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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: FTSE closes at 10th record high in a row The FTSE 100 jumped on Wednesday after Bank of England Governor Mark Carney said Brexit is no longer the most significant domestic risk to the UK's financial stability.
The index ended up 0.21% to 7,290.49 points, a 10th consecutive record high.
In his testimony to select committee lawmakers, Carney said Brexit was no longer the biggest risk to the UK economy following action taken by the BoE.
"In the run up to referendum, we felt it was largest risk because there were things that could have happened which had financial stability implications," he said.
"Actions were taken to mitigate that, but having got through the day after, the scale of the immediate risks has gone down."
Carney also revealed the BoE is keeping an open-mind over potential interest rate hikes while at the same time reiterating that the central bank is willing to pull back on stimulus if needed.
His comments failed to have much impact on the pound with it falling 0.07% versus the euro at €1.1529 and declining 0.75% against the dollar to $1.2086.
Sterling was dragged lower after official data showed the UK trade deficit widened markedly in November due to a surge in imports.
The overall trade deficit grew £2.6bn to £4.2bn by the end of November, the Office for National Statistics said, as a £3.3bn increase in imports was only partially offset by a £0.7bn increase in exports.
"Today's trade balance release has walked back most of the deficit contraction seen last month, and as a result sterling reaction shows investors becoming increasingly worried about the likelihood of a 'hard Brexit'," said Manuel Ortiz-Olave, market analyst at Monex Europe.
"The goods trade balance has become one of the most important indicators to watch after the referendum given the trade deficit the UK will have to reduce once it leaves the EU. A significant increase in imports in November counters the traditional economic belief that a weaker currency would automatically boost exports."
The ONS also revealed that UK industrial production rebounded but that construction output unexpectedly fell in November.
Seasonally adjusted construction output declined 0.2% on the previous month, extending the 0.6% fall in October when the market had expected a bounce back of 0.2%.
UK industrial production also rose by a surprising 2.1% in November compared to October and 2.0% versus the same month last year, which was more than double the respective consensus forecast and reversed the falls from the preceding month.
Manufacturing production was up 1.3% month-on-month, beating the consensus estimate of 0.50% and a turnaround from the revised 1% decline from the previous month.
Separately, analysis by the National Institute of Economic and Social Research revealed UK economic growth slowed in the final three months of the year. Gross domestic product grew by 0.5% in the fourth quarter, down from growth of 0.6% in the third quarter but in line with market expectations and the level of GDP growth in the three months ending November.
Elsewhere, US President-elect Donald Trump held a news conference in New York ahead of his 20 January inauguration date. It marked his first major speech since he was elected president on 8 November.
During his speech, Trump slammed "fake news", including reports that Russia has compromising material about the country's new leader. He also criticised Obamacare as a "complete disaster" and said that it will be repealed and replaced.
Trump also said US companies will be hit with a "major border tax" in order to to protect jobs if they expand manufacturing facilities abroad for products to be sold domestically.
Meanwhile, oil prices jumped despite data from the Energy Information Administration showing crude inventories increased by 4.1m barrels last week.
"Signs of further cuts to Saudi output is helping to keep belief in the OPEC deal alive, but with the US evidently ramping up output it is becoming questionable whether the output reduction narrative can be maintained," said IG market analyst Chris Beauchamp.
In company news, Sainsbury's was a top riser after the supermarket's third-quarter like-for-like grocery sales were surprisingly positive and group revenue was further lifted by recently-acquired Argos as online sales proved a crucial factor over the festive period.
Total group sales for the 15 weeks to 7 January rose 0.8%, with group LFL sales up 1.0% as weak LFL growth from the supermarkets business of 0.1% was offset by a 4% gain from Argos.
BT Group was boosted by an upgrade to 'overweight' from 'equalweight' by Morgan Stanley, which bumped up the price target to 490p from 450p.
Engineer Smiths Group also benefited from a broker note as Bank of America Merrill Lynch said it was its preferred UK stock in the capital goods sector as new management adopts a proactive strategy.
On the downside, TUI was hit by a downgrade to 'underperform' from 'outperform' by Credit Suisse, which highlighted a series of key challenges across all segments of the group, leading to a 15% downgrade of 2018 earnings per share forecasts.
Thomas Cook was also lower on a downgrade by Credit Suisse to 'neutral from 'outperform'.
Housebuilder Taylor Wimpey was in the red after it said its order book for 2017 weakened from the previous year, although it did express confidence that full-year profits will be at the upper end of the range of analysts' estimates
Engineering and aerospace group Babcock International was under pressure on read-across from FTSE 250 peer Cobham, which posted group trading profit below guidance for the year ended 31 December and said it was not recommending a final dividend. |
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| | Share tips 2017 Prudential low risk International insurance and investment product supplier Prudential has had a successful 2016 with the company raising its dividend, reporting an increase in profits whilst all the time continuing to benefit from favourable structural opportunities in its key markets, particularly in Asia. Investors should appreciate that although the group’s Asian exposure is a risk due to the volatility of Asian markets, the demographics of many Asian regions, and the rise of the middle class, should provide a good growth story for Prudential for some time to come. Prudential believes it has adequate capital surplus to withstand further significant deterioration in the European market, which should provide some reassurance to investors. Furthermore, the group’s asset management business M&G continues its expansion into Europe and its retail funds are registered for sale in 20 regions. Ultimately, this is a company which has a good mix of business across a number of regions, with a long-term Asia growth story underpinning the investment case. Read More... Capital at Risk |
| Market Movers
FTSE 100 (UKX) 7,290.49 0.21%
FTSE 250 (MCX) 18,391.40 -0.12%
techMARK (TASX) 3,428.80 -0.61%
FTSE 100 - Risers
Anglo American (AAL) 1,285.00p 3.84%
Dixons Carphone (DC.) 357.00p 3.60%
Worldpay Group (WPG) 291.00p 2.39%
BT Group (BT.A) 396.85p 2.36%
Smiths Group (SMIN) 1,512.00p 1.96%
Burberry Group (BRBY) 1,561.00p 1.83%
Rio Tinto (RIO) 3,346.00p 1.59%
BHP Billiton (BLT) 1,420.00p 1.43%
Vodafone Group (VOD) 213.10p 1.36%
Old Mutual (OML) 211.90p 1.34%
FTSE 100 - Fallers
TUI AG Reg Shs (DI) (TUI) 1,137.00p -4.53%
Fresnillo (FRES) 1,381.00p -3.56%
Shire Plc (SHP) 4,681.50p -3.16%
Morrison (Wm) Supermarkets (MRW) 239.50p -2.64%
Taylor Wimpey (TW.) 170.60p -2.46%
Randgold Resources Ltd. (RRS) 6,560.00p -2.24%
easyJet (EZJ) 1,055.00p -2.22%
Standard Life (SL.) 353.80p -2.13%
Tesco (TSCO) 208.80p -1.97%
AstraZeneca (AZN) 4,577.00p -1.78%
FTSE 250 - Risers
Pagegroup (PAGE) 421.70p 7.30%
Evraz (EVR) 222.00p 6.47%
Ted Baker (TED) 2,769.00p 4.53%
Spectris (SXS) 2,481.00p 3.98%
Sophos Group (SOPH) 277.00p 3.20%
Debenhams (DEB) 54.35p 3.13%
Caledonia Investments (CLDN) 2,756.00p 2.87%
Euromoney Institutional Investor (ERM) 1,162.00p 2.83%
Hays (HAS) 158.80p 2.78%
Nostrum Oil & Gas (NOG) 501.50p 2.49%
FTSE 250 - Fallers
Cobham (COB) 140.10p -14.88%
Hochschild Mining (HOC) 222.70p -5.60%
Allied Minds (ALM) 443.30p -3.38%
Acacia Mining (ACA) 400.80p -3.33%
Stagecoach Group (SGC) 213.00p -3.27%
IP Group (IPO) 183.00p -3.07%
Bodycote (BOY) 625.00p -2.95%
Thomas Cook Group (TCG) 85.90p -2.88%
Shawbrook Group (SHAW) 261.30p -2.79%
Ladbrokes Coral Group (LCL) 119.60p -2.29% |
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| | US Market Report | | US open: Stocks rise ahead of Trump news conference US stocks nudged higher on Wednesday as traders awaited Donald Trump's first major speech since he was elected President on 8 November.
At 1505 GMT, the Dow Jones Industrial Average increased 0.35% to 19.924.60 points, the S&P 500 rose 0.15% to 2,272.13 points and the Nasdaq climbed 0.02% to 5,552.67 points.
Oil prices edged higher ahead of figures from the Energy Information Administration at 1530 GMT with West Texas Intermediate up 0.56% to $51.11 per barrel and Brent crude up 0.75% to $54.05 per barrel.
Trump's news conference in New York at 1600 GMT is the key event in the US, as his remarks could potentially move marks.
"Wall Street may turn to Trump for further clarity this evening on how his fiscal policies could boost US economic growth," said FXTM research analyst Lukman Otunuga.
"With Donald Trump already labelled as a renowned market shaker, market participants should keep diligent and be prepared to expect the unexpected."
Ahead of his speech, Russia denied that it held compromising material on Trump, saying a dossier of unverified allegations was an "absolute fabrication" and a ploy to hurt relations between the US and Russia.
In corporate news, Supervalu slumped after the supermarket chain reported swung to surprise loss in the most recent quarter.
Synnex Corp. nudged up after reporting a 37% increase in fourth-quarter profit.
Merck & Co. gained after saying late on Tuesday that the US Food and Drug Administration will grant a priority review for one of its lung cancer drugs. |
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| | Broker Tips | | Broker tips: BT, Thomas Cook, TUI, Burberry BT Group got a lift on Wednesday as Morgan Stanley upgraded its stance on the stock to 'overweight' from 'equalweight' and bumped up the price target to 490p from 450p.
It noted the shares have underperformed the FTSE 100 by a disappointing 41 percentage points in the last 12 months, providing a good entry opportunity.
The bank pointed to three reasons why it expects a better share price performance this year: better operational news flow ahead, gilt yields coming off their lows - which is good for pensions - and a compelling valuation.
MS said its AlphaWise survey indicates further strong quarters ahead for BT with market share wins in broadband and TV and rising average revenue per user. In addition, it sees further success in BT Mobile, driven by the recent push into family SIMs and the Enterprise market.
It also said that full legal separation of Openreach is unlikely to play out given the higher pension costs it could trigger.
As far as yields are concerned, it noted AA UK corporate bond yields have bounced from a low of less than 2% in early September to 2.7% currently, which is positive for BT's pension due to a lower present value of liabilities.
On valuation, it highlighted the fact that BT is trading at a 16% discount to the median UK stock from almost parity in late 2015/early 2016.
Thomas Cook and TUI slumped on Wednesday after Credit Suisse downgraded its rating on the travel stocks.
Credit Suisse cut its rating on Thomas Cook to 'neutral' from 'outperform' and lowered the target to 87p from 88p, citing worries for the company's outlook in 2017 and 2018.
The first concern includes the prospect of falling real wages and the highest level of fuel and foreign exchange inflation since 2009 in the UK, which represents 46% of 2017 group earnings before interest and tax (EBIT).
"This is a concern as holiday volumes are 74% negatively correlated with such inflation."
Credit Suisse lowered its 2018 UK margins for the company by 50 basis points to 6.3% and as a result, it expects earnings per share will decline 8%.
The second concern is Germany, which accounts for 22% of 2017 EBIT, where airline capacity growth has accelerated to 6% and low cost carriers are present on just 20% of key sunny and beach routes, compared to 80% in the UK.
"In contrast to TUI we don't have the same concerns on cash flow generation (FCF yield 9.6% 2017-20E vs 4.4% at TUI) plus highlight Thomas Cook's superior margins and returns," Credit Suisse said.
The financial services group downgraded TUI to 'underperform' from 'neutral', saying it also sees exposure to a tough outlook in the UK and Germany, the company's two largest markets.
"This coupled with a lack of cashflow (average 2017-20E free cash flow yield 4.4%) and 50% premium to Thomas Cook (now rated neutral) leads us to downgrade to underperform," Credit Suisse said.
Despite €0.8bn of disposal proceeds consensus forecasts for 2017 net debt have risen €1.2bn over two years, it said.
Credit Suisse also believes reported hotel and cruise performance is "flattered". Since 2014 more than half the growth in hotel EBIT has accrued to minorities. Cruise return on invested capital (ROIC) was stated as 21% in 2016, but Credit Suisse said it doesn't view this as a true measure of returns due to joint venture accounting and noted that TUI Cruises all-in ROIC was only 9%.
Barclays upgraded luxury retailer Burberry to 'overweight' from 'equalweight' and upped the price target to 1,760p from 1,450p on strategy and valuation.
The bank said Burberry offers good value at 15% discount to the luxury sector, which it reckons is unjustified given the company's well laid out strategy to drive store density in the medium term.
In the shorter term, Burberry should benefit from its cost-reduction programme, which it expects to save at least £100m.
"With the new CFO/COO arriving in January and new CEO by the summer, we believe the company will generate positive momentum in 2017. The group reports Q3 retail sales on 18 January - although we do not believe this is a catalyst given the medium to long-term benefits of the strategy."
Barclays said that given the period of transition, the results will be less relevant than normal and the focus will be mostly on the group's strategy. It expects an update on the cost initiatives where the company targets at least £100m of savings, and more importantly for the strategy, the success of the recent bag launches - bridle, patchwork and buckle bags - in line with Burberry's strategy of growing accessories. |
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