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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 fall back amid weak jobs data Stocks in London ended the session moderately lower as markets digested a weaker reading on the UK labour market while bond investors continued to focus on comments from central bankers and political developments in Washington.
The FTSE 100 ended the day down by 0.63% or 43.02 points at 6,749.72. Meanwhile, oil prices retreated, with Brent crude 0.64% weaker at $46.64 per barrel on the ICE.
In parallel, the yield on the benchmark 10-year gilt was unchanged at 1.38% and off an intra-day high of 1.44%, while the pound was also off its weakest levels against the greenback, trading just 0.01% lower at 1.2458.
Acting as a backdrop, the latest slate of Fed speakers offered disparate views on the likelihood of a December interest rate hike by the US central bank.
Speaking from London, St.Louis Fed president James Bullard said only a "surprise" might keep the Fed from tightening, while his opposite number at the Minneapolis Fed said he wanted to see progress on core inflation, inflation expectations and the unemployment rate before he would throw his hat in the ring and back a move.
Britain's labour market cooled more than expected in September and October, although economists did not appear especially put off by the data.
Employment growth in the UK slowed sharply over the three months to September, rising by 49,000 versus August´s increase of 106,000 (consensus: 91,000).
The rate of unemployment on the other hand dipped from 4.9% to 4.8% (consensus: 4.9%), its lowest level since mid-2005, as the number of people out of work was cut by 52,000, the largest month-on-month since April 2014.
However, the claimant count jumped by 9,800 (consensus: 500) and average weekly earnings were ahead by only 2.3% year-on-year in the quarter ending in September (consensus: 2.5%).
"The UK labour market continued to show resilience in September [...] Indeed, it is too early to see an impact from the leave vote at the EU referendum on the UK labour market, in our view.
"We expect the referendum outcome to push up unemployment only gradually, likely at the turn of the year, and subsequently prevent upward wage growth pressures from building, thus forcing households to be more prudent and reduce private consumption by end-2017," was the view from Barclays Research.
Regarding the news-flow from Capitol Hill, Jasper Lawler at CMC Markets said: "There has been a lot of hoo-hah over Donald Trump's cabinet appointments as well as a staff reshuffle. Concern that a disorganised transition of power bodes badly once Trump is in the White House is understandable, though probably a little premature at this early stage."
Reports on Wednesday morning referenced "infighting" among Donald Trump's transition team surrounding his foreign policy appointments, with Eliot Cohen, a leader of the anti-Trump Republicans, coming out against the President-elect.
However, earlier in the week Trump had received the endorsement of one of the Republican party's oldest hands, Brent Scowcroft, one of George H.W. Bush's national security advisers in the early 90s.
In corporate news, housebuilder Barratt Developments slumped lower after saying in a trading update that sales in July had risen by 4.3% but cautioning that the housing market was becoming more challenging.
Peer British Land also ended lower as it posted higher profits for the first half of the year but said it expects to proceed more cautiously in property development as it noted a change in the behaviour of property markets since the Brexit vote.
ICAP plummeted after it reported a drop in first-half trading profit. Analysts at Numis described the inter-dealer broker's interim results as "mixed" and the firm's lower-than-expected guidance for its 2018 dividend towards 7.0 to 8.0p (Numis: 16.0p). "Following the shares strong recent performance, we move our recommendation to HOLD from BUY," the broker said.
On the upside, insurer Prudential drifted lower despite reporting a 19% jump in new business profit in the first nine months of the year and saying it plans to boost its dividend by 5% a year.
Rolls-Royce fell even after saying its outlook for 2016 remained unchanged for revenue, profit and cash. The aerospace and defence company said it would benefit from weaker sterling and life cycle cost reductions which would more than offset higher engineering and programme costs in its civil aerospace unit.
Temporary power provider Aggreko advanced as it said it expects full-year 2016 results to be broadly in line with current market expectations, with pre-exceptional profit before tax of around £225m.
Severn Trent ticked up after it agreed to buy water service provider Dee Valley Group for about £78.5m.
Shares in Morrisons slipped as analysts at HSBC said that while Sainsbury and Morrisons face the double whammy of rising costs and weak sales, with cost savings programmes offering only a temporary salve, Tesco was winning market share and with growing momentum was on a virtuous circle.
Morrisons also said it was launching a store pick service with Amazon for its online customers.
Cranswick was in the black as the FTSE 250 food producer announced the acquisition of Northern Irish pork processing business Dunbia Ballymena for an undisclosed sum.
Great Portland Estates was on the backfoot after completing the sale of 73/89 Oxford Street and 1 Dean Street in London to Norwegian sovereign wealth fund Norges Bank Real Estate Management for £276.5m.
Anglo American was stronger after Goldman Sachs upped to the stock to 'buy' from 'sell', while Electrocomponents surged after HSBC raised its rating on the stock to 'buy'. |
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| Market Movers
FTSE 100 (UKX) 6,749.72 -0.63%
FTSE 250 (MCX) 17,473.97 -0.56%
techMARK (TASX) 3,300.72 -0.27%
FTSE 100 - Risers
Relx plc (REL) 1,332.00p 2.94%
Severn Trent (SVT) 2,186.00p 2.20%
WPP (WPP) 1,677.00p 1.83%
3i Group (III) 630.00p 1.37%
ITV (ITV) 167.00p 1.21%
Johnson Matthey (JMAT) 3,335.00p 1.18%
Sage Group (SGE) 660.00p 0.99%
TUI AG Reg Shs (DI) (TUI) 1,030.00p 0.78%
Polymetal International (POLY) 791.00p 0.76%
Diageo (DGE) 2,002.50p 0.75%
FTSE 100 - Fallers
CRH (CRH) 2,701.00p -2.88%
Barratt Developments (BDEV) 469.70p -2.77%
easyJet (EZJ) 1,060.00p -2.48%
Wolseley (WOS) 4,499.00p -2.47%
British Land Company (BLND) 592.50p -2.31%
Centrica (CNA) 199.80p -2.30%
Standard Life (SL.) 347.40p -2.14%
Burberry Group (BRBY) 1,383.00p -2.12%
Rolls-Royce Holdings (RR.) 740.00p -2.12%
Travis Perkins (TPK) 1,388.00p -2.12%
FTSE 250 - Risers
Paysafe Group (PAYS) 411.00p 5.60%
Vedanta Resources (VED) 801.50p 5.46%
B&M European Value Retail S.A. (DI) (BME) 255.50p 4.49%
Polypipe Group (PLP) 300.60p 4.38%
NMC Health (NMC) 1,369.00p 2.71%
Ibstock (IBST) 180.10p 2.16%
Riverstone Energy Limited (RSE) 1,279.00p 2.16%
Kaz Minerals (KAZ) 339.50p 2.07%
Petra Diamonds Ltd.(DI) (PDL) 151.40p 1.95%
Electrocomponents (ECM) 371.60p 1.81%
FTSE 250 - Fallers
ICAP (IAP) 476.20p -10.57%
Ocado Group (OCDO) 258.20p -8.50%
Euromoney Institutional Investor (ERM) 1,031.00p -5.65%
Aggreko (AGK) 765.00p -4.61%
Allied Minds (ALM) 350.00p -3.59%
AO World (AO.) 157.70p -3.25%
Hochschild Mining (HOC) 228.70p -3.13%
Tullett Prebon (TLPR) 410.70p -3.09%
Mitie Group (MTO) 211.70p -3.02% |
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| | US Market Report | | US open: Stocks retreat following previous Trump gains US stocks retreated after previous gains following Donald Trump's election victory, as investors' confidence of a rate hike from the Federal Reserve grew.
The Dow Jones Industrial Average dropped 0.23% to 18,879.54 points and the S&P 500 decreased by 0.06% to 2,179.02 points, but the Nasdaq edged higher by 0.41% to 5,297.10 points at 1541 GMT.
On the data front, the US producer price index was flat in October on weak services, following September's 0.3% increase, and below the 0.3% consensus forecast.
In the year to October, the index increased 0.8%, the biggest gain since December 2014, following a 0.7% rise last month, and below the 1.2% last year.
While US industrial production also remained unchanged in October following a 0.2% drop in September, economists had expected output to rise 0.2%.
September's figure was revised down from a previously-reported 0.1% increase. Manufacturing output increased 0.2%, while mining climbed 2.1%, its biggest rise since March 2014.
Chris Williamson, chief business economist at IHS Markit, said even though factories stepped up production less than expected in October, the shortfall is unlikely to dissuade the Fed hiking interest rates in December.
"The resilient economic growth at the start of the fourth quarter, a strengthening labour market and signs of inflation creeping higher mean the Fed looks almost certain to hike interest rates again on 14 December. Inflation rose to a near two-year high of 1.5% in September and financial markets are pricing in further upward pressure on prices resulting from the stimulative policies likely to be introduced by president-elect Donald Trump.
He said he expected rates to gradually rise to 1.25% by the end of 2017 as the Fed tightens policy in response to a steady acceleration of economic growth and rising inflation, however it remains to be seen how businesses and consumers will react to the surprise election result.
In commodity markets, gold on Comex rose 0.27% to $1,227.80 per troy ounce at 1443 GMT.
Oil prices slipped as the head of the International Energy Agency said that global oil demand would not peak before 2040, despite promises made at the climate change summit in Paris last year to cap greenhouse gas emissions.
Brent crude fell 0.64% to $46.65 per barrel and West Texas Intermediate was down 0.79% to $45.45 at 1441 GMT.
In currency markets, the dollar was down 0.03% against the yen to 109.17, but was 0.1% higher verses sterling to 0.8038 and rose 0.18% against the euro to 0.9343.
In corporate news, shares in Lowe's Companies dropped 1.87% as the DIY store chain's third quarter results missed expectations.
Revenue rose 9.6% to $15.74bn, compared to last year but below the consensus forecast of $15.86bn, while it earned 88 cents, down from the 96 cents estimated.
Whereas Target's shares soared 7.94% as the retailer topped expectations. In the third quarter it earned $1.04 per share, on sales of $16.44bn, ahead of expectations of 83 cents on $16.3bn. Last year Target earned 86 cents on revenue of $17.61bn.
Elsewhere, LinkedIn's shares were up 1.24% following a report that Microsoft has offered concessions to EU regulators to get the okay for its $26bn bid for the social network. |
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| | Broker Tips | | Broker tips: Mitie, Electrocomponents, Anglo American RBC Capital Markets downgraded outsourcing company Mitie 'underperform' from 'sector perform' and cut the price target to 160p from 195p ahead of first-half results.
"We already know H1 will not be good. However, the key question is whether the trading and outlook has improved.
"In our view (and given recent market developments), it is difficult to foresee any real improvement. Ahead of the new CEO being introduced to the market, we therefore make a pre-emptive cut to both forecasts and dividends and move to underperform."
The Canadian bank highlighted the fact that the outlook for UK outsourcers has deteriorated significantly in the last 12 months, with clients looking to transfer more risk to the service provider and margin pressure growing.
"Mitie has already warned, Capita has since followed suit and in our view, it is only a matter of time before this sector is once again under scrutiny for the wrong reasons."
As far as expectations for the first-half numbers are concerned, RBC said revenue is likely to be modestly lower than last year, down 2.5%, while operating profit is likely to be at least 20% lower due to the absence of higher margin work and discretionary spend, and general pricing pressure.
Back in September, Mitie shares tumbled after it issued a surprise profit warning, cutting its profit outlook following the Brexit vote and due to other economic pressures.
HSBC upgraded Electrocomponents to 'buy' from 'hold' and lifted the price target to 430p from 240p as it pointed to the self-help story.
The bank pointed out that investor sentiment towards the company has shifted.
"A company that had been perceived as being doomed to dwindling returns, retreating from internet competition, has become a self-help story. Electrocomponents has refocused its product offering, restructured its cost base, simplified its discounts structure, and addressed its purchasing."
As a result, the group is now less exposed to currency fluctuations and is striving to buy cheaper, hold for less and sell at a better price, HSBC said.
"This requires a sharp focus on what the customer wants, and meeting those demands. The success thus far is impressive, necessitating that we increase our numbers."
The bank upped its pre-tax profit estimate for 2018 by 24% to £128m.
HSBC said that given Electrocomponents has years of under-trading to reverse, as long as the economy is supportive, it can continue to improve.
Goldman Sachs upgraded Anglo American to 'buy' from 'sell' and upped the price target to 1,400p from 400p.
The bank said it might seem odd to upgrade the stock after its 280%+ year-to-date share price rise.
However, it pointed to deleveraging, increased US pending and higher diamond demand.
GS said the free cash flow lift provided by higher commodity prices should see significant deleveraging. In addition, it said inflation and increased confidence in the US economy should see growing consumer spending on luxury items, leading to an increase in diamond purchases.
"This would be a big positive for Anglo as diamonds account for more than 20% of its 2017E earnings before interest, taxes, depreciation and amortisation."
Goldman said metallurgical coal and thermal coal have seen big price increases year-to-date. While the Chinese government has taken action on thermal coal no action has been taken on metallurgical coal, which represents more than 25% of Anglo's 2017E EBITDA.
The bank reckons consensus is still not pricing in the full impact of commodity prices for this year and 2017, which could prompt a wave of upgrade.
As far as the stock's valuation is concerned, it pointed out that Anglo is trading at a significant discount to its historical average and to peers.
GS said the much higher price target is a function of higher commodity price forecast for the next couple of years, significant FCF generation and a weaker GBP/USD rate. |
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