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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 higher as BoE takes action on Brexit The FTSE 100 closed higher on Tuesday after the Bank of England eased rules for banks to encourage continued lending in the wake of Brexit.
In the BoE's financial stability report, Governor Mark Carney said the central bank will loosen UK banks' requirements to hold extra capital and warned that risks from the country's Brexit vote had already started to "crystallise".
In its twice-yearly report, it looked to encourage banks to keep lending by trimming the countercyclical capital buffer rate to 0% from 0.5% with immediate effect and until at least June 2017. It said the cuts to capital buffers will raise banks' capacity for lending to UK households and businesses by up to £150bn.
"Overall, therefore, the Bank of England has taken action to ensure that credit supply is not interrupted, but it expects the UK economy to slow," said Dominic Bryant, head of UK and European economics at BNP Paribas.
"The natural next step, therefore, is to take action to support demand. We continue to expect the Bank to cut rates by 25 basis points (bps) at its July meeting and a deliver a further 25bp cut in August in conjunction with GBP 50bn of QE. This is likely, in our view, to be followed up with a further GBP 50bn of quantitative easing in November. "
The pound plunged 1.81% to a fresh 31-year low against the dollar of $1.3046 following the financial stability report.
Adding to Brexit worries, a report by YouGov and the Centre for Economics and Business Research showed pessimism about the economic outlook almost doubled in the week following the June 23 EU referendum, rising to 49% from 25% the week before the outcome of the vote.
Meanwhile, data showed UK services expansion weakened in June to match April's 38-year low amid a darkening outlook and concerns about Brexit. The Markit/CIPS UK services purchasing managers' index fell to 52.3 from 53.5 in May, missing economists' expectations for a reading of 52.7.
Elsewhere, the eurozone services sector recorded a better-than-expected performance in June. June's services PMI reading rose to 52.8, beating the 52.4 from May and also the consensus forecast that this would be repeated for a second month, according to Markit.
Retail sales in the 19 countries that share the euro rose 0.4% in May, according to the latest figures from Eurostat. This was in line with economists' expectations and marked the biggest monthly increase this year. Meanwhile, April's flat reading was revised up to show a 0.2% increase.
In Asia, Chinese Caixin services PMI for June rose to 52.7 from 51.2, marking the fastest increase in 11 months.
In the US, factory orders dropped 1.0% in May, worse than forecasts for a 0.8% decline and compared to a 1.8% increase a month earlier, the Commerce Department revealed.
Company-wise, Legal & General slumped after Jefferies downgraded the stock to 'hold' from 'buy' and lowered the target to 269p from 197p.
Standard Life was under the cosh after announcing it had suspended dealing in its UK Real Estate fund following a rapid increase in redemption requests. The announcement raised fears about the health of the property market, sending stocks in the sector lower including housebuilders Barratt Developments, Berkeley Group, Persimmon and Taylor Wimpey.
Whitbread dropped after Barclays downgraded the stock to 'underweight' from 'equalweight' and slashed the price target to 3,220p from 4,150p.
Supergroup rallied as Liberum upgraded the stock to 'buy' from 'hold' on valuation grounds, noting the stock is trading some 6% below its long-term average.
Shares in Shell were up a day after the company said it was applying to leave the giant legs of its three Brent field platforms in the North Sea when it completes decommissioning work. |
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| Market Movers
FTSE 100 (UKX) 6,545.37 0.35%
FTSE 250 (MCX) 15,772.59 -2.14%
techMARK (TASX) 3,216.35 0.30%
FTSE 100 - Risers
Royal Dutch Shell 'B' (RDSB) 2,126.50p 2.95%
Royal Dutch Shell 'A' (RDSA) 2,108.50p 2.80%
GlaxoSmithKline (GSK) 1,645.00p 2.75%
British American Tobacco (BATS) 5,029.00p 2.54%
National Grid (NG.) 1,130.50p 2.35%
Unilever (ULVR) 3,678.50p 2.28%
Sage Group (SGE) 642.00p 2.23%
Hikma Pharmaceuticals (HIK) 2,543.00p 2.17%
ARM Holdings (ARM) 1,139.00p 2.15%
Relx plc (REL) 1,419.00p 2.09%
FTSE 100 - Fallers
Barratt Developments (BDEV) 350.30p -9.79%
Dixons Carphone (DC.) 286.70p -7.52%
Persimmon (PSN) 1,332.00p -7.18%
Taylor Wimpey (TW.) 121.40p -6.97%
Legal & General Group (LGEN) 174.20p -6.84%
Berkeley Group Holdings (The) (BKG) 2,327.00p -6.36%
Travis Perkins (TPK) 1,318.00p -5.45%
Royal Bank of Scotland Group (RBS) 158.50p -5.37%
Hargreaves Lansdown (HL.) 1,130.00p -5.20%
Standard Life (SL.) 271.60p -5.20%
FTSE 250 - Risers
Sophos Group (SOPH) 216.70p 2.70%
Acacia Mining (ACA) 496.60p 2.69%
Worldwide Healthcare Trust (WWH) 1,946.00p 1.88%
JPMorgan American Inv Trust (JAM) 314.00p 1.85%
Tate & Lyle (TATE) 694.50p 1.83%
Supergroup (SGP) 1,250.00p 1.71%
Edinburgh Inv Trust (EDIN) 674.00p 1.35%
Murray International Trust (MYI) 1,001.00p 1.11%
Victrex plc (VCT) 1,521.00p 0.80%
Croda International (CRDA) 3,190.00p 0.79%
FTSE 250 - Fallers
Shawbrook Group (SHAW) 138.30p -14.31%
Virgin Money Holdings (UK) (VM.) 220.00p -13.59%
OneSavings Bank (OSB) 180.20p -11.58%
Amec Foster Wheeler (AMFW) 434.70p -10.78%
Aldermore Group (ALD) 110.10p -10.56%
Ibstock (IBST) 119.20p -10.31%
St. Modwen Properties (SMP) 232.50p -10.30%
McCarthy & Stone (MCS) 147.00p -8.98%
Bellway (BWY) 1,697.00p -8.22% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Most markets lower as Brexit fears resurface European stocks fell on Tuesday as Brexit fallout reared its ugly head again, as investors digested the release of the Bank of England's Financial Stability Report.
The benchmark Stoxx Europe 600 index was down 1.66%, France's CAC 40 was off 1.68% and Germany's DAX was 1.86% weaker.
In London, the FTSE 100 reversed earlier losses to trade up 0.35% following the release of the Financial Stability Report.
The BoE loosened its requirements for UK banks to hold extra capital and warned that risks from the country's Brexit vote had already started to "crystallise".
In its twice-yearly report, the BoE was seeking to encourage banks to keep lending by trimming the countercyclical capital buffer rate to 0% from 0.5% with immediate effect and until at least June 2017.
It said the cuts to capital buffers will raise banks' capacity for lending to UK households and businesses by up to £150bn.
The BoE, which in March had said the capital buffer would rise to 0.5%, stressed it expects banks not to increase dividends and other payments, such as bonuses, as a result of the reduced capital buffer.
In currency markets, sterling fell to a fresh 31-year low against the US dollar - hitting $1.3114 intraday - amid ongoing concerns about the fallout from Brexit and after data showed UK services expansion weakened in June to match the 38-year low reached in April, amid a darkening outlook.
It was last even weaker, moving 1.89% lower to $1.3036 per £1.
The Markit/CIPS UK services purchasing managers' index fell to 52.3 from 53.5 in May, missing economists' expectations for a reading of 52.7. Still, sterling pared losses following the release of the FSR.
In oil markets, West Texas Intermediate was last down 4.6% at $46.77 a barrel and Brent crude was off 4.51% at $47.94.
In European corporate news, Italian banks were under pressure again, with Banca Monte dei Paschi di Siena sharply lower amid reports Italy is considering a capital plan for the bank that includes selling new convertible bonds to the government and injecting at least €3bn.
Housebuilder Persimmon was under the cosh despite reporting strong first-half trading, as it said it was too early to judge the impact of Brexit.
Budget airline Ryanair flew higher after reporting a 11% increase in traffic in June.
Eurozone data releases were also in focus on Tuesday. The eurozone services sector recorded a better than expected performance in June, according to purchasing managers' index (PMI) data from Markit, though a final reading of the composite index indicated the eurozone endured its weakest second quarter of growth since the end of 2014.
June's services PMI reading rose to 52.8, besting the 52.4 from May and also the consensus forecast that this would be repeated for a second month.
The final reading of the Composite PMI June came out at 53.1, up from the flash reading of 52.8 and flat on the previous month.
This indicated that gross domestic product of the eurozone will have slowed to 0.3% in the second quarter.
Elsewhere, figures from Eurostat showed retail sales in the 19 countries that share the euro rose 0.4% in May. This was in line with economists' expectations and marked the biggest monthly increase this year. Meanwhile, April's flat reading was revised up to show a 0.2% increase.
The growth in sales was led by increased purchases of non-food products such as textiles and medical goods, which were up 0.7% on the month. Sales of food, drink and tobacco were flat. |
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| | US Market Report | | US open: Stocks fall as Brexit worries weigh on sentiment US stocks opened lower on Tuesday as investors returned from the long holiday weekend and as concerns about the impact of Brexit resurfaced.
At 1437 BST, the Dow Jones Industrial Average fell 0.45%, the S&P 500 dropped 0.55% and the Nasdaq declined 0.54%.
At the same time, oil prices retreated, with West Texas Intermediate down 2.4% to $47.58 a barrel and Brent crude off 2.5% at $48.84 per barrel.
Oanda's Craig Erlam said: "Nothing has necessarily hit the fan as of yet but there are a growing number of negative reports circulating off the back of the UK's decision to leave the EU and this appears to be starting to weigh on sentiment."
"US traders return to their desks on Tuesday, at the start of what is likely to be quite a busy week once again. Brexit aside, we'll get the minutes from the June Fed meeting on Wednesday followed by the latest jobs report on Friday which should ensure markets remain quite volatile. The Fed is now unlikely to consider rate hikes in the coming months as it analyses the impact of Brexit but the minutes could still provide insight into how close they were to raising and how much of a deterrent the UK's decision could be. For another hike to remain on the table this year, the jobs data will have to remain strong overall and rebound from last month's disappointment."
Across the pond, Britain weighed the Bank of England's Financial Stability Report (FSR)on Tuesday.
The BoE loosened UK banks' requirements to hold extra capital and warned that risks from the country's Brexit vote had already started to "crystallise".
In its twice-yearly report, it looked to encourage banks to keep lending by trimming the countercyclical capital buffer rate to 0% from 0.5% with immediate effect and until at least June 2017.
It said the cuts to capital buffers will raise banks' capacity for lending to UK households and businesses by up to £150bn.
In currency markets, the pound fell to a fresh 31-year low against the US dollar - hitting $1.3073, intraday - amid ongoing concerns about the fallout from Brexit and after data showed UK services expansion weakened in June to match the 38-year low reached in April, amid a darkening outlook.
Still to come, investors will eye the release of US factory orders at 1500 BST and a speech by New York Fed President William Dudley at 1930 BST.
On the corporate front, Chevron Corp, Exxon Mobil Corp and their partners said on Tuesday that they had committed to a $36.8bn oil expansion project in Kazakhstan. Shares in Chevron and Exxon dipped.
Shares of McDonald's Corp. rose after the fast food chain won a lawsuit in the EU about other companies using the prefix "Mac" or "Mc". |
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| | Broker Tips | | Broker tips: UK retailers, Petrofac, Whitbread Liberum revisited its stance on UK general retailers on Tuesday in light of the more uncertain outlook following the vote to leave the European Union.
The brokerage said it was more cautious on the generalists, given their UK exposure and in many cases high exposure to US dollar inputs.
On the other hand, it highlighted a preference for specialists who are relatively more defensive and those that still have margin upside, are generating a superior rate of return on capital employed and have strong balance sheets.
Liberum's key 'buy' is Boohoo, which it likes for its positive outlook and strong international growth and Jimmy Choo for its brand and positive forex dynamics.
Other key buys are B&M for its strong market position and high cash generation, and Hotel Chocolat thanks to its strong brand, market position and margin upside
The brokerage upgraded Supergroup to 'buy' from 'hold' on valuation grounds, noting the stock is trading some 6% below its long-term average.
It cut Card Factory to 'hold' from 'buy' saying the stock was up with events on valuation and highlighting FX headwinds pressure in outer years.
Liberum downgraded its stance on discount retailer Poundland to 'sell' from 'hold'. It said the shares were underpinned by a potential bid but in the event this does not happen there is 40% downside risk.
Finally, it double downgraded Pets at Home to 'sell' from 'buy' citing a more volatile top line and margin pressures.
"Reflecting on the prelims and Brexit risks, we believe near-term headwinds have strengthened. FY16 performance suggested that revenues may be more volatile than we had expected and margin expansion has likely been pushed further out.
"We still acknowledge the company's strong market shares, improving multi-channel offering and the longer-term growth opportunity in Services. However, we see further downside risk before the shares make any substantial gains."
Petrofac's stock was on Tuesday upgraded from 'hold' to 'buy' and its target raised from 775p to 850p by Canaccord Genuity.
Canaccord said with shares down more than 11% over the past three months against a 10% increase in the sector, the oilfield services company was a risky but attractive value-for-money stock.
"There have been incremental negatives, most obviously the $100mn liquidated damages on the Laggan-Tormore project: but we believe that at the current valuation, that enough is in the price," said analyst Alex Brooks.
"Petrofac's strengths are easy to list: it has a different risk profile to the rest of the UK oil services sector, but its performance track record suggests that this is not necessarily worse, particularly if the ill-starred diversification efforts of the past cycle do not recur in future."
Brooks said the valuation has reached a "compelling level" at less than 6x 2017 price to earnings ratio, excluding integrated energy services.
However, he noted that a substantial risk included being named in an investigation by the HuffPo / The Age into a Monagesque company, Unaoil, that allegedly facilitated the bribery of public officials.
The UK's Serious Fraud Office and the Monaco police have been investigating further, and Petrofac has appointed Freshfields and KPMG to conduct its own investigation.
While Canaccord expects "uninspiring" first half results due to weak order intake, the second half is forecast to prick up with a significant number of potential new contracts including some major Middle Eastern awards.
Brooks said the completion of Laggan-Tormore removes one negative, the FPF1 for the Stella project should achieve sailway imminently, and several of Petrofac's assets are likely to be sold or move closer to sale in the period. "All these are positive triggers."
Whitbread shares slumped on Tuesday as Barclays downgraded the stock to 'underweight' from 'equalweight' and slashed the price target to 3,220p from 4,150p.
The bank said that although the shares have suffered in the wake of the UK's vote to leave the European Union, there is further downside risk as it is one of the most negatively-affected leisure stocks due to its exposure to business investment. Still, Barclays said it continues to like much about the structural growth opportunities at Costa and Premier Inn.
The bank cut its forecasts 11% by 2017 and said it assumes as de-rating to 13.5x price-to-earnings, versus 12x in 2011/12 during the last UK slowdown in revenue per available room.
It now expects RevPar to be down 3.2% this year and 1.6% in 2017/18. Despite assuming £27m cost savings, the bank's new estimates are 6% and 10% below Thomson One consensus for this year and next.
Barclays said its downside case is similar to 2008-9 at 2,700p. "Unlike 2008-9, we believe the structural growth story is less supportive today with Costa's UK net system growth running at 6.4% versus 21% in 2009 and we see risk that the group slows the hotel rollout since around 35% of openings are extensions."
Nevertheless, the bank said short-term trading may not be too bad, with London likely to see more leisure tourism due to the weak pound. It noted that Kayak and Cheapflights had reported a surge in searches for trips to UK.
Meanwhile over the summer, leisure travel in the UK regions could be supported by more staycations due to sterling weakness. | | |
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