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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 rise ahead of Fed's policy announcement London stocks finished in the green on Wednesday as traders digested the Bank of Japan's policy decision and looked ahead to the Federal Reserve's interest rate announcement.
Japan's central bank maintained its negative interest rate of -0.1% and its quantitative easing programme at 80trn yen a year but said it would aim to keep yields on 10-year government bonds around current levels of 0%. The BoJ's decision not to push interest rates further into negative territory gave banking shares a lift in morning trade, including Asia-focused lenders HSBC and Standard Chartered.
"We expect volatility in Japanese government bonds to decline significantly, while it remains very uncertain how the new framework will affect the 0-10 year segment of the Japanese government bond yield curve," said Danske Bank.
Investors are now awaiting the Federal Reserve's policy decision at 1900 BST. Since the US central Bank is widely expected to keep interest rates unchanged, analysts are more interested in the tone of the policy statement for hints on the timing on the next rate hike.
David Morrison, senior market strategist at SpreadCo, said: "There's very little likelihood that the central bank will tighten monetary policy. Not only has recent US economic data been patchy of late, but the Fed has done nothing to prepare the markets for a rate hike.
"If it announced an increase in its fed funds rate then we can expect market turmoil. While the Fed knows it has to push rates up from current levels, it won't risk cratering the bond and equity markets with a shock move ahead of the Presidential Election."
Closer to home, a Bank of England survey showed economic growth in Britain has slowed in the three months since the UK voted to leave the European Union on 23 June. The report added that business investment and employment are likely to be flat over the coming year.
Meanwhile, UK public sector borrowing fell less than expected in August, official data showed. The Office for National Statistics said public sector borrowing, excluding public sector banks, dropped by £0.9bn to £10.5bn in August compared to the same month a year ago. Analysts had pencilled in £10.2bn.
Elsewhere, oil prices climbed after two separate reports showed a surprise drop in US crude inventories last week.
The Energy Information Agency said US commercial crude oil inventories decreased by 6.2 million barrels last week to 504.6m barrels. Analysts had predicted an increase of 3.4 million barrels.
Overnight, the American Petroleum Institute revealed a 7.5m barrel fall in US crude inventories to 507.2m barrels last week, compared to an estimated increase of 2.8m barrels.
Brent crude jumped 1.7% to $46.69 per barrel and West Texas Intermediate advanced 2.2% to $45.08 per barrel at 1623 BST.
On the company front, Anglo American rallied after Barclays upgraded the stock to 'equal-weight' from 'underweight' and lifted the price target to 845p from 550p on strong valuation support and solid earnings momentum.
Kaz Minerals was also lifted by Barclays raising its rating to 'equal-weight' from 'underweight' and increasing the target to 210p from 130p.
Barclays itself got a boost as HSBC upgraded the stock to 'buy' from 'hold' and lifted the price target to 190p from 150p saying the pending disposal of Barclays Africa will be positive for sentiment.
Imperial Brands slumped after Credit Suisse downgraded its recommendation to 'neutral' from 'outperform' and lowered the price target from 4,250p to 4,000p, citing strained consumer finances and the prospect of stiffer competition.
TUI tanked on reports the tour operator has chosen advisors to launch the sale of a portfolio of specialist travel brands in a deal potentially worth up to €600m as it looks to sell its non-core assets.
Ocado Group was on the back foot after Deutsche Bank downgraded its rating to 'sell' from 'hold' and reiterated a target of 220p, citing the supermarket's cautious outlook on margins in a trading update issued last week. |
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| Market Movers
FTSE 100 (UKX) 6,834.77 0.06%
FTSE 250 (MCX) 17,939.72 0.22%
techMARK (TASX) 3,520.02 -0.38%
FTSE 100 - Risers
Legal & General Group (LGEN) 222.90p 3.82%
Anglo American (AAL) 890.30p 3.81%
Kingfisher (KGF) 380.70p 3.23%
Barclays (BARC) 171.60p 3.09%
Aviva (AV.) 449.50p 2.77%
Fresnillo (FRES) 1,713.00p 2.57%
Sainsbury (J) (SBRY) 249.90p 2.21%
Standard Life (SL.) 355.80p 2.18%
Rio Tinto (RIO) 2,411.00p 2.16%
BHP Billiton (BLT) 1,053.50p 2.03%
FTSE 100 - Fallers
Ashtead Group (AHT) 1,185.00p -2.55%
TUI AG Reg Shs (DI) (TUI) 1,049.00p -2.42%
Hikma Pharmaceuticals (HIK) 2,113.00p -2.13%
BAE Systems (BA.) 534.00p -1.93%
Imperial Brands (IMB) 3,934.00p -1.82%
Reckitt Benckiser Group (RB.) 7,142.00p -1.49%
Mediclinic International (MDC) 926.50p -1.49%
Merlin Entertainments (MERL) 473.00p -1.46%
National Grid (NG.) 1,057.50p -1.40%
Whitbread (WTB) 4,011.00p -1.38%
FTSE 250 - Risers
AO World (AO.) 165.80p 5.27%
Hunting (HTG) 438.00p 4.83%
Evraz (EVR) 154.60p 4.32%
Hochschild Mining (HOC) 269.00p 3.70%
Kaz Minerals (KAZ) 208.70p 3.57%
RPC Group (RPC) 938.50p 3.25%
Galliford Try (GFRD) 1,315.00p 2.98%
Paragon Group Of Companies (PAG) 324.10p 2.95%
Allied Minds (ALM) 327.10p 2.83%
Ibstock (IBST) 165.10p 2.80%
FTSE 250 - Fallers
Ocado Group (OCDO) 254.50p -5.32%
Daejan Holdings (DJAN) 5,690.00p -3.48%
Pets at Home Group (PETS) 234.00p -3.35%
Mitie Group (MTO) 187.40p -2.90%
Thomas Cook Group (TCG) 72.35p -2.89%
Indivior (INDV) 323.60p -2.88%
FirstGroup (FGP) 106.80p -2.47%
Domino's Pizza Group (DOM) 356.30p -2.33%
Ascential (ASCL) 273.20p -2.08% |
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| | Europe Market Report | | | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Investors in holding-pattern ahead of Fed decision European stocks rose, with banks leading the charge after the Bank of Japan stood pat on rates but tweaked its policy framework, as investors looked ahead to a policy announcement from the Federal Reserve.
The benchmark Stoxx Europe 600 index was up 0.43%, Germany's DAX ended 0.41% higher and France's CAC 40 gained 0.48% firmer. Banking stocks were among the best performers, with the Stoxx 600 sub-index for the sector up 2.1%.
Oil prices were in the black after data from the US Department of Energy confirmed figures from the American Petroleum Institute in the previous session showing an unexpected draw-down in stockpiles.
West Texas Intermediate was up 2.41% to $45.14 a barrel as Brent crude gained 1.9% to change hands at $46.77.
The Bank of Japan kept its negative interest rate of -0.1% and its quantitative easing programme at Y80trn a year. However, it set a new target for longer-term interest rates as part of its fight against deflation, as it moved away from policies focusing on expansion of the monetary base towards influencing the shape of the government bond yield curve.
Following a comprehensive review of its policies, the Bank of Japan decided it would aim to keep the yield on the benchmark 10-year debt issued by Tokyo at about 0%, as it continued to aim at lifting consumer price inflation back up to the 2.0% monetary policy target.
In addition, it said its target for repurchasing Y80trn in government bonds per year would now be flexible and would be allowed to fluctuate in the short-term as a result of policymakers' new focus on bond yields.
As far as the Fed is concerned, analysts are expecting US interest rates to remain on hold, with a hike in December now seen as the more likely outcome.
Atif Latif, director of trading at Guardian Stockbrokers, said: "The majority of economists expect the FOMC to keep rates on hold today. According to Bloomberg, only four of the 102 economists surveyed expect a twenty-five basis point hike while the overwhelming majority see no change. Financial markets are also pricing in a relatively low probability of a hike today with Fed-Fund futures implying a 15% chance.
"If rates are kept on hold today, investors will be watching closely for any clues regarding a December hike. The FOMC does like to telegraph its policy moves to investors and they have long asserted that financial markets should not be caught by surprise when they do raise rates. Therefore, if the FOMC shares the current market view that rates will likely rise in December, they may well offer some clues in today's announcement."
In corporate news, Zara owner Inditex nudged lower despite reporting better-than-expected first-half profit, while Zurich Insurance was firmer after announcing plans to merge its corporate and commercial units.
Banco Santander rallied amid reports it has abandoned talks to buy Royal Bank of Scotland's Williams & Glyn branches.
Saga was in the black after its first-half profits were short of management's full year target but the interim dividend was upped by almost a quarter to compensate.
Interserve was up after announcing that its construction joint venture Khansaheb has been awarded an £81m contract by Middle East developer Majid Al Futtaim. |
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| | US Market Report | | US open: Stocks rise as traders mull BoJ and await FOMC policy decisions US stocks gained as traders awaited the Federal Reserve's policy decision after the Bank of Japan altered its stimulus programme.
At 1516 BST, the Dow Jones Industrial Average rose 0.47% to 18,214.54 points, the S&P 500 increased 0.52% to 2,150.92 points and the Nasdaq grew 0.58% to 5,271.40 points.
At the same time, oil prices climbed after data showed a surprise drop in US crude inventories. The American Petroleum Institute revealed a 7.5 million barrel fall in US crude inventories to 507.2 million barrels last week, compared to an estimated increase of 2.8 million barrels.
The Energy Information Agency said US commercial crude oil inventories decreased by 6.2 million barrels last week to 504.6 million barrels.
West Texas Intermediate crude crude jumped 1.8% to $44.90 per barrel and Brent advanced 1.3% to $46.53 per barrel.
Meanwhile, investors are looking ahead to the Federal Reserve's policy decision at 1900 BST. The Fed is widely expected to keep interest rates unchanged. Analysts will be focusing on the tone of the policy announcement for hints on the timing on the next rate increase.
David Morrison, senior market strategist at SpreadCo, said: "There's very little likelihood that the central bank will tighten monetary policy. Not only has recent US economic data been patchy of late, but the Fed has done nothing to prepare the markets for a rate hike.
"If it announced an increase in its fed funds rate then we can expect market turmoil. While the Fed knows it has to push rates up from current levels, it won't risk cratering the bond and equity markets with a shock move ahead of the Presidential Election."
Earlier, the BoJ kept its negative interest rate of -0.1% and its quantitative easing programme at 80trn yen a year but said it would aim to keep yields on 10-year government bonds around current levels of 0%.
In corporate news, CarMax shares dropped after the used car retailer reported second quarter sales that missed forecasts.
General Mills edged lower as the food company posted a drop in profit and revenue in the latest quarter as sales of yoghurt continued to struggle.
Microsoft Corp was higher after saying late on Tuesday that it will bump its quarterly dividend and that it has approved share buyback programme. |
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| | Broker Tips | | Broker tips: Anglo American, Kaz, Barclays, Ocado Barclays upgraded Anglo American to 'equalweight' from 'underweight' and lifted the price target to 845p from 550p on strong valuation support and solid earnings momentum, particularly from the recent rally in coking coal which leaves the balance sheet in a much better position than the bank had expected.
"Had it not been for our cautious outlook on the diamond and platinum group metals markets, and continued labour/political uncertainty in South Africa, we would have been more positive on the investment case," Barclays said.
It said management remains intent on shrinking the business to its core commodities of diamonds, copper and platinum, which it thinks has some merit given these divisions' assets are tier 1 and competitively positioned on its commodity cost curves.
"However, with the balance sheet now in a much better shape, it will be interesting to see any further change in tone around 'value leakage' as witnessed at the interim results, and as such could see the process of further assets sales slowed/delayed."
The bank also upped Kaz Minerals to 'equalweight' from 'underweight', raising the target to 210p from 130p. It said the company has averted more material downside scenarios for equity holders through a combination of strong cost control, so far smooth ramp-up of the Bozshakol and Aktogay projects, and a copper price that has that has allowed it to avoid needing to access debt or equity markets.
"We are constrained from becoming more positive, however, on the grounds that Kaz is trading at parity on EV/EBITDA to Antofagasta on our base case forecasts in 2017-18 with the projects no longer capitalised, while free cash flow yields remain negative; the same is true on spot."
Barclays upgraded South32 to 'overweight' from 'equalweight' and upped the price target to 160p from 80p. It said that despite mark-to-market earnings before interest, tax, depreciation and amortisation having risen almost fourfold from the December lows, the investment case remains attractive.
"This is because it passes the basic tests of having a good weighting of tier 1 assets, a management team that has is focused on and executing a simple strategy for value creation, a very robust balance sheet and extremely cheap valuation metrics."
Barclays downgraded Hochschild Mining to 'equalweight' from 'overweight' but lifted the price target to 280p from 180p. It said that in the near term, the company needs to find the ounces to sustainably increase production and reach its target of 10 years of reserve and resources. "That won't happen overnight," the bank said.
More generally, the bank lifted its stance on the European mining sector to 'positive' from 'neutral'.
Barclays got a boost on Wednesday as HSBC upgraded the stock to 'buy' from 'hold' and lifted the price target to 190p from 150p saying the pending disposal of Barclays Africa will be positive for sentiment.
"The disposal of business held within the Non-Core businesses is a management priority for 2016, and the expectation is that negative income and expenses within Non-Core will be significantly lower in future years," HSBC said.
It said management's contention is that core Barclays, even including the investment bank, is a strong franchise with strong underlying profitability, so the fastest way to produce shareholder value is to exit non-core activities as soon as possible.
"A simple explanation for the group's current £28bn market capitalisation is its £48bn net tangible equity with a sustainable return of 7% evaluated against a cost of equity of 12%. The sustainable return might be considered as a 12% return from the businesses constituting Barclays' Core offset by a five percentage point drag from Non-Core.
"If Non-Core was then entirely eliminated and its residual £8bn of tangible equity transferred to Core, then the Core return would be diluted down but the group would still be left with an overall return of 9.9%. It should then, theoretically at least, have a market value 40% higher than at present."
HSBC said the main downside risks stem from higher household and corporate impairments as the UK economy slows due to the exiting of the European Union and its single market.
Deutsche Bank on Wednesday downgraded its rating on Ocado Group to 'sell' from 'hold' and reiterated a target of 220p after the online supermarket issued a cautious outlook on margins.
Ocado last Tuesday warned that the supermarket price war has been eating into profit margins as it reported its third quarter trading update
"As the market remains very competitive, we are seeing sustained and continuing margin pressure," the group's chief executive, Tim Steiner, said.
The company reported a 19% increase in orders to 226,000 but the average value of each order fell 3.4% to £107.94.
Following the trading update, Deutsche Bank has kept its full year earnings before interest and tax forecast of £21m, 12% below consensus.
The bank noted that Ocado's rival Tesco has experienced slowing online growth, driven by an increase in the minimum basket size for free delivery to £40 from £25, along with a rise in delivery fees. Tesco's online market growth has fallen to 7% in the first half of 2016 from 15% in the first half of 2015.
"Ocado is benefiting from a less competitive Tesco but based on our Ocado profit forecasts, the incremental basket is not profit enhancing, under either model," Deutsche Bank said.
"While we recognise the difficult industry backdrop driving gross margin pressure is outside of management's control, we don't expect this to change."
Deutsche Bank added that Tesco's situation is significantly more material to Ocado's near-term performance than the launch of Amazon Fresh in London. |
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