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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 finish higher as US GDP surges past expectations London stocks finished higher on Friday as data showed the US economy grew at the fastest pace in two years in the third quarter.
The FTSE 100 closed up 0.14% to 6,996.26 points.
US gross domestic product increased an annualised 2.9% in the third quarter after rising 1.4% in the second. It marked the strongest rise since the third quarter of 2014 and beat expectations of 2.5%.
Capital Economics said: "The bigger than expected 2.9% annualised gain in third-quarter GDP confirms that the economic recovery has regained some of the momentum lost within the last year.
"As such, this leaves the Fed firmly on track to raise interest rates in December and a hike at next week's Federal Open Market Committee meeting isn't entirely out of the question."
On the downside for the US, a report from the University of Michigan showed consumer confidence fell more than expected in October. The consumer confidence index slipped to 87.2 in October from 91.2 in September, compared to forecasts of 88.1. It matched a September 2015 reading as the weakest since October 2014.
However, University of Michigan survey director Richard Curtin said the decline in confidence may be a "temporary bout of uncertainty" caused by the elections.
Closer to home, the pound fell against the dollar as worries about Brexit grew after data showed a decline in consumer confidence and after two legal challenges on the EU referendum were rejected. The pound dropped 0.21% to $1.2139 at 1634 BST.
A survey from market research firm GfK showed UK sentiment dropped in October for the first time since the Brexit vote on 23 June, with its consumer confidence index down to -3 from -1 the month before.
Meanwhile, the YouGov/Cebr consumer confidence index fell to 109.3 in October, marking its lowest level since 2013 apart from the drop in July after the UK voted to leave the EU.
Pantheon Macroeconomics economist Samuel Tombs said rising inflation and the perception that "hard Brexit" risks have increased are beginning to dampen sentiment.
"Going forward, we continue to think that consumer confidence will embark on a downward path as inflation continues to rise and job prospects worsen," he said.
Adding to worries about Brexit, the High Court in Belfast rejected two legal challenges on the referendum. A judge ruled that the 1998 Good Friday Agreement did not prevent the government from triggering Article 50, the clause in the Lisbon treaty which will start a two-year clock on formal negotiations to leave the EU.
In corporate news, British Airways and Iberia parent International Consolidated Airlines Group flew higher as it reported a 3.6% drop in third-operating profit before exceptional items to €1.2bn, which was a touch above analysts' expectations.
Housebuilders Barratt Developments, Taylor Wimpey and Persimmon all gained, with traders pointing to a media report that privately-owned housebuilder Cala Group has been approached about a takeover by a mystery Chinese bidder ahead of a government push to deliver one million new homes by 2020.
Chemicals company Elementis surged after confirming it expects overall earnings for the year to be in line with market views. The group said on Friday that sales for specialty products rose in the third quarter but the chromium business remained "challenging".
Electrocomponents was a high riser as Liberum initiated coverage of the stock at 'buy' with a 420p price target, which implies total return potential of 18%.
Royal Bank of Scotland slumped after the bank reported a loss attributable to shareholders of £469m compared to a profit of £940m in the same period last year as it took a hit from litigation and restructuring costs.
Berendsen was under the cosh a day after it issued a profit warning, as HSBC downgraded the stock to 'hold' from 'buy'.
Unite Group was also hit by a broker note, as Morgan Stanley downgraded its stance on the company to 'underweight' from 'overweight' and cut the price target to 590p from 700p. |
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| Market Movers
FTSE 100 (UKX) 6,996.26 0.14%
FTSE 250 (MCX) 17,644.83 0.36%
techMARK (TASX) 3,395.70 -0.10%
FTSE 100 - Risers
International Consolidated Airlines Group SA (CDI) (IAG) 438.00p 5.93%
Sainsbury (J) (SBRY) 254.00p 4.10%
Barratt Developments (BDEV) 456.70p 4.06%
easyJet (EZJ) 952.50p 3.42%
Next (NXT) 4,968.00p 3.37%
Carnival (CCL) 3,873.00p 3.22%
Whitbread (WTB) 3,635.00p 2.95%
Taylor Wimpey (TW.) 142.90p 2.88%
Pearson (PSON) 762.50p 2.62%
Persimmon (PSN) 1,714.00p 2.57%
FTSE 100 - Fallers
Shire Plc (SHP) 4,781.50p -3.40%
Intu Properties (INTU) 276.00p -1.92%
Prudential (PRU) 1,369.00p -1.90%
Hikma Pharmaceuticals (HIK) 1,780.00p -1.77%
Admiral Group (ADM) 1,898.00p -1.40%
Royal Bank of Scotland Group (RBS) 194.00p -1.22%
DCC (DCC) 6,590.00p -1.20%
St James's Place (STJ) 951.00p -0.99%
RSA Insurance Group (RSA) 550.50p -0.90%
Rolls-Royce Holdings (RR.) 734.50p -0.81%
FTSE 250 - Risers
Elementis (ELM) 238.40p 11.14%
Just Eat (JE.) 535.00p 5.63%
Electrocomponents (ECM) 381.60p 4.78%
Crest Nicholson Holdings (CRST) 413.80p 3.71%
Redrow (RDW) 386.10p 3.68%
Hastings Group Holdings (HSTG) 216.80p 3.24%
Sophos Group (SOPH) 231.80p 3.07%
Countryside Properties (CSP) 235.90p 2.88%
Go-Ahead Group (GOG) 2,116.00p 2.62%
Ladbrokes (LAD) 135.00p 2.58%
FTSE 250 - Fallers
Berendsen (BRSN) 984.50p -4.42%
Hunting (HTG) 492.90p -3.35%
Unite Group (UTG) 563.00p -3.26%
Softcat (SCT) 321.20p -3.08%
Amec Foster Wheeler (AMFW) 452.00p -2.98%
CLS Holdings (CLI) 1,529.00p -2.80%
Safestore Holdings (SAFE) 359.60p -2.78%
Vectura Group (VEC) 135.80p -2.37%
AO World (AO.) 163.30p -2.22% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Shares end week on a mixed note European stocks were mostly lower on Friday following some disappointing corporate releases despite a better-than-expected reading on thuird quarter US gross domestic product.
The benchmark Stoxx Europe 600 index was down 0.27% by the close alongside a loss of 0.19% for Germany's DAX while France's CAC 40 gained 0.33%.
Gross domestic product expanded at a quarterly annualised pace of 2.9%, the Department of Commerce said, ahead of the 2.6% forecast by economists and growth of 1.4% in the second quarter.
The core price deflator for personal consumption expenditures, contained in the same report, advanced at a 1.7% pace, down from the 1.8% seen in the previous quarter.
Rob Martin at Barclays Research labeled the underlying details of the report "solid", although the softness in capital and consumer goods imports "remain a source of concern".
At the same time, oil prices were a little weaker amid ongoing doubts over whether OPEC and non-OPEC producers will agree an output cut to ease the glut. West Texas Intermediate was down 0.95% at $49.25 a barrel and Brent crude was off 0.84% to $50.05.
Banking stocks were in the spotlight again, with numbers out from UBS, BNP Paribas and Royal Bank of Scotland.
The Stoxx 600 index of banks´ shares retreated 0.30%.
UBS was in the black despite reporting a big drop in third-quarter net profit on the year, while BNP Paribas slipped despite posting better-than-expected revenue and third profit for the third quarter.
Royal Bank of Scotland reversed earlier gains to trade lower after its third-quarter update. The bank reported a loss attributable to shareholders of £469m compared to a profit of £940m in the same period last year as it took a hit from litigation and restructuring costs. However, adjusted operating profit came in at £1.3bn, up from £1.1bn the year before and beating company-compiled consensus of £734m.
Away from banks, Anheuser Busch InBev was sharply lower after it said volumes dropped in the third quarter and cut its outlook for the full year.
Shares in Novo Nordisk tumbled after it downgraded its full-year sales and operating profit guidance on the back of weak US markets and reported a drop in operating profit for the first nine months of the year, while Gemalto also tanked following a weaker-than-expected outlook for next year.
Drug maker Sanofi pushed up after its earnings surpassed expectations and it raised its outlook for the year, but Total slipped despite posting better-than-forecast net profit for the third quarter.
British Airways and Iberia parent International Consolidated Airlines Group gained ground despite reporting a drop in third quarter operating profit before exceptional items to €1.21bn from €1.25bn a year ago and cutting its earnings outlook. |
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| | US Market Report | | US open: Stocks waver as GDP grows more than expected US stocks wavered on Friday as data revealed that gross domestic product rose at the fastest pace in two years, raising expectations the Federal Reserve will hike interest rates in December.
At 1502 BST, the Dow Jones Industrial Average rose 0.11% to 18,190.26 points, but the S&P 500 fell 0.02% to 2,132.54 points and the Nasdaq declined 0.08% to 5,211.63 points.
Oil prices retreated ahead of a weekend meeting of OPEC producers in Vienna, amid doubts that the cartel will agree to cut supply to ease the glut.
Brent crude was down 0.839% to $50.05 a barrel and West Texas Intermediate was decreased by 1.016% to $49.22 at 1506 BST.
The Commerce Department said US GDP rose 2.9% in the third quarter, after rising 1.4% in the second.
It was the strongest rise since the third quarter of 2014 and beat expectations of 2.5%.
Paul Sirani, chief market analyst at Xtrade, said the last time GDP growth surged past 2% the Federal Reserve raised interest rates and with Friday's numbers flying above that watermark, history may be about to repeat itself.
"The world's largest economy is being fuelled by a buoyant jobs market, strong levels of consumer spending and healthy trade. If the indicators continue to point upwards for the US then Fed Chair Janet Yellen will look to stop things boiling over.
"Many believe that today's big bump in growth will assure a December rate rise, but with a US election just weeks away, nothing is certain."
This was echoed by analysts at Capital Economics, who said: "The bigger than expected 2.9% annualised gain in third-quarter GDP confirms that the economic recovery has regained some of the momentum lost within the last year.
"As such, this leaves the Fed firmly on track to raise interest rates in December and a hike at next week's Federal Open Market Committee meeting isn't entirely out of the question."
Meanwhile, the market had the opportunity to react to results from technology giants Alphabet and Amazon, who posted their quarterly results after close on Thursday.
Shares in Alphabet, the parent company of Google, climbed 2.22% as it reported better than expected third quarter earnings as revenue was up 20% to $22.45bn. Analyst had expected the company's advertising business to decline after a strong second quarter.
Whereas shares in Amazon tumbled 4.81% as the online retailer missed estimates while expenses surged.
Revenue increased by 29%, in line with expectations, while net income rose to $252m, or 52 cents per share, from $79m last year, below the expected 78 cents. |
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| | Broker Tips | | Broker tips: Unite Group, Electrocomponents, Tesco Morgan Stanley downgraded its stance on Unite Group to 'underweight' from 'overweight' and cut the price target to 590p from 700p.
It said that while fundamentals are holding up for now, several headwinds could affect student numbers medium to long term.
The bank reckons international student numbers could decline as a result of potentially stricter visa rules for non-EU students, who make up 25% of Unite's tenants, and because EU students, which make up 9% of Unite's tenants, face tuition fee hikes following the Brexit vote. It noted that university applications from EU students following Brexit are already down 9% for the academic year starting September 2017.
In addition, it pointed to falling affordability for UK students. "UK students have formed the majority of the increase in undergraduate student numbers in recent years and penetration has grown more among the less affluent than the more affluent. Less well-off students are likely to face increasing affordability issues: i) maintenance grants have been converted to repayable loans, affecting 20% of students (half of whom see the grant as essential for their studies); ii) tuition fees may rise more from 2017; iii) 77% of recent graduates are worried about their student debt."
MS also said there was a risk of oversupply and softening yields. It estimates the current pipeline of purpose built beds equates to about a quarter of existing beds. According to its channel checks, pockets of oversupply are appearing in some markets and demand for secondary assets is softening.
Electrocomponents got a boost on Friday as Liberum initiated coverage of the stock at 'buy' with a 420p price target, which implies total return potential of 18%.
The brokerage said the arrival of a new management team last year has had a dramatic impact on the company's fortunes.
The implementation of a new three-year restructuring programme, alongside initial signs of delivery, has seen the shares surge more than 50% so far this year.
"Despite this strong share price performance we believe that the potential upside from this strategy is yet to be fully reflected. Beyond this we also see structural opportunities from its unique position in both the industrial and electronic markets to drive long-term shareholder value."
Liberum said the group was well placed to deliver full-year 2016 earnings before interest and taxes compound annual growth rate of 19%, with the vast majority of this improvement expected to be delivered by self-help measures, such as warehouse rationalisation, with revenue growth accounting for less than a quarter of the uplift.
The brokerage also pointed to innovations such as DesignSpark, which it reckons management will use to drive long-term value creation.
"We expect the company to talk more about its plans in this arena over the next 12 months, and anticipate similar attempts to create value from trends such as IoT and Big Data. Perhaps the best example of this will be in the field of predictive maintenance which is growing across a number of different industries. Beyond this we also see the growing field of Mechatronics - the integration of electronics with mechanical engineering - as providing the company with a long-term platform from which to grow shareholder value."
Liberum said that while the shares are expensive relative to historic levels, Electrocomponents' valuation relative to its growth potential leaves it screening positively compared to the majority of its global peers.
Tesco's shares fell on Friday as Credit Suisse reiterated an 'underperform' rating and target of 130p, citing "structural problems".
Credit Suisse said while Tesco reported a 34.4% increase in operating profit to £515m in the first half, it was "not from better trading".
Tesco posted a return to sales growth in the first six months of the year, up 0.6% in the UK. However, pre-tax profit dropped 28.3% to £71m as the supermarket invested in efforts to regain market share amid fierce competition in the sector.
"On October 5, Tesco reported strong UK operating profit, bolstering its claim that the core business is back on track - we are not yet of that view," said Credit Suisse analyst Stewart McGuire.
"More than 100% of operating profit was generated via cost savings and we estimate that like-for-like sales at its largest stores (which constitute almost 50% of space) remain materially negative once online sales are excluded."
Credit Suisse said Tesco's results showed weak free cash flow and a deteriorating balance sheet. Retail free cash flow fell from £281m in the first half of fiscal year 2016 to £203m in the first half of 2017. Total debt rose by nearly £2.5bn to £18bn, even after including one-time disposals of subsidiaries and properties as well as working capital inflows, the analyst noted.
Tesco also revealed a three-year, £1.5bn cost savings programme, which would represent a 2.7% increase in group margin at current trading levels.
"The company has scheduled a capital markets day on 16 November; until then, we remain sceptical of reaching such lofty targets," McGuire said.
"We incorporate £100m and £300m of net cost savings for fiscal years 2018 and 2019, respectively, but keep our below consensus estimates unchanged."
Credit Suisse, however, raised its full year 2017 forecast on UK and return on investment earnings before interest and tax by 16%, driven by the cost savings programme. The 2018 and 2019 estimates were also lifted by 17% and 49%, respectively.
The bank increased its UK terminal margin from 2.2% to 2.5% after Tesco restated is like-for-like numbers.
"However, any benefits from these changes are substantially offset by the £3.2bn increase in debt due to pension liabilities," McGuire said. | | |
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