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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 slide as traders weigh UK jobs, await Fed minutes London stocks finished in the red on Wednesday as traders assessed UK jobs data and awaited the release of the Federal Reserve's meeting minutes.
The Office for National Statistics said the number of people in work rose by 172,000 to 31.750m in the three months to June, pushing the employment rate to 74.5% a latest record high. Economists had expected a 153,000 increase.
Jobless claims fell by 8,600 in July, surprising analysts who had predicted a 9,000 increase in the number of people filing for unemployment benefits.
The claimant rate remained at 2.2% last month, as estimated by economists.
The unemployment rate remained at 4.9% in the three months to June, also as expected.
Average weekly earnings grew 2.4% during the quarter, though the market expected the improvement from the 2.3% reading in May.
"The labour market data showed impressive resilience in the run-up to the EU referendum and the immediate aftermath of the vote to leave - although it is premature to draw any firm conclusions from this," said Howard Archer, chief UK and European economist at IHS Global Insight.
"While the data suggests that companies generally avoided a knee-jerk reaction to the leave vote by getting rid of workers, it remains likely that softening economic activity and heightened uncertainty will take a toll on the labour market over the coming months."
The pound fell 0.33% against the dollar to $1.3003 at 16:10 BST.
Attention now turns to the Fed's minutes of its 26-27 July policy meeting at 1900 BST. At last month's meeting, the Fed decided to keep interest rates unchanged amid risks to the global economy, including Brexit. However, the central bank struck a more positive tone saying the "near-term risks to the economic outlook had diminished".
"The minutes will be important in determining the degree of confidence that officials had about their ability to raise rates at least once this year," said Societe Generale.
"On that front, it will be crucial to gauge whether 'many', 'most', or 'some' officials felt that the strength in June payrolls repudiated the weakness in the May report."
Federal Reserve Bank of St. Louis President James Bullard may also provide further clues behind the central bank's plans for interest rates when he speaks in his city at 18:00 BST.
His speech follows two hawkish statements from fellow Fed policymakers William Dudley and Dennis Lockhart on Tuesday, who both separately suggested an interest rate hike was on the table at the next meeting on 20-21 September.
Meanwhile, oil prices cut their earlier losses after data showed a bigger-than-expected decline in weekly US crude inventories. The Energy Information Agency said US weekly crude inventories fell by 2.5m barrels last week to 521.1m barrels. It was more than the 200,000-barrel fall expected by analysts polled by S&P Global Platts.
Crude prices were sitting lower earlier on Wednesday following a report that Saudi Arabia plans to boost its production in August to a record level.
At 1618 BST Brent crude rose 0.90% to $49.68 per barrel and West Texas Intermediate edged up 0.30% to $46.72 per barrel.
In corporate news, insurer Admiral was sharply lower amid concerns about the group's Solvency II position, after it lifted its interim dividend by almost a quarter and posted a jump in first-half profits.
Standard Chartered dropped after HSBC downgraded the stock to 'hold' from 'buy' and reiterated a target of 650p, saying it was unlikely to reach its return on equity target of 8% in 2018 unless revenues rebound by about $3bn.
Investment bank Old Mutual was also down after Credit Suisse downgraded the stock to 'neutral' from 'outperform'.
Mining stocks were under the cosh, including Fresnillo, Antofagasta and Anglo American, as metal prices fell.
CRH rallied amid speculation it might be included in the Eurostoxx.
Indivior rocketed after saying its new heroin addiction treatment has proved successful in late-stage clinical trials, meaning it could be approved for sale in the US by the end of next year.
Savills was given a boost as Citigroup upgraded the stock to 'buy' from 'neutral' following solid first-half results.
Balfour Beatty surged after it reinstated its dividend as it reported a smaller loss for the half year ended 1 July. |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Intel and ARM announce partnership on smartphone chips Intel will start making smartphone chips in one its factories based on designs by London-listed ARM Holdings.
The two companies said they expected the agreement will be "mutually beneficial", which may come as a surprise to many who often perceive Intel and ARM as being rivals.
Intel's x86 chip architecture is leading the PC sector while ARM-based chips are used in a majority of phones and tablets.
"[I] am wowed by moments of cooperation that redefine the industry landscape," Will Abbey, an executive at ARM, said in a blog.
"This agreement is one example of that and will deliver immense value to the design ecosystem and ultimately to our partners."
LG will be the first client to take advantage of the partnership.
Intel has incorporated some of ARM's technologies in the past but the latest development marks another step-up in their relationship. |
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| | US Market Report | | US open: Stocks fall ahead of Fed meeting minutes US stocks declined on Wednesday ahead of the Federal Reserve's meeting minutes, which may provide hints on the next interest rate hike.
At 1452 BST the Dow Jones Industrial Average fell 0.32% to 18,493.47 points, the S&P 500 dropped 0.25% to 2,172.70 points and the Nasdaq decreased 0.24% to 5,215.85 points.
Oil prices also slid before the release of the US weekly crude inventories data from the Energy Information Administration at 1530 BST and after reports Saudi Arabia could boost oil output to a new record in August.
West Texas Intermediate crude edged down 0.99% to $46.12 per barrel and Brent slipped 0.36% to $49.05 per barrel.
Meanwhile, investors are highly anticipating the Fed's minutes of its 26-27 July policy meeting at 1900 BST. At last month's meeting the Fed decided to keep interest rates unchanged amid risks to the global economy including Brexit. However, the central bank struck a more positive tone saying the "near-term risks to the economic outlook had diminished".
"The minutes will be important in determining the degree of confidence that officials had about their ability to raise rates at least once this year," said Societe Generale.
"On that front, it will be crucial to gauge whether 'many', 'most', or 'some' officials felt that the strength in June payrolls repudiated the weakness in the May report."
Craig Erlam, senior market analyst at Oanda, said a rate hike this year remains a very "real possibility" if the Fed believes Brexit will have limited impact on the economy and the outlook remains the same as it was before European Union referendum.
"That said, growth in the second quarter was very disappointing again and while the two revisions could change our view on that, it is likely to complicate things," he said.
Federal Reserve Bank of St. Louis President James Bullard may also provide further clues behind the central bank's plans for interest rates when he speaks in his city at 1800 BST.
His speech follows two hawkish statements from fellow Fed policymakers William Dudley and Dennis Lockhart on Tuesday, who both separately suggested an interest rate hike was on the table at the next meeting on 20-21 September.
The market is currently pricing in an 82% chance that the Fed will raise interest rates by 25 to 50 basis points, according to the CME Group FedWatch tool.
On the corporate front, Lowe's shares slumped after reporting quarterly earnings and revenues that fell short of analysts' estimates and lowering its full year guidance.
Staples was also in the red after the office supplies retailer forecast its 15th consecutive quarter of falling sales. It also reported a worse-than-expected drop in second quarter sales.
Target declined as it posted drop in second quarter earnings and cut its sales estimate for the rest of the year due to a "difficult retail environment".
Cisco Systems was weaker following a report the company is planning to axe 20% of its workforce. |
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| | Broker Tips | | Broker tips: Standard Chartered, Balfour Beatty, Savills Standard Chartered's rating was downgraded to 'hold' from 'buy' and its target was left at 650p by HSBC on Wednesday.
HSBC said Standard Chartered's share price has responded positively to the weaker pound against the dollar following Brexit as the company's revenues are dollar-dominated.
Shares have gained 17% since the EU referendum result on 24 June compared to a 9% rise for the Euro Stoxx Bank index.
"There could be some further upside from GBP depreciation: the UK currency may need to adjust further to maintain the capital inflows necessary to fund the current account deficit. But at some point fundamentals will re-assert themselves, and the message from second quarter results is not encouraging," HSBC said.
HSBC added that it seems increasingly likely that the group will not achieve its target of an 8% return on equity (ROE) by 2018 unless revenues rebound about $3bn. HSBC expects an ROE of 6% in 2018.
The bank said slower economic growth in Asian economies and the deferral of US interest rate increases are part to blame. In addition the de-risking of the group has proved "more damaging to revenues than envisaged by management", HSBC said.
"The key upside risk relates to the exchange rate. Continued depreciation of GBP relative to the USD would raise the value of the group's dollar-denominated earnings for UK investors.
"The main downside risk is systemic credit issues in HongKong and China initiated by rising US rates."
Numis raised its rating on Balfour Beatty to 'buy' from 'add' and reiterated its target of 294p on Wednesday after the company reported its half year results.
Balfour reported a pre-tax loss of £21m, down from £150m the same time a year ago, on revenue of £4.1bn, down from £4.2bn.
The order book was up 7% at constant exchange rates to £12.4bn and the company reinstated it dividend with a 0.9p per share payment in a sign that the turnaround plan under boss Leo Quinn is bearing fruit.
"There are a number of key positives in the interim results out today - strong cash performance (enhanced from 2017 onwards by the new deficit payment plan), while Investments and Services (ex-UK Construction) are performing as expected and Services is back into profit," said Numis.
"Construction UK (CSUK) H1 losses should enable completion of the majority of legacy issue by end 2016, but we believe it prudent to assume it will not fully offset H1 loss in full year numbers. However, this needs to be put in context - we expect CSUK to move into profit in H2 2016 and continue to expect 2017 and 2018 recovery in line with previous expectations."
As a result Numis said it believes Balfour is at a turning point, especially given the reinstatement of an interim dividend.
The broker added: "We retain the view that the move toward 'industry standard' margins by 2018, together with the underpinning (and potentially increasing) of value in Investments, provides significant upside on a short and medium term basis."
Savills got a boost on Wednesday as Citigroup upgraded the stock to 'buy' from 'neutral' following solid first-half results.
"We were reassured by this resilient performance which served to remind us as to the true portfolio within the group with limited reliance on any one geography or business stream," Citi said.
The bank said real estate as an asset class is likely to remain attractive, given the ongoing search for yield.
"Savills, as a facilitator of capital flows into this asset class, operating on a global scale, with a significant proportion of non-transactional related revenues (around 55% of group revenues), remains well placed in our view."
Citi pointed out that Savills shares have de-rated by around 20% year-to-date and now trade at an attractive 2017 price-to-earnings of 10.6x, supported by a 4% dividend yield.
It said that given the share price underperformance, its unchanged target of 815p now implies total potential return of 18%. |
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