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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 close higher after Yellen's Jackson Hole speech London stocks closed higher on Friday as traders weighed remarks from Federal Reserve chair Janet Yellen at the Jackson Hole conference.
Yellen said the case for an increase in the federal funds rate has "strengthened" in recent months in light of a robust labour market and an upbeat outlook for economic growth and inflation.
However, she stressed that policy decisions depend on how incoming economic data affects the Fed's outlook.
Her remarks were seen to suggest that while an interest rate hike is a possibility at the 20-21 September policy meeting, or at least in coming months, it all depends on the strength of economic data.
"Even if September is now a more likely possibility for a move, the presence of non-farm payrolls on the calendar for next week means that the jury is still out for now," said IG chief market analyst Chris Beauchamp.
Barclays Research maintained its call for a September rate hike, subject to another solid non-farm payrolls report next week. "In our view, her statements were as strongly worded as possible and we read her statements as consistent with a rate hike in September."
The dollar initially dropped against most major currencies following Yellen's remarks, but picked up towards the close.
Equally, oil prices jumped when the dollar weakened, with Brent rising above the $50 a barrel mark, but started to erase gains once the dollar regained ground. A weak dollar makes crude imports cheaper for holders of other currencies, and vice versa.
At 1650 BST, Brent crude climbed 0.64% to $49.99 per barrel and West Texas Intermediate rose 1.06% to $47.84 per barrel.
The two-year US Treasury yield dropped by two basis points immediately after Yellen's comments but later turned higher, rising two basis points to 0.8131% at 1650 BST.
Earlier, the second estimate of US economic growth in the second quarter was revised lower.
Gross domestic product expanded at an annualised 1.1% in the second quarter, the Commerce Department, slightly down from the initial estimate of 1.2%. but in line with analysts' expectations.
Personal consumption in the US was revised to a 4.4% gain in the second quarter from a previous estimate of 4.2%. It marked the fastest rate of growth since the fourth quarter of 2014.
"Altogether, the second estimate of Q2 GDP does little to alter the view of economic activity in the second quarter. Personal consumption rebounded sharply in the quarter as household spending on durable goods reversed its weak first-quarter showing," said Barclays Research analyst Michael Gapen.
"Business investment remains soft, with structures investment continuing to reflect the lagged effects of declines in energy prices, and residential investment looks to have taken a breather after very strong growth throughout 2015."
Another report showed US consumer sentiment eased in August. The University of Michigan's final reading of the consumer sentiment index fell to 89.8 from 90.0 the month before and 91.9 in August last year. It was below the flash reading of 90.4.
Closer to home, second quarter UK economic growth accelerated in line with expectations.
The Office for National Statistics confirmed UK gross domestic product grew 0.6% on the quarter in the second quarter, up from 0.4% in the first three months of the year.
On the year, growth was confirmed at 2.2%, compared to 2% in the first quarter.
Mike Read, co-founder of app-only trading network Pelican, said: "Those who feel the Bank of England were too quick to cut interest rates earlier in the month will now have all the more reason to grumble following today's positive GDP figures.
"Despite the near universal agreement that the British economy would suffer significantly in a post-Brexit climate, June's extraordinary retail sales figures coupled with today's GDP data paint a slightly rosier picture."
In Asia, Japan's core consumer price index, which excludes food and energy prices, fell 0.5% year-on-year in July compared to a 0.4% decline in June. Analysts had expected no change.
The headline CPI dropped an annualised 0.4% in July, the same rate of decline as the previous month and in line with analysts' estimates.
Economists said the weak inflation data is likely to add pressure on the Bank of Japan for further stimulus measures.
"The monetary game in Japan has become very challenging given that the BoJ has gradually lost credibility and support from the market. It is time for the BoJ to surprise the insatiable market, yet Mr. Kuroda is running out of resources," said Ipek Ozkardskaya, senior market analyst at London Capital Group.
Among corporate stocks, miners flourished as metal prices increased with Glencore, Rio Tinto and BHP Billiton among the biggest risers.
BAE Systems was given a boost after Berenberg upgraded the stock to 'buy' from 'hold' and lifted the price target to 580p from 520p.
Pharmaceutical stocks continued to slide after US presidential favourite Hillary Clinton slammed US-based Mylan during the previous session over its 480% hike in the price of its EpiPen epinephrine product since the company acquired it in 2007.
Following her remarks, Mylan said it was cutting the cost of the EpiPen 2-Pak through the use of a savings cards that will cover up to $300, effectively halving the price.
Shares in Astrazeneca, Shire and GlaxoSmithKline dropped.
Sky shares dipped despite analysts at Macquarie having said the time was ripe for Fox to pick-up the 61% of Sky which it did not already own, following the 32% year-to-date share price drop in the shares of the latter in US dollar terms.
Shares in Restaurant Group rose as the company said it had swung to a pre-tax loss in the first half on the back of restructuring costs, while like-for-like sales fell and the company announced the closure of 33 outlets.
Ladbrokes shares jumped as Berenberg raised its rating to 'buy' from 'hold' and lifted its target to 185p from 130p, saying the company is its second favourite pick in gaming after Playtech.
Amec Foster Wheeler rallied after Morgan Stanley upgraded the stock to 'overweight' from 'equalweight' and bumped up the price target to 700p from 500p, saying restructuring should outweigh disposals.
Strong performances in France and Germany drove a 2.8% rise in Computacenter's revenues at the half-year stage to £1.48bn, but the shares were down as management said business conditions in the UK were "challenging", with a reduction in services volumes driving a drop in that segment´s margins. |
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| Market Movers
FTSE 100 (UKX) 6,838.05 0.31%
FTSE 250 (MCX) 17,928.20 0.25%
techMARK (TASX) 3,471.70 0.06%
FTSE 100 - Risers
Rio Tinto (RIO) 2,469.00p 3.35%
Glencore (GLEN) 185.00p 3.21%
BHP Billiton (BLT) 1,080.00p 3.15%
Antofagasta (ANTO) 541.50p 2.75%
BAE Systems (BA.) 541.00p 2.37%
Anglo American (AAL) 858.90p 2.30%
Fresnillo (FRES) 1,791.00p 1.99%
Hikma Pharmaceuticals (HIK) 2,182.00p 1.49%
Bunzl (BNZL) 2,420.00p 1.47%
Rolls-Royce Holdings (RR.) 785.00p 1.42%
FTSE 100 - Fallers
AstraZeneca (AZN) 4,955.00p -1.12%
Shire Plc (SHP) 4,850.00p -1.06%
Burberry Group (BRBY) 1,320.00p -0.98%
Imperial Brands (IMB) 3,999.00p -0.92%
Admiral Group (ADM) 2,044.00p -0.87%
Dixons Carphone (DC.) 371.40p -0.77%
London Stock Exchange Group (LSE) 2,780.00p -0.75%
Berkeley Group Holdings (The) (BKG) 2,663.00p -0.63%
Intu Properties (INTU) 314.20p -0.63%
Sky (SKY) 867.50p -0.63%
FTSE 250 - Risers
Amec Foster Wheeler (AMFW) 572.50p 6.61%
SIG (SHI) 126.20p 6.05%
Smurfit Kappa Group (SKG) 1,949.00p 3.56%
Restaurant Group (RTN) 421.70p 3.51%
Ladbrokes (LAD) 162.40p 3.51%
Shawbrook Group (SHAW) 231.00p 3.40%
Hastings Group Holdings (HSTG) 223.30p 3.33%
CLS Holdings (CLI) 1,585.00p 3.06%
Centamin (DI) (CEY) 169.00p 2.99%
Hochschild Mining (HOC) 277.60p 2.81%
FTSE 250 - Fallers
Worldwide Healthcare Trust (WWH) 2,020.00p -4.63%
Ascential (ASCL) 254.60p -4.11%
Carillion (CLLN) 270.40p -4.01%
Computacenter (CCC) 741.50p -3.20%
Vesuvius (VSVS) 348.00p -3.06%
Allied Minds (ALM) 372.80p -2.97%
Big Yellow Group (BYG) 724.50p -2.62%
BBA Aviation (BBA) 245.80p -2.38%
OneSavings Bank (OSB) 283.60p -2.24%
IP Group (IPO) 189.80p -2.01% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks saved by the bell after Yellen speech European stocks finished higher following the much-awaited speech from Fed chief Janet Yellen, amid a flurry of volatility in all asset classes as traders and investors digested her remarks.
The benchmark Stoxx Europe 600 index gained 1.70 points or 0.50% to end the day at 343.72, just before short-term US interest rates turned around and rose, dragging the main Wall Street stock indices lower.
France's CAC 40 rose 0.80% or 35.26 points to 4,441.87 while Germany's DAX finished 0.55% or 58.18 points higher at 10,587.77.
"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," she said in a prepared speech.
To take note of, following her speech her number two at the Fed, vice-chair Stanley Fischer, reportedly said her comments were consistent with a possible September hike.
As of 1740BST Fed funds futures were assigning a 60.3% probability to a 25 basis point rate hike on 14 December, when the US central bank was next scheduled to meet.
Front month Brent futures edged lower by 0.34% to $49.50 per barrel on the ICE. West Texas Intermediate was up 0.063% at $47.36 a barrel.
On the corporate front, Gemalto racked up healthy gains following the release of its second-quarter numbers, while Volkswagen advanced on news of a diesel-related settlement with US dealers.
BAE Systems was up after Berenberg upgraded the stock to 'buy' from 'hold', saying it expects a material order book uplift.
Restaurant Group was a high riser after saying it swung to a pre-tax loss in the first half on the back of restructuring costs and announcing the closure of 33 outlets.
Media group Vivendi was in the red after posting a drop in second-quarter adjusted net income and saying it will cut €300m in costs from its pay-TV unit.
Money supply growth in the euro area slowed to its lowest pace in 19 months in July, reflecting slower economic activity, leaving economists somewhat divided on the outlook for trends in lending.
So-called "narrow" money supply (M1) growth slowed from the 8.7% year-on-year pace observed in June to 8.4% in July, according to the European Central Bank.
Capital Economics's Jack Allen highlighted the still "large" gap between lending in the likes of France and Germany and the Eurozone periphery, with lending in Italy shrinking at an accelerated rate in Italy over recent months. |
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| | US Market Report | | US open: Stocks gain as Yellen signals rate hike US stocks rose on Friday as Federal Reserve chair Janet Yellen signalled the possibility of an interest rate hike at next month's meeting.
At 1538 BST, the Dow Jones Industrial Average rose 0.54% to 18,547.23 points, the S&P 500 edged up 0.61% to 2,185.71 points and the Nasdaq climbed 0.70% to 5,248.87 points.
Speaking at the Jackson Hole conference, Yellen said the case for an increase in the federal funds rate has strengthened in recent months in light of a robust labour market and an upbeat outlook on economic growth and inflation.
Her remarks were seen to suggest the Fed may raise rates at the 20-21 September policy meeting, or at least in the coming months.
However, Yellen stressed: "Our decisions always depend on the degree to which incoming data continues to confirm the (Fed's) outlook."
Craig Erlam, senior market analyst at Oanda, said: "The pre-prepared text from Yellen's speech at Jackson Hole today didn't necessarily offer much in the way of surprises but it did confirm one thing, there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board."
The dollar weakened against most major currencies following Yellen's remarks, down 0.20% against the pound and down 0.22% versus the yen, but up 0.03% against the euro.
Oil prices gained in response to the weaker dollar as it makes crude imports cheaper for holders of other currencies. Brent crude jumped 1.4% to $50.42 per barrel and West Texas Intermediate rose 1.6% to $48.11 per barrel
The two-year Treasury yield dropped by two basis points to 0.776%
Earlier, the second estimate of US economic growth in the second quarter was revised lower.
Gross domestic product expanded at an annualised 1.1% in the second quarter, the Commerce Department, slightly down from the initial estimate of 1.2%. but in line with analysts' expectations.
Personal consumption in the US was revised to a 4.4% gain in the second quarter from a previous estimate of 4.2%. It marked the fastest rate of growth since the fourth quarter of 2014.
"Altogether, the second estimate of Q2 GDP does little to alter the view of economic activity in the second quarter. Personal consumption rebounded sharply in the quarter as household spending on durable goods reversed its weak first-quarter showing," said Barclays Research analyst Michael Gapen.
"Business investment remains soft, with structures investment continuing to reflect the lagged effects of declines in energy prices, and residential investment looks to have taken a breather after very strong growth throughout 2015. "
The US trade deficit narrowed to a seasonally adjusted $59.3bn in July from $64.5bn in June, the Commerce Department said separately. Exports rose by $2.9bn during the month while imports shrank $2.4bn.
Another report showed US consumer sentiment eased in August. The University of Michigan's final reading of the consumer sentiment index fell to 89.8 from 90.0 the month before and 91.9 in August last year. It was below the flash reading of 90.4.
In company news, Anheuser-Busch InBev NV gained even as it warned on Friday its beer merger with SABMiller could lead to thousands of job losses in the coming years.
Herbalife Ltd. slumped after reports billionaire investor Carl Icahn has recently been in talks to sell his stake in the nutritional-products company. |
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| | Broker Tips | | Broker tips: CRH, Amec Foster Wheeler, BAE Societe Generale downgraded its recommendation on building materials group CRH to 'hold' from 'buy' following the stock's outperformance.
The bank said CRH's equity story is still attractive, but after the 31% year-to-date outperformance versus the broader market, the medium-term growth potential is already captured in the share price.
"We still like its value-creating M&A strategy and expect organic growth momentum to continue. But we believe the current stock price already factors in the medium term growth potential.
"In our view, management's 2016 guidance is easily reachable. We forecast FY16 EBITDA at €3.2bn and expect net debt/EBITDA to be 1.9x at year-end."
SocGen said the company reported a good set of numbers on Thursday, with earnings before interest, tax, depreciation and amortisation of €1.12bn, slightly ahead of the pre-trading update figure of €1.1bn in July.
The bank noted CRH has been one of the best-performing stocks in the building materials space, gaining 25.3% year-to-date versus the Stoxx Europe 600's return of -5.7%.
The bank lifted its price target on the stock to 2,700p from 2,430p.
Morgan Stanley upgraded Amec Foster Wheeler to 'overweight' from 'equalweight' and bumped up the price target to 700p from 500p saying restructuring should outweigh disposals.
The bank attributed the price target lift to increased confidence that the new CEO will drive a better earnings and returns outlook through restructuring than it previously expected.
"The new savings cost plan, likely to be announced at the strategy update on November 15, should offer more than enough scope to offset the loss of approximately £80m earnings before interest, tax and amortisation associated with £500m of asset disposals."
The bank said it expects the new CEO to focus on monetising the significant cost savings potential it sees, in addition to the existing cost savings plan.
MS forecasts £100m of further annualised savings starting from the first half of next year, with full impact in 2019.
"We expect the stock to re-rate as the cost savings story develops and the cycle continues to improve," it said.
In terms of downside risks, MS said balance sheet concerns may return if the planned £500m of asset disposals does not go ahead.
A further risk is that the cost savings potential is less than it assumes and the market begins to price this in.
Berenberg upgraded BAE Systems to 'buy' from 'hold' and lifted the price target to 580p from 520p.
The bank said it expects a material order book uplift, an improving cash profile in 2017 - with potential upside to guidance - and a secure progressive dividend across its forecast.
"We anticipate a material order intake, which could generate a 10-20% uplift to the £36.6bn order book (as at H1 FY 2016)."
Following the UK parliamentary vote in favour of funding the Successor programme, Berenberg expects an award in excess of £1bn, possibly as early as September, to reflect the commencement of the production phase for one year.
In addition, it anticipates the renewal of a five-year Saudi support contract, the total value of which it estimates at around £7bn, and an original equipment order for an additional 48 Typhoon aircraft, which it values at around £4bn. | | |
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