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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 flat as miners rally, pharmaceuticals slump The FTSE 100 finished flat as investors weighed a rally in mining shares against a slump in pharmaceuticals.
The index rose 0.03% to 7,292.37 points.
Mining shares gained on the back of a weaker dollar after a key speech by US President-elect Donald Trump on Wednesday disappointed markets over his lack of clarity on policies.
FXTM research analyst Lukman Otunuga said: "While the news conference covered topics about the Russian hacking reports, Trump's separation of his business empire and repeated criticism of the media, the lack of details of the President-elect's administration's plans for economic stimulus simply left dollar bullish investors empty handed. It seems likely that dollar sensitivity intensifies this month as the renewed Trump uncertainty keeps investors on edge."
An increase in gold, silver and copper prices also gave miners a lift with Randgold Resources, Fresnillo and Anglo American in the black.
Going the other way, drug makers Shire, Hikma Pharmaceuticals and Astrazeneca were among the biggest fallers on the FTSE after Trump said that he would force the industry to bid for government business.
His remarks in New York were unexpected as they align him with congressional Democrats who have campaigned to lower drug prices.
Elsewhere, Direct Line Insurance Group's shares declined after Macquarie Research downgraded the stock to 'underperform' from 'neutral' and cut the target to 345p from 295p.
Associated British Foods slumped despite reporting that group revenue from continuing operations was 10% ahead of the same period last year at constant currency, with good growth delivered by all of its business arms.
Online electrical retailer AO World plunged after posting a 12.3% jump in third-quarter revenue and saying it is on track to meet guidance for the fiscal year.
JD Sports Fashion surged as it said headline pre-tax profit for the current financial year is likely to be ahead of consensus market expectations of £200m by up to 15%.
Department store Debenhams advanced after saying like-for-like sales rose 5% in the seven-week Christmas period.
On the data front, the US Labor Department said the number of Americans filing for unemployment benefits rose less than expected last week. US initial jobless claims were up 10,000 to 247,000 from the previous week's level, which was revised up by 2,000. Economists had been expecting a bigger jump to 255,000.
Meanwhile, Philadelphia Federal Reserve President Patrick Harper said the US economy is showing strength and reiterated the central bank's expectation for three interest rate hikes this year.
Chicago Fed President Charles Evans spoke at a separate event, saying aggressive fiscal policies may help Trump achieve his target of 4% growth but it could not be sustained without bigger changes to the economy.
He said while the economy is near full employment and the labour market is "pretty good...if you have the skills", an aging population, weak productivity growth, and falling labour force participation put constraints on the new administration.
St. Louis Fed President James Bullard said in an interview with CNBC that Trump's policies will have little impact this year and are more a story for 2018-2019. He said he believes the economy remains in a low interest-rate and slow growth environment that will not change by "snapping fingers".
Still to come, Fed Chair Janet Yellen will speak at a town hall event after the close. The Fed's James Bullard and Robert Kaplan are also due to speak. |
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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) 7,292.37 0.03%
FTSE 250 (MCX) 18,303.50 -0.49%
techMARK (TASX) 3,401.08 -0.81%
FTSE 100 - Risers
Mondi (MNDI) 1,742.00p 5.58%
Smurfit Kappa Group (SKG) 2,153.00p 3.76%
Randgold Resources Ltd. (RRS) 6,795.00p 3.58%
Fresnillo (FRES) 1,422.00p 2.97%
RSA Insurance Group (RSA) 578.00p 2.66%
Anglo American (AAL) 1,310.50p 1.98%
National Grid (NG.) 950.60p 1.80%
Rio Tinto (RIO) 3,404.50p 1.75%
Reckitt Benckiser Group (RB.) 6,848.00p 1.38%
Marks & Spencer Group (MKS) 344.90p 1.32%
FTSE 100 - Fallers
Associated British Foods (ABF) 2,576.00p -4.52%
Dixons Carphone (DC.) 346.80p -2.86%
Shire Plc (SHP) 4,555.00p -2.70%
Next (NXT) 4,033.00p -2.51%
Hikma Pharmaceuticals (HIK) 1,859.00p -2.36%
Carnival (CCL) 4,218.00p -2.29%
Royal Bank of Scotland Group (RBS) 218.50p -1.89%
easyJet (EZJ) 1,036.00p -1.80%
ITV (ITV) 203.00p -1.69%
Direct Line Insurance Group (DLG) 346.70p -1.56%
FTSE 250 - Risers
Savills (SVS) 785.00p 13.69%
JD Sports Fashion (JD.) 350.00p 7.56%
Debenhams (DEB) 57.30p 5.43%
Acacia Mining (ACA) 420.60p 4.94%
Vedanta Resources (VED) 1,002.00p 4.70%
Kaz Minerals (KAZ) 431.10p 4.21%
Ted Baker (TED) 2,900.00p 4.17%
Centamin (DI) (CEY) 151.20p 3.85%
Hochschild Mining (HOC) 231.10p 3.77%
Evraz (EVR) 228.20p 2.47%
FTSE 250 - Fallers
AO World (AO.) 162.30p -11.94%
Spire Healthcare Group (SPI) 308.30p -10.66%
Dunelm Group (DNLM) 742.00p -6.90%
Jupiter Fund Management (JUP) 416.00p -6.52%
SIG (SHI) 93.80p -5.78%
Inmarsat (ISAT) 711.50p -5.07%
Nostrum Oil & Gas (NOG) 478.80p -4.53%
Worldwide Healthcare Trust (WWH) 2,178.00p -4.38%
Daejan Holdings (DJAN) 6,000.00p -4.15%
Ferrexpo (FXPO) 135.00p -3.57% |
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| | US Market Report | | US open: Stocks in the red after Trump speech With a slew of speeches by Federal Reserve officials in the offing, US stocks were in the red on Thursday as investors digested a disappointing speech by President-elect Donald Trump.
The Dow Jones Industrial Average was down 0.57% to 19,841.10, the S&P 500 fell 0.47% to 2,264.55, and the Nasdaq was weaker by 0.62% to 5.529.32 at 1502 GMT.
Meanwhile, oil prices advanced after Saudi Arabia cut production to less than 10m barrels per day, more than the agreed OPEC-led cull.
West Texas Intermediate rose 2.17% to $53.41 per barrel and Brent crude gained 2.14% to $56.31.
Gold on Comex also gained 0.6% to 1,1203.80 per troy ounce.
Craig Erlam, senior market analyst at Oanda, said: "Donald Trump's press conference on Wednesday was not what investors wanted to hear, with talk of protectionism and more company bashing not exactly being market friendly. That said, while we did see selling in certain areas, particularly pharmaceutical stocks, overall sentiment did improve into the end of the session and indices finished comfortably in the green.
"We don't just have Trump's comments to contend with either, we'll also get the views of half a dozen Federal Reserve policy makers throughout the day, including Chair Janet Yellen. I doubt their views will have changed too much since the December meeting given that we are none-the-wiser when it comes to Trump's fiscal and tax plans and the data we've had since has been good but probably in line with their expectations."
In currency markets, the dollar was 0.6% weaker against the sterling to 0.8140, was down 0.85% versus the euro to 0.85% to 0.9370 and declined 1.32% against the yen to 113.89.
Philadelphia Fed President Patrick Harker, who the first official to speak, said that the US economy was gathering strength and to expect three further interest rate hikes in 2017.
Later in the session speeches are due from Atlanta Fed President Dennis Lockhart, Chicago Fed President Charles Evans and St. Louis Fed President James Bullard, while Fed chair Janet Yellen has a town hall meeting with teachers in Washington.
On the data front, initial jobless claims were up 10,000 to 247,000 from the previous week's level, which was revised up by 2,000. Economists had been expecting a bigger jump to 255,000. This marked the 97th consecutive week of initial claims below 300,000 - the longest streak since 1970.
The four-week moving average came in at 256,500, down 1,750 from the previous week's average, which was revised up from 256,750 to 258,250.
While import priced rose 0.4% in December, after an upwardly 0.2% revised fall in November. Economists expected a 0.7% rise after an initially reported 0.3% drop.
Export prices increased 0.3% in December after a 0.1% slip the previous month. They were up 1.1% from a year ago.
In corporate news, Applied Optoelectronics soared 25.35% after its preliminary fourth-quarter results late on Wednesday came in well above prior guidance.
Amazon was up 0.78% after the online retail giant said it would create 100,000 full-time jobs by mid-2018. |
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| | Broker Tips | | Broker tips: Direct Line, Sainsbury's, builders merchants Direct Line Insurance Group's shares declined on Thursday after Macquarie Research downgraded the stock to 'underperform' from 'neutral' and cut the target to 345p from 295p.
The downgrade comes as the government is due on 31 January to announce a decision on the interest rate used to calculate discounts applied to personal injury compensation.
The Chancellor is expected to lower the current Ogden discount rate of 2.5% which is considered by many to be too high as it penalises claimants.
Macquarie said it understands Direct Line carries a margin covering the cost of a 100 basis reduction in the rate to 1.5%.
"However, we expect the Lord Chancellor to set the rate between 1% and 1.5%," Macquarie said.
"Thus if the rate falls to below 1.5% then Direct Line's reserves may require strengthening."
Macquarie predicts the new rate will cost the company £90m, in excess of the reserve margin the bank expects it currently holds.
More importantly, the use of this margin in large bodily injury reserves will mean reduced reserve releases in the future, the bank added.
"Currently we expect that Direct Line has benefitted from releasing the excess margin between 1.5% and 2.5% when a claim is settled. This will potentially not be available in the future."
Direct Line is "especially sensitive" to changes in reserve releases as the group depends on this source of earnings for 70% of its operating profits.
Macquarie's earnings forecasts for the company are 16% below consensus in 2017 and 26% below consensus in 2018. The bank expects consensus forecasts to fall should the discount rate reduce.
"With a negative catalyst looming for Direct Line, we expect Direct Line to underperform the wider non-life insurance sector at least until the new Ogden discount rate is announced," the bank said.
"As such, we reduce our price target from 345p to 295p, as we factor in the increased uncertainty into our valuation through a higher cost of equity."
J Sainsbury was on the back foot on Thursday as HSBC reiterated a 'reduce' rating but raised its target to 205p from 185p following the supermarket's third quarter trading update.
The company on Wednesday reported total group sales for the 15 weeks to 7 January rose 0.8%, with group like-for-like sales up 1.0% as weak LFL growth from the supermarkets business of 0.1% was offset by a 4% gain from recently acquired Argos.
HSBC said the total sales and Sainsbury's sales growth were broadly in line with expectations. "The surprise was 4% LFL growth from Argos vs consensus of 1% and came despite disruption and increased competition," the bank said.
While Argos did well, HSBC stressed that the core supermarket chain is key and remains under pressure.
The bank also warned that Sainsbury's faces further competition from its recovering rival Tesco.
"As Tesco continues to recover it is likely to win more sales back from Sainsbury than any other retailer. Sainsbury lacks scale compared to Tesco and will find it harder to compete as Tesco utilises its scale more effectively," HSBC said.
"We continue to believe that in the long term Argos is in a weak position and will prove a distraction to the core business. Sainsbury needs a strong food business."
HSBC updated its forecasts on pre-tax profits for fiscal year 2016/17 to £570m from £560m to reflect Sainsbury's guidance of £573m. The bank raised its target to 205p from 185p to reflect the profit increase and a reduction in the beta, a measure of volatility, to 1.3 from 1.5.
Against the backdrop of a "patchy" construction sector, broker Liberum highlighted Howden Joinery as its top pick and downgraded building materials suppliers Wolseley to 'hold' and SIG and 'sell' on valuation grounds.
Liberum felt the stock market appeared overly pessimistic on builders merchants, "as it may be overestimating operational leverage".
"RMI [repair, maintenance, improvement] has fallen out of favour but we believe that the degree of pentup demand that exists, and banks' appetites to lend, may mean that a 2017 slowdown may be shorter and shallower than feared," the broker.
Howden was picked as offering around 30% share price upside to a target of 500p, as while concerns of a Brexit-driven slowdown are understandable, the company's management has a good track record of cutting overheads in slower markets.
"We see this as an excellent opportunity to pick up shares in a long established category-killer with a very strong balance sheet," analysts wrote.
Others with a 'buy' rating including air conditioning and ventilation specialist Volution, "a highly cash generative leader with profitable reinvestment opportunities and structural growth" with a target of 206p; Travis Perkins on the momentum from its self-help strategy, with a target of 1,650p.
Safestyle was a 'buy' with a 335p target, for its growing market share; and Tyman too, targeting 327p, as it is "well placed" for renewed US residential growth and continues improving its businesses.
Even though the shares are trading on a low valuation, SIG was moved down from 'hold' with a target of 88p, as "risks endure" and analysts remain concerned that margin pressure will continue due to competitive pressures from Travis Perkins and Saint-Gobain - "we wonder how much losing scale will impact the group's offer". |
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