70p 3.31%
FTSE 250 - Fallers
Wizz Air Holdings (WIZZ) 1,423.00p -6.69%
IP Group (IPO) 147.30p -5.21%
DFS Furniture (DFS) 214.70p -3.85%
OneSavings Bank (OSB) 210.60p -3.26%
Metro Bank (MTRO) 1,896.00p -2.87%
NCC Group (NCC) 323.50p -2.85%
Big Yellow Group (BYG) 707.00p -2.75%
Sophos Group (SOPH) 230.60p -2.70%
Workspace Group (WKP) 694.50p -2.32% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks recover after ECB says initial Brexit storm weathered European share markets pared back earlier losses to finish slightly higher on Thursday after the ECB said the initial Brexit storm had been weathered as it left interest rates unchanged.
The benchmark Stoxx600, France's CAC 40 and Germany's Dax were all slightly higher at the close. Comments from ECB President Mario Draghi that there could be some support for ailing European banks boosted the sector and the wider market.
A slump in airline stocks had provided a drag on European bourses earlier in the session as investors sold off amid fears of reduced demand after the attack in Nice last week and attempted coup in Turkey.
UK budget carrier easyJet fell after reporting a decline in sales while Germany's Lufthansa was also down after issuing a profit warning after the terror attacks hit bookings. Air France-KLM was also among sector casualties.
The ECB held the main interest rate at 0% and the bank said it expected rates to remain at record lows or fall to lower levels for an extended period of time. The bank deposit rate was also maintained at minus 0.4%.
The asset purchase programme (APP) was maintained at €80bn per month until the end of March 2017.
"Over the coming months when we have more information... we will be in a better position to reassess the underlying macroeconomic conditions," ECB President Mario Draghi added.
"If warranted, to achieve its objective, the governing council will act by using all the instruments available in its mandate," he said.
Draghi said by the next policy meeting on 8 September the ECB will be in a better position to re-assess the risks to the euro-area outlook as it will have gathered more information on the fallout of Brexit and have a new set of macroeconomic projections.
He said downside risks to economic recovery included the EU referendum outcome, geopolitical uncertainties, emerging market weakness, balance sheet adjustments and slow progress of structural reforms.
Economists expect the central bank will wait until the September policy meeting to add stimulus.
"We think the most likely option for the ECB is to extend quantitative easing beyond March 2017, possibly by six to nine months," said Barclays. |
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| | US Market Report | | US open: Stocks mixed on earnings and data US stocks were mixed on Thursday as investors assessed corporate earnings and economic data.
At 1520 BST, the Dow Jones Industrial Average fell 01.6%, the S&P 500 was flat and the Nasdaq rose 0.15%.
In corporate earnings, General Motors shares jumped after reporting a 157% increase in net profit in the second quarter and lifting its annual guidance.
Southwest Airlines Co. slumped after reporting an increase in second quarter earnings that missed analysts' expectations.
Domino's Pizza Inc. rallied as it posted second quarter sales that beat forecasts.
Intel shares dropped even as the company's second-quarter earnings beat estimates, revenues were a little light.
Dunkin' Brands declined after the owner of Dunkin' Donuts revealed slower-than-expected sales growth in the second quarter.
Elsewhere, Tesla Motors and SolarCity Corp reversed earlier gains after Elon Musk outlined a plan for the combination of the two companies
Joy Global rocketed after Japan's Komatsu said it had agreed to purchase the mining gear maker for $2.89bn.
On the maco-economic data front, the Labor Department said US initial jobless claims unexpectedly fell to 253,000 in the week the 16 July from 254,000. Economists had pencilled in 265,000 claims.
Manufacturing conditions in the Philadelphia region unexpectedly deteriorated in July, with activity contracting, according to the latest report from the Federal Reserve Bank of Philadelphia. The diffusion index for current activity fell to -2.9 from 4.7 in June, missing expectations for an increase to 5.0. The index has been negative for nine of the past 11 months.
Sales of existing US homes unexpectedly rose in June, according to data from the National Association of Realtors. Sales were up 1.1% to a seasonally-adjusted annual rate of 5.57m from a downwardly revised 5.51m the month before. Economists had been expecting a 0.7% decline.
Separately, the US Federal Housing Finance Agency (FHFA) house prices index rose 0.2% in May from an upwardly-revised 0.3% the previous month and compared to expectations for a gain of 0.4%. |
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| | Broker Tips | | Broker tips: EasyJet, Premier Farnell, Schroders It was bad day for airlines, with corporate releases from Deutsche Lufthansa and EasyJet giving investors little to get excited about.
EasyJet posted a drop in revenue per seat and total revenue for the third quarter amid difficult trading that was hit by the terror attack in Brussels and the Egyptair tragedy and said the outlook was uncertain. Meanwhile, Lufthansa downgraded its profit forecast for this year as terror attacks hit bookings.
And the bad news kept coming as Credit Suisse downgraded EasyJet and International Consolidated Airlines.
The bank cut EasyJet to 'neutral' from 'outperform', slashing the price target to 1,130p from 1,491p after the update, as it slashed its full-year 2016 pre-tax profit estimate by 24% to £528m.
"EZJ is a structural winner, well positioned to ultimately benefit from UK market turmoil as weak demand pressures weaker competitors lacking EZJ's cost structure and balance sheet. Yet earnings estimates clearly need to come down across the market and distinct uncertainty around 2017E, where we model a 2% profit before tax decline versus 5.5% growth per Reuters, prompts us to downgrade."
CS also cut its stance on International Consolidated Airlines Group to 'neutral' from 'outperform' and trimmed the price target to 439p from 529p, saying Lufthansa's profit warning highlights deteriorating pricing trends.
Following Lufthansa's warning, Credit Suisse cut its second-half unit revenue forecasts for IAG from a 4% decline to a 7% decline at constant currency, which compares to Lufthansa's 8-9% guidance driven by weaker demand on long haul routes.
This drives down the bank's 2016 EBIT estimate by 11% to €2.5bn and its 2017 EBIT forecast by 17% to €2.1bn.
"We continue to view IAG as a compelling medium term self-help story. However escalating revenue risk is likely to drive material downgrades for 2016E-2017E over the coming months."
HSBC downgraded Premier Farnell to 'hold' from 'buy' as it lifted the price target from 145p to 165p, which is the price Swiss conglomerate Daetwyler is paying per share to buy the technology company.
With the new target now implying 0.3% upside, the bank has decided to downgrade its recommendation.
It said that while a competing bid cannot be ruled out, it's unlikely as trading conditions for Premier Farnell remain challenging and the offer price represented a premium of 51% to its previous closing price.
HSBC said the offer values the entire share capital of Premier at around £615m, with an enterprise value of £792m.
"On this basis, the offer puts PFL on a FY 2016a (last reported) valuation of 15x on price-to-earnings, 0.8x EV/sales and 11x EV/EBITA.
"Given that PFL had been affected by challenging trading conditions and increased competition, mainly in North America and the UK, the combination with Daetwyler group would be a good strategic choice, in our opinion."
Goldman Sachs downgraded Schroders to a 'neutral' rating from 'buy' on Thursday but raised its target to 2930p from 2800p.
The bank said the Schroders rating downgrade reflects the challenges facing the asset management industry as yields fall and growth expectations are reduced.
"We expect three factors to drive a challenging environment for asset managers over the next few years: (1) expected anaemic economic growth is likely to slow wealth creation and flows (especially in the UK), while the low-return environment (2) makes it hard for managers to structure compelling products and (3) means asset managers receive a weaker AUM tailwind from market appreciation," Goldman analysts said in a broker note.
"While we view Schroders as one of the best structurally positioned fund managers globally, we believe its breadth and scale make it very difficult to avoid these macro headwinds entirely."
Goldman expects second quarter assets under management to grow 5%, driven by quarter-end foreign exchange moves. The bank also sees a risk that the pre-Brexit uncertainty led to a slowdown in second quarter gross sales.
The earnings per share (EPS) forecast for fiscal years 2016-2020 was raised 1.3%-2.6% by Goldman due to foreign exchange and market moves in the last few days of the quarter. | | |
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