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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 falls on Brexit uncertainty, drop in banking shares London stocks were in the red on Monday as investors erred on the side of caution ahead of a key Brexit speech by Prime Minister Theresa May.
The FTSE 100 closed down 0.15% to 7,327.13 points.
The pound dropped 1.09% versus the dollar at $1.2049 and slid 0.68% against the euro at €1.1373 after the Sunday Times reported that May will indicate in her Tuesday speech that she plans to pursue a 'hard' Brexit and quit the European Union's single market to gain more control over migration and the country's laws.
However, May's spokesperson told Reuters on Monday that the report was "speculation".
ETX Capital analyst Neil Wilson said: "If the UK is heading straight out of the single market, a clean break with no transition deal, the pound could drop a lot more. Sterling's fall, though around 20% since June, has not gone far enough to really reflect the UK leaving the single market. Or, we might witness a significant reversal in recent pound falls if there is something positive to shout about."
The Prime Minister's office is yet to confirm what time May's speech will take place on Tuesday but media reports have stated 1145 GMT.
On the corporate front, Royal Bank of Scotland led banking shares lower after Goldman Sachs downgraded the stock to 'neutral' from 'buy' on valuation grounds and removed it from its Pan-Europe Buy List.
Goldman attributed the underperformance relative to the sector mainly due to the impact of the referendum outcome, which led it to significantly cut its earnings forecasts due to expectations of lower loan growth and rates and higher credit costs.
Barclays and Lloyds Banking Group were also in the red.
Housebuilders retreated, including Taylor Wimpey and Barratt Developments, on renewed fears of Brexit hurting the market.
Vodafone declined after HSBC downgraded the stock to 'hold' from 'buy 'and cut the price target to 240p from 270p.
Going the other way, mining stocks rallied after HSBC raised the target on multiple copper miners and diversified miners including Antofagasta, KAZ Minerals, Anglo American, BHP Billiton, Glencore and Rio Tinto. The bank also raised its medium-term copper price forecast from 2017 by 13-20%.
Burberry advanced after it confirmed that new chief executive Marco Gobbetti will join the fashion retailer at the end of this month, sending its shares to an 18-month high.
In economic data, Rightmove said UK house prices in January rose 0.4% compared to a month ago and 3.2% compared to a year ago to an average asking price of £300,245.
The Eurozone's trade surplus widened to €22.7bn in November from €19.9bn in October, compared to forecasts of €20.8bn, as exports exceed imports by €25.9bn.
There are no US economic data releases due with markets closed for Martin Luther King Day. |
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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) 7,327.13 -0.15%
FTSE 250 (MCX) 18,307.71 -0.35%
techMARK (TASX) 3,412.89 -0.36%
FTSE 100 - Risers
Anglo American (AAL) 1,358.00p 2.14%
Rio Tinto (RIO) 3,488.00p 2.06%
Burberry Group (BRBY) 1,639.00p 1.74%
Randgold Resources Ltd. (RRS) 6,825.00p 1.71%
Mediclinic International (MDC) 805.50p 1.70%
Glencore (GLEN) 321.90p 1.64%
Reckitt Benckiser Group (RB.) 6,953.00p 1.58%
BHP Billiton (BLT) 1,477.00p 1.55%
Fresnillo (FRES) 1,434.00p 1.49%
Imperial Brands (IMB) 3,636.00p 1.28%
FTSE 100 - Fallers
Royal Bank of Scotland Group (RBS) 215.00p -2.76%
Dixons Carphone (DC.) 343.10p -2.22%
ITV (ITV) 204.20p -2.11%
Prudential (PRU) 1,578.50p -2.11%
Standard Life (SL.) 349.70p -2.07%
Lloyds Banking Group (LLOY) 64.69p -2.04%
Taylor Wimpey (TW.) 169.10p -2.03%
Vodafone Group (VOD) 210.50p -1.96%
Barclays (BARC) 231.20p -1.72%
Persimmon (PSN) 1,963.00p -1.70%
FTSE 250 - Risers
Ashmore Group (ASHM) 302.10p 6.56%
Acacia Mining (ACA) 434.50p 3.90%
Aggreko (AGK) 1,012.00p 2.48%
Greggs (GRG) 1,001.00p 2.40%
Vedanta Resources (VED) 1,040.00p 2.36%
Moneysupermarket.com Group (MONY) 302.20p 2.03%
CLS Holdings (CLI) 1,556.00p 1.77%
Aveva Group (AVV) 1,976.00p 1.65%
JPMorgan Indian Investment Trust (JII) 637.50p 1.51%
Pagegroup (PAGE) 432.00p 1.41%
FTSE 250 - Fallers
Virgin Money Holdings (UK) (VM.) 311.00p -4.25%
SIG (SHI) 104.50p -4.04%
International Personal Finance (IPF) 165.70p -3.66%
Allied Minds (ALM) 407.00p -3.58%
Mitie Group (MTO) 207.10p -3.18%
Ibstock (IBST) 180.30p -3.17%
OneSavings Bank (OSB) 322.70p -3.12%
Supergroup (SGP) 1,636.00p -2.97%
Diploma (DPLM) 1,005.00p -2.71%
Crest Nicholson Holdings (CRST) 501.50p -2.62% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Shares end lower despite US holiday European stocks closed in the red, with car makers losing out as investors digested comments from US President-elect Donald Trump.
The Stoxx Europe 600 index fell 0.81% and Germany's DAX dropped 0.64%, while France's CAC 40 was 0.82% lower.
Meanwhile, oil prices edged lower as traders looked ahead to production data released by the Organisation of Petroleum Exporting Countries (OPEC) on Wednesday to check if member states have met the production targets set in an agreement signed last year. West Texas Intermediate edged lower by 0.23% to $52.25.
The pound fell below $1.20 in overnight trading - for the first time since the October 'flash crash' - following a Sunday Times report that Prime Minister Theresa May will indicate in her speech on Tuesday that she plans to pursue a 'hard' Brexit and quit the European Union's single market to gain more control over migration and the country's laws.
Luzdary Hammad, research analyst at FXTM, said: "It is becoming quite clear that the persistent Brexit woes and ongoing uncertainty have left the Pound vulnerable to extreme losses with anxiety over a rigid divorce from the European Union exposing the currency to further downside risks in the future.
"While most anticipate Theresa May to provide some clarity on Tuesday on how the UK plans to move forward with the hard Brexit scenario, there is a threat of the Sterling sinking deeper into the abyss if investors are left empty-handed instead."
Meanwhile, US President-elect Donald Trump has pledged to agree a quick trade deal between the US and Britain once it has exited from the European Union.
In an interview with Conservative MP and leading Brexiteer Michael Gove for The Times, he said: "I think Brexit is going to end up being a great thing. I'll tell you, the fact that your pound sterling has gone down? Great. Because business is unbelievable in a lot of parts in the UK."
On the data front, the Eurozone seasonally adjusted trade balance for November 2016 came in above the consensus of €22bn at a surplus of €25.9bn, up from €22.9bn in November 2015.
Pantheon Macroeconomics said: "The headline looks great, but it only partially reverses the sharp fall in October. The higher surplus was chiefly a result of a 3.3% month-to-month jump in exports due to strong performance in Germany and France. Our estimates for Q4 net trade in these two economies suggest that net exports in the Eurozone as a whole provided a moderate boost to quarter-on-quarter GDP growth."
In corporate news, German luxury fashion house Hugo Boss was in the green despite recording a slight fall in fourth-quarter sales, confirming its outlook for lower full-year profits. It did however say that it expected operating profits in March to reach the upper end of its forecast.
Italian eyewear designer Luxottica and French lens maker Essilor rallied after the two companies announced a merger worth about €46bn.
Fund manager Ashmore advanced as it said it was confident of a strong 2017 despite a drop in quarterly assets under management.
On the downside, car makers BMW, Volkswagen and Daimler skidded after Trump said in an interview with Germany's Bild newspaper that cars manufactured in Mexico would be taxed 35% if exported to the US.
"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the US without a 35% tax then you can forget that," said Trump.
Swedish clothing retailer H&M was on the back foot after it reported a 6% jump in year-on-year sales in December, which was the slowest pace since September and weaker than expected.
Royal Bank of Scotland was weaker after Goldman Sachs downgraded the stock to 'neutral' from 'buy' on valuation grounds and removed the stock from its Pan-Europe Buy List. |
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| | US Market Report | | US open: Stocks higher on strong JP Morgan, Bank of America earnings As earnings season kicked off, US equity markets were higher on Friday on the back off strong quarterly results from banking heavyweights JP Morgan Chase and Bank of America.
The Dow Jones Industrial Average rose 0.16% to 19,923.58, the S&P 500 was firmer 0.28% to 2,276.91, and the Nasdaq gained 0.53% to 5,576.85 at 1515 GMT.
Meanwhile, oil prices were weaker amid doubts over whether planned production cuts will do enough to curb the supply glut. West Texas Intermediate fell 0.56% to $52.71 per barrel and Brent crude was down 0.44% to $55.76.
In currency markets, the dollar was up 0.16% against sterling to 0.8235, was flat versus the euro to 0.9427 and rose 0.54% against the yen to 115.34.
Michael Hewson, chief market analyst at CMC Markets, said: "US markets shrugged off yesterday's decline opening higher after a raft of US bank earnings came in broadly better than expected, and with a long weekend coming up US investors might be a little cautious about trying to buy this market too aggressively. Could these bank numbers be the catalyst to propel the Dow to 20k ahead of the US long weekend? We've already seen several failures at this level, another failure could prompt another sharp sell-off."
JP Morgan Chase edged up 1.96% after lender revealed that fourth quarter income for the corporate and investment banking division jumped 96% from last year to $3.4bn, boosted by rally after President-elect Donald Trump's electoral victory, while the retail sector was more subdued.
Similarly, the Bank of America gained 1.4% after its earnings were also boosted by the Trump rally with a 43% rise in income to $4.7bn. The lender also said it would buy back £4.3bn of its shares, more than the $2.5bn it had said earlier.
However, Wells Fargo's income dropped 4.4% to $21.9bn as the bank dealt with the fake account scandal. Despite this, its shares rose 2.61%.
Elsewhere, Blackrock and First Republic both reported mixed results as earnings beat expectations but revenue missed forecasts, whereas PNC Financial Services' results exceeded analysts' expectations.
Hewson said what the bank earnings figures tell us, "apart from the contrast to Europe's banks which continue to struggle, is that not only are banks in the US benefitting from a growing US economy, but the steepening of the US yield curve is helping as well, as bond markets price in the prospect of further rate rises".
Aside from earnings, investors also eyed retail sales figures, which rose less than expected in December to 0.6%, below the 0.8% forecast. This followed a 0.2% gain in November.
While the producer price index, excluding food and energy, increased 1.6% in December, above the 1.5% expected.
The Michigan consumer sentiment index came in it at 98.1 in January, from 98.2 in December. This was below forecasts of 98.5.
Business inventories rose to 0.7 in December, versus the 0.5 expected and from -0.1 in November.
In other corporate news, shares in Fiat Chrysler Automobiles were down 2.21% after the US Environmental Protection Agency alleged on Thursday that the company had used software to cheat on diesel emissions testing. |
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| | Broker Tips | | Broker tips: Lloyds, Barclays, RBS, Vodafone Looking out to 2017, analysts at Macquarie retained their "bullish" stance on European banks, arguing that multiples in the sector were not "stretched", earnings were likely to recover further and consensus expectations were undemanding.
However, their bias was for retail/commercial banks with cost and impairment improvements.
"We are cautious on optimistic revenue stories and would thus avoid the investment banks," the broker said in a research note published on 14 January but dated 12 January.
Despite the sector´s 40% rally from its June lows, valuation multiples for the Stoxx 600 banks index had only just returned to their normal historical levels, Macquarie said.
The relative price-to-earnings ratio stood at 81% that of the Stoxx 600, and the relative price-to-book value at 49%, with the latter reflecting the sector´s relative return on equity at 45%.
"Recent price gains have been dramatic in many cases but we don't think they are excessive - or over," it said.
In Macquarie´s opinion, the key swing factors for European bank earnings in 2017 would be costs and impairments.
A return to historical trough-cycle levels for the former might add about 15% to the sector´s earnings and a reversion to those same levels for the latter about 10%.
"Against this, the revenue outlook is still tough. We see asset re-pricing keeping margins under pressure and we are sceptical on capital markets in view of an unspectacular 4Q and US rate headwinds to FICC, debt issuance and APAC," it cautioned.
Among the broker´s 'top buys' was Lloyds, which had underperformed the section thus far. Furthermore, the broker´s estimate of impairments in 2017 was 25% below consensus.
"Permanent TSB is another cheap, indirect play on better Brexit outcomes on a 40% TNAV discount and geared to Irish housing recovery," the broker added.
On investment banks, Macquarie said: "we don't buy the revenue reflation argument, stocks have rallied hard and 4Q looks unexciting. We downgrade Credit Suisse to 'underperform' where it joins UBS and Deutsche Bank. After a 35% rally we are also lowering Barclays to 'neutral'.
Goldman Sachs downgraded Royal Bank of Scotland to 'neutral' from 'buy' on valuation grounds and removed the stock from its Pan-Europe Buy List, but upped the price target to 270p from 240p.
GS noted the stock is up 47% from its lowest point following the EU referendum and at the current valuation, the bank's price target implies broadly sector-average potential upside of 24%, hence the downgrade.
Since being added to the 'buy' list on 15 March, the shares are down 7% versus the FTSE World Europe up 19% and its EU banks coverage up 5%.
Goldman attributed the underperformance relative to the sector mainly due to the impact of the referendum outcome, which led it to significantly cut its earnings forecasts due to expectations of lower loan growth and rates and higher credit costs.
For this year, GS sees two key developments: a resolution to the EC-mandated disposal of Williams & Glyn and settlement of litigation regarding residential mortgage-backed securities issuance.
"We view the outstanding litigation settlement as the most significant unknown for the group. In light of recent US Department of Justice RMBS settlements with other banks, we see the possibility that RBS will book a significant provision as early as 4Q16."
It added: "Given RBS's structural funding advantage, we continue to see its sustained mortgage growth strategy as optimal, but see the benefit of this increasingly reflected in the price."
Goldman highlighted a preference for Standard Chartered and CYBG.
HSBC downgraded Vodafone to 'hold' from 'buy'and cut the price target to 240p from 270p.
The bank said that throughout last year, the company began to demonstrate its long-held investment thesis that an improving European mobile environment would lead to modest group revenue growth which when coupled with cost control, would deliver faster-paced earnings before interest, taxes, depreciation and amortisation growth.
"Combined with the exceptional capex of Project Spring fading through FY17, the company could once again offer a covered dividend. Mechanically, we continue to believe that this is possible."
However, it pointed to growing concerns that rising competitive intensity in India, Italy and the UK may undermine the underlying improvements in 2017.
HSBC said competition in India has worsened since the first half results in November 2016, with new entrant Jio extending its free data offer through to the end of March, forcing Vodafone to adjust its pricing in order to remain competitive.
"The success that Jio has had (now 60 million subscribers since September 2016 launch) suggests that it is impossible to rule out a further round of aggressive promotions from 1 April (even if no longer technically 'free'). | | |
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