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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 end session higher as OPEC agrees to cut output London stocks ended the session higher on Wednesday as oil prices jumped on the back of an OPEC deal to slash production.
The FTSE 100 closed up 0.17% to 6,783.79 points.
OPEC agreed to cut production to 32.5m barrels per day, marking the first reduction in the oil cartel's output in eight years.
Saudi Arabia said it would take a "big hit" while Iran was allowed to ramp up production to pre-sanction levels.
Brent crude exceeded the $50 per barrel mark, rising 7.2%, while West Texas Intermediate surged 6.7% to $48.49 per barrel at 1618 GMT.
"The cartel has shown united front and this is what matters the most," said Naeem Aslam at Think Markets. "There have been so many doubts over the year if they have the ability to deliver anything and today they have."
Oil giants Shell and BP were among the top risers on the FTSE 100, benefitting from the increase in oil prices.
In contrast, shares in airlines easyJet and British Airways owner IAG were both lower as higher oil prices will represent an increased cost headwind.
Elsewhere, consumer goods group Unilever advanced on investors' renewed interest in defensive stocks, analyst Mike van Dulken at Accendo Markets said, plus was holding an investor event in London on Wednesday.
Positive broker comment helped hoist Ashtead Group onto the leaderboad, with RBC Capital Markets increasing its price target ahead of the plant hire outfit's second quarter results next week.
Zoopla gained as it reported a rise in full-year profit and revenue and announced the acquisition of estate agency website design and hosting business Technicweb.
Shares in outsourcing group Capita hit a 10-year low after analysts at HSBC warned the shares had the potential to crumble yet further than their already precipitous plunge since September's profit warning.
Pub group Greene King was in the red as it reported a jump in first-half profit but warned over rising consumer and cost pressures.
Royal Bank of Scotland shares declined after failing all of the Bank of England's annual stress tests and was forced to submit plans to strengthen its balance sheet. The lender has agreed a revised capital plan with the Bank of England's Prudential Regulation Authority to raise at least £2bn of extra capital.
Rivals Barclays and Standard Chartered failed some BoE requirements but will not require fresh capital.
Speaking on the risks to UK banking following the stress test results, BoE Governor Mark Carney warned the EU will face major hits to its economy if it does not agree to a transitional period to allow banks and finance firms time to adapt to Brexit.
On the economic data front, private sector employment in the US rose much more than expected in November, according to ADP.
Employers added 216,000 jobs, which was a much bigger increase than the 165,000 expected by economists. Meanwhile, the October figure was revised down to show that 119,000 jobs had been added rather than the 147,000 previously estimated.
The Commerce Department revealed US personal spending climbed 0.3% in October following an upwardly revised 0.7% increase a month earlier, missing forecasts for a 0.5% gain.
Personal incomes expanded 0.6% last month after an upwardly revised 0.4% rise in September, beating estimates for unchanged growth.
The personal consumption expenditures (PCE) price index rose an unchanged 0.2% month-on-month in October. The core PCE, which excludes food and energy prices and is the Federal Reserve's preferred measure of inflation, gained 0.1% month-on-month after rising by the same margin in September.
Data from the National Association of Realtors showed US pending home sales nudged up in October. The NAR's monthly index inched up to 110.0 last month from a slight downward revision of 109.9 in September and in line with consensus forecasts.
Closer to home, the latest survey from market research firm GfK revealed UK consumer and business confidence fell further in November amid worries about the impact of the Brexit vote.
GfK's long-running consumer confidence index fell five points to -8, missing expectations of a decline to -4. |
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| Market Movers
FTSE 100 (UKX) 6,783.79 0.17%
FTSE 250 (MCX) 17,545.75 0.08%
techMARK (TASX) 3,251.66 -0.72%
FTSE 100 - Risers
Royal Dutch Shell 'B' (RDSB) 2,118.50p 4.28%
Royal Dutch Shell 'A' (RDSA) 2,026.00p 3.95%
BP (BP.) 459.45p 3.82%
Ashtead Group (AHT) 1,567.00p 3.71%
3i Group (III) 689.00p 2.45%
Pearson (PSON) 795.50p 2.18%
Unilever (ULVR) 3,196.00p 2.11%
Hikma Pharmaceuticals (HIK) 1,701.00p 1.92%
Standard Chartered (STAN) 641.10p 1.55%
Coca-Cola HBC AG (CDI) (CCH) 1,700.00p 1.49%
FTSE 100 - Fallers
Capita (CPI) 524.50p -5.92%
Fresnillo (FRES) 1,200.00p -2.76%
Sage Group (SGE) 657.50p -2.66%
Rio Tinto (RIO) 2,990.00p -2.51%
Randgold Resources Ltd. (RRS) 5,700.00p -2.48%
International Consolidated Airlines Group SA (CDI) (IAG) 433.50p -2.47%
Imperial Brands (IMB) 3,433.00p -2.42%
AstraZeneca (AZN) 4,149.50p -2.27%
United Utilities Group (UU.) 883.00p -2.21%
easyJet (EZJ) 990.00p -2.08%
FTSE 250 - Risers
Cairn Energy (CNE) 208.60p 14.18%
Tullow Oil (TLW) 297.80p 13.32%
Hunting (HTG) 540.00p 9.36%
Brewin Dolphin Holdings (BRW) 287.40p 9.32%
Euromoney Institutional Investor (ERM) 1,078.00p 7.80%
RPC Group (RPC) 1,077.00p 7.49%
Amec Foster Wheeler (AMFW) 436.80p 7.14%
Zoopla Property Group (ZPLA) 334.90p 4.98%
Britvic (BVIC) 571.50p 4.29%
Sports Direct International (SPD) 309.00p 4.22%
FTSE 250 - Fallers
Playtech (PTEC) 859.00p -6.83%
Rank Group (RNK) 194.20p -4.33%
Cranswick (CWK) 2,240.00p -3.74%
Greene King (GNK) 686.50p -3.51%
Restaurant Group (RTN) 324.90p -3.48%
Moneysupermarket.com Group (MONY) 265.00p -3.28%
IP Group (IPO) 138.10p -3.22%
Man Group (EMG) 113.50p -2.99%
GVC Holdings (GVC) 652.00p -2.90%
Mitchells & Butlers (MAB) 227.20p -2.86% |
| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Oil stocks drive slight gains, FTSE Mib outperforms European stocks finished slightly higher after member countries from the Organisation of Petroleum Exporting Countries agreed to cut their combined output and amid better-than-expected economic data released on both sides of the Atlantic. The benchmark Stoxx 600 edged up 0.31%, France’s CAC 40 rose 0.59% and Germany’s DAX edged 0.19% higher. OPEC agreed to cut its production by 1.2m barrels a day to 32.5m b/d, according to reports citing delegates. Iran, however, would be allowed to continue increasing its output to roughly 3.9m b/d with a view so as to allow Tehran to recover its share of the market prior to the imposition of international sanctions on Iran. Furthermore, the Russian Federation agreed to reduce its own output of oil by 300,000 barrels a day, a spokesman for OPEC said at a press conference following OPEC's meeting. West Texas Intermediate and Brent crude rose 7.9% and 7.5% to $49.09 and $50.14 per barrel, respectively. The Stoxx oil and gas index rose 3.55%. On the data front, inflation in the Eurozone rose to its highest level since early 2014 in November, in line with expectations, according to a 'flash' estimate released by Eurostat. Consumer prices in the euro area were up 0.6% from a year ago, compared to 0.5% in October while core inflation, which excludes unprocessed food, alcohol, tobacco and energy prices, was up by 0.8% year-on-year compared to 0.7% in October. Pantheon Economics Chief Eurozone economist Claus Vistesen said: “These data won’t change the ECB’s position much. We continue to think that the central bank will extend QE by six months to Q3 2017 when it convenes for its December meeting next week. EZ inflation likely will rise sharply in Q1 as base effects from the crash in oil prices push the energy component higher, but the ECB has already stated that it intends to look through that. Core inflation, meanwhile, will remain well below the target of 2%, supporting a decision to prolong stimulus.” Meanwhile, Germany’s unemployment rate came in at 6%, unchanged from the previous month and in line with economists’ expectations. The number of unemployed people on the other hand fell by a seasonally-adjusted 5,000, also as expected, following a drop of 13,000 people the month before. Vistesen said: “We are literally in uncharted territory at the moment, with unemployment pushing new lows on a monthly basis, and vacancies rising to new highs. Our base case is that wage pressures will pick up next year. Employment — data released for October — also continued to hit new highs, but growth is slowing compared with the first half of the year.” Over in the States, private consultancy ADP's estimate of US private sector payrolls revealed an increase of 216,000 for November (consensus: 160,000). In London, banks were in focus following the results of the Bank of England’s latest stress tests. State-owned Royal Bank of Scotland performed the worst and has been forced to submit plans to raise fresh capital, while rivals Barclays and Standard Chartered failed requirements but will not require extra funds. RBS failed to pass all the hurdles of the stress test and has agreed a revised capital plan with the Bank of England's Prudential Regulation Authority to raise at least £2bn of extra capital. Elsewhere, Sage fell back after earlier gains. The accounting software company reported annual revenues and earnings that were slightly ahead of expectations. Linde AG shares surged after the company confirmed it has received a revised proposal concerning a potential merger of equals with Praxair. |
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| | US Market Report | | US open: Investors buoyed by OPEC oil production cut US markets advanced as investors were buoyed after OPEC members agreed to slash oil production for the first time since 2008, which sent prices soaring.
On opening the Dow Jones Industrial Average rose around 100 pints, hitting a record high on Wednesday.
The Dow Jones Industrial Average climbed 0.52% to 19,220.08 points, the S&P 500 leapt 0.41% to 2,213.62 points, and the Nasdaq gained 0.18% to 5,389.71 points at 1445 GMT.
Brent crude surged past the $50 per barrel mark, rising 7.3%, while West Texas Intermediate jumped 6.8% to $48.57 at 1540 GMT.
OPEC member countries finalised the deal discussed in the Algiers in September to cut production by 1.2m barrels per day, in a bid to push oil prices higher.
According to Gulf Energy, Iran agreed to go freeze production at just under 4m barrels per day, avoiding a cut. The country had been ramping up production after economic sanctions were lifted in January.
But the deal hinges on the world's biggest oil exporter Saudi Arabia, while rumours swirled that Indonesia may have been suspended from the cartel, which might take around 740,000 barrels per day out of the quota.
Airlines, however, were on the back foot on opening as American Airlines dropped 2.52% to 45.71 cents, Delta Airlines fell 2.55% to 47.42 cents, UAL Corp was down 2.1% to 68.24 cents, and Southwest Airlines decreased 3.83% to 45.47 cents.
James Hughes, chief market analyst at GKFX, said the production deal has come 12 months too late for many as low oil prices have crippled some economies in the period.
"It has been said that the OPEC deal is contingent on non-OPEC members, such as Russia agreeing to participate... The swings in the markets on the back of every tweet that was sent by anyone close to the meeting showed that jitters and expectations that rested on OPEC and any failure could well have sparked some heavy downside for not just oil prices, but equity markets and the US dollar as well.
"All in all OPEC has cut output to levels seen back in April, the same time that Saudi Arabia ramped up production. So without yet having confirmation it does look like we have a deal, but whether it has gone far enough to give oil prices the kick they need, or prove that OPEC is a viable organisation is very much yet to be seen."
In currency markets, the dollar was up 1.09% against the yen to 113.60, rose 0.52% against the euro to 0.9439 and edged higher by 0.39% against sterling to 0.8036.
On the data front, the ADP national employment report showed that 216,000 jobs were added in November by private employers, above the forecast 165,000. The private payroll increase was revised down to 119,000 from the 147,000 initially reported.
The personal consumption expenditures price index nudged up 0.2% in October after a similar increase in September. In the year to October, the index crept 1.4%, after rising 1.2% in September.
In corporate news, Praxair's shares were down 1.17% after it confirmed had approached German rival Linde AG about resuming discussions regarding a potential offer.
Elsewhere, Splunk Inc gained 4.05% after it lifted its outlook for the year late on Tuesday, but design software maker Autodesk dipped 5.51% after its guidance for the current quarter left investors disappointed. |
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| | Broker Tips | | Broker tips: Ophir, Capita, Croda Ophir Energy's shares gushed higher after Canaccord Genuity upgraded the stock to 'buy' from 'hold' and lifted the target to 105p from 80p.
Canaccord cited Ophir's newly formed joint operating company (JOC) with OneLNG to develop the Fotuna gasfield offshore Equatorial Guinea via a floating liquefied natural gas (FLNG) facility.
Ophir will own 33.8% of the JOC which is expected to commercialise the 2.6trn cubic feet project.
Canaccord said the Fortuna framework "provides the basis for a project which would be a step change for the company" in terms of booked reserves and production.
"As a result, in the absence of clarity on development/value of the offshore Tanzania gas, Fortuna is set to become Ophir's most important asset once the key milestones above are completed," the broker said.
"However, while the project now has substance and the unrisked valuation is substantial, we anticipate the market will only gradually derisk Fortuna as these milestones are checked off. "
Canaccord raised its target in line with other similar profile exploration and production companies based on net present value of 12.5, compared to NPV15 previously, given the Kerenden field is now producing and Fortuna is more firmly established.
Having already more than halved since its September profit warning, Capita shares fell to their lowest in a decade after analysts at HSBC and RBC Capital Markets warned the shares had the potential to crumble yet further.
RBC cut its target to 500p from 600p as a lack of growth, margin pressure and a stretched balance sheet was seen as the company's best-case scenario, with a worst case of further downgrades, change of management and an equity raise.
HSBC downgraded the stock to 'reduce' from 'hold' and slashed its price target to 450p from 1,020p, responding to many investors who had been asking if the shares have hit a trough by saying "we see a material risk that they have not".
Capita has high financial gearing, declining sales and a weak growth outlook, "a combination that seldom fuels investor confidence", while consensus estimates of a 1-2% decline in organic sales decline and 40 basis points expansion of operating profit margin for 2017 also now "seem optimistic", HSBC said, adding that its earnings per share estimates are 8-9% below the consensus, with dividend forecast 50% below consensus.
HSBC saw three strategic choices for Capita: a slow de-gearing that would hold back M&A and dividends, disposal of underperforming business, and/or a capital increase.
"A slow, organic de-gearing does not look like a realistic option to us. The UK public sector pipeline is weak, private sector contract awards and decision making have come to screeching halt post the Brexit vote, according to the company," analyst Rajesh Kumar said.
"The transactional businesses such as the recruitment business, the share registry, and the IT box shifting sales are unlikely to cyclically swing back to growth soon. If the decline in organic sales worsens further, financial de-gearing may not happen. A highly geared balance sheet in a weak demand environment may impede further long duration contract wins."
RBC's Andrew Brooke also noted that the UK outsourcing market is likely to remain under pressure as decision making has lengthened, discretionary spending is on hold and rebids are likely to result in margin pressure and/or greater risk transfer relative to first-generation outsourcing contracts.
Brooke said there were also "a number of Serco-esque red flags"; including a lack of growth, falling ROIC, increased exceptionals, significant acquisition spend, regular divisional reorganisations, increased amounts of accrued income and contingent liabilities, and no key external management appointments for a long time.
"Hence we believe there remains a risk of further write-downs, one-offs and a rebasing of expectations at some point."
Deutsche Bank has downgraded its rating on Croda International to 'hold' from 'buy' and cut its target to 3,600p from 3,300p, citing subdued growth in 2016.
The bank said Croda has lagged behind all its consumer chemicals peers this year.
"We expect organic top line growth to remain relatively soft in 2017 (+2.9%), notably in the 'higher value' Consumer Care division and have cut our 2016-18E earnings per share by 1-3% due to lower sales and margin assumptions (target lowered to 3300p)," Deutsche Bank said.
"Whilst we welcome Croda's focus on innovation and margins, the ongoing lack of organic top line growth remains a concern to us and at 20x 17E price-earnings ratio (broadly in-line with faster growing, less cyclical consumer chemicals peers) we see the valuation as fair and downgrade our recommendation to 'hold'."
The company, which manufactures engine lubricants, plastics, and chemicals for the health and beauty industry amid its large specialty chemicals portfolio, on 3 November affirmed its expectations for the full year as it reported its third quarter trading update. |
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