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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 manages positive close as US-N.Korea tensions rise Stocks in London surrendered a good portion of their early gains this afternoon as US-North Korea tensions ratcheted to new highs.
Gold, the nil-yielding and safe-haven asset, was predictably riding higher, while sterling ran north against a retreating greenback and was helped by UK inflation data this morning.
The FTSE 100 closed up 0.23% at 7,365.50, and the FTSE 250 ended Tuesday up 0.22% to 19,306.52. The FTSE 100 enjoyed a late rise, but this was insufficient to help it return to earlier highs. In the US, the Dow, S&P 500 and Nasdaq were strongly lower, and so, too, Europe's Euro Stoxx 50, Dax and Cac 40.
This all followed US President Donald Trump saying on Twitter that North Korea was "looking for trouble" and warned the US would "solve the problem," either with or without China's help.
Trump's keyboard vent came after Pyonyang promised a strong reaction if the US dared to opt for a military action, warning of "catastrophic consequences". This added to existing concerns surrounding North Korea's testing of ballistic missiles in recent months.
Diplomatic relations between the US and Russia remained taught over a recent US missile strike on an airbase in Syria linked to the alleged use of chemical weapons in that country's civil war.
"Trump is clearly playing a game of high stakes poker with North Korea and China of late, yet the only problem is that he is doing so against a hugely unpredictable nation," said Joshua Mahony, market analyst at IG.
"Chief amongst today's winners have been the likes of Randgold Resources and Fresnillo, who have understandably piggybacked on the sharp appreciation of gold as fears over US military action in North Korea heighten risk aversion," said Mahony.
Spreadex financial analyst Connor Campbell commented that the Dow's decline seemed inspired by the global tensions sparked by Trump's unravelling relationship with Russia (and Syria. And North Korea), adding that this contagion had reached the Eurozone.
"Today's inflation data was a bit of a bust in the excitement stakes; it will be interesting to see if tomorrow's jobs report is similarly stable or, more specifically, if the gap between inflation and wage growth has widened any further," said Campbell.
Earlier on Tuesday, Office for National Statistics confirmed that the UK consumer-price index held at 2.3% in March, that was in-line with forecasts but above Bank of England's targeted 2%.
"Today's inflation figures don't show the kind of overshoot that might prompt a sea change in the outlook for monetary policy in the UK or for sterling," said analyst Ranko Berich at Monex Europe. He noted the trend for accelerating inflation was likely to continue.
Turning to the blue-chip equities ladder, house builders and commercial property did well, as did tobacco stocks, consumer goods and a number of supermarkets and retailers.
Oil giants BP and Shell fell ahead of US inventory figures and Opec output reports later on Tuesday, while multi-commodity miners slid with industrial-metals futures. Banks were also lower.
British Airways and Iberia parent International Consolidated Airlines Group was lifted by a positive note from Exane BNP Paribas, which rates the stock at 'outperform'.
Balfour Beatty was lifted by an upgrade to 'buy' from 'neutral' from Bank of America-Merrill Lynch. |
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| Market Movers
FTSE 100 (UKX) 7,365.50 0.23%
FTSE 250 (MCX) 19,306.52 0.22%
techMARK (TASX) 3,439.67 0.09%
FTSE 100 - Risers
Randgold Resources Ltd. (RRS) 7,580.00p 4.84%
Fresnillo (FRES) 1,652.00p 4.36%
easyJet (EZJ) 1,078.00p 2.08%
International Consolidated Airlines Group SA (CDI) (IAG) 539.50p 2.08%
Land Securities Group (LAND) 1,115.00p 1.83%
Rolls-Royce Holdings (RR.) 810.50p 1.69%
Bunzl (BNZL) 2,370.00p 1.63%
Croda International (CRDA) 3,585.00p 1.50%
Persimmon (PSN) 2,210.00p 1.47%
Aviva (AV.) 520.00p 1.36%
FTSE 100 - Fallers
Royal Bank of Scotland Group (RBS) 234.50p -1.88%
Anglo American (AAL) 1,217.50p -1.38%
Standard Chartered (STAN) 726.60p -1.36%
Carnival (CCL) 4,544.00p -1.30%
Hikma Pharmaceuticals (HIK) 1,921.00p -1.28%
Provident Financial (PFG) 3,125.00p -1.11%
CRH (CRH) 2,757.00p -1.01%
Pearson (PSON) 629.50p -0.94%
Smurfit Kappa Group (SKG) 2,042.00p -0.68%
GKN (GKN) 352.90p -0.65%
FTSE 250 - Risers
JD Sports Fashion (JD.) 440.10p 8.24%
Balfour Beatty (BBY) 286.40p 5.84%
Sanne Group (SNN) 735.50p 4.47%
Polymetal International (POLY) 1,084.00p 3.73%
Daejan Holdings (DJAN) 6,660.00p 3.34%
Hays (HAS) 162.50p 2.98%
AO World (AO.) 138.90p 2.89%
Hochschild Mining (HOC) 285.00p 2.89%
Just Eat (JE.) 572.50p 2.60%
Acacia Mining (ACA) 473.80p 2.44%
FTSE 250 - Fallers
Tullow Oil (TLW) 229.10p -4.10%
Cairn Energy (CNE) 206.40p -3.28%
Ibstock (IBST) 200.30p -3.00%
Sophos Group (SOPH) 321.90p -2.45%
Northgate (NTG) 525.50p -2.41%
Aldermore Group (ALD) 232.10p -2.03%
Elementis (ELM) 280.30p -1.96%
Ashmore Group (ASHM) 362.60p -1.84%
Ascential (ASCL) 315.00p -1.69% |
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| | US Market Report | | US open: Stocks retreat on geopolitical concerns, gold rallies US equity markets retreated on Tuesday as geopolitical concerns in Syria and North Korea weighed on investors while gold rallied.
At 1546 BST, Dow Jones Industrial was down 0.44% to 20,566.67, the S&P 500 fell 0.66% to 2,341.58, and the Nasdaq was 0.91% off at 5,827.38.
Meanwhile, oil prices were lower having finished the previous session at its highest level since 7 March, due to the shutdown of Libya's biggest oil field and expectations of increased US demand ahead of the summer driving season.
West Texas Intermediate was down 0.73% to $55.57 a barrel and Brent crude fell 0.49% to $52.82.
In currency markets, the dollar was down 0.37% against the pound to 0.8024, 0.22% weaker against the euro at 0.9416, and fell 0.78% versus the yen to 110.07.
Geopolitical concerns continued to build after North Korea denounced the US deployment of a navy strike group to the Korean Peninsula and warned that it was ready for war.
Meanwhile, US President Donald Trump and British Prime Minister Theresa May agreed there is a "window of opportunity" to persuade Russian to ditch its support for Syria's Bashar al-Assad. Foreign ministers for the Group of 7 countries rejected Britain's call for sanctions on Russia and Syria following last week's chemical attack.
FXTM research analyst Lukman Otunuga said global stocks were vulnerable to losses on Tuesday due to the heightened geopolitical tensions, and this lack of appetite for riskier assets pressured Asian and European markets earlier.
The bearish sentiment spread to Wall Street as investors fled to safe haven assets with gold on comex up 1.12% to $1,267.70 per troy ounce, and US treasuries rallied with yields on the 10-year bond falling two basis points to 2.34%.
Elsewhere, Minneapolis Federal Reserve President Neel Kashkari is scheduled to take part in a Q&A session at 1845 BST.
His comments will come after Fed chief Janet Yellen suggested late on Monday that the central bank's focus has shifted from stimulating the economy to sustaining the progress that has pushed it close to the Fed's objectives.
On the data front, the number of job openings increased slightly in February, according to the Job Openings and Labour Turnover Survey (JOLTS).
Job openings rose 5.74m from 5.62m in January and more than the 5.65m forecast. Over the month, hires and separations were little changed at 5.3m and 5.1m, respectively. Within separations, the quit rate was also little changed at 2.1%, and the layoffs and discharges rate was flat at 1.1%.
In corporate news, the worst performing sector on Tuesday was financials, which fell 0.4% and utilities which slipped 0.4%.
United Continental Holdings fell 3.05% and wiped about $375m off the airline's market capitalisation after it was caught dragging a passenger off an overbooked flight. United said it had asked for four volunteers to leave the plane due to overbooking and one customer refused to give up his seat.
RetailMeNot soared 49.03% following news late on Monday that the coupons website has agreed to be bought by Harland Clarke Holdings for $11.60 a share, which is about 50% above its closing price on Monday. |
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| | Broker Tips | | Broker tips: Dialog Semiconductor, Balfour Beatty, SSE, oil and gas companies Shares in Apple supplier Dialog Semiconductor tanked on Tuesday after German private bank Bankhaus Lampe cut its rating on the stock to 'sell' from 'hold'.
It said there is strong evidence that Apple - from which Dialog derives more than 70% of its revenues - is developing its own power management integrated circuits and intends to replace the chip made by Dialog at least in part.
It said this could hit Dialog's numbers from 2019 onwards, hence the downgrade.
"We have been observing much stronger interest in engineers of analogue and power management chips from Apple in its hiring activities for a little over a year. We believe that Apple is setting up power management design centres in Munich and California.
"We hear from the industry that about 80 engineers at Apple are already working on a PMIC with specific plans to employ it in the iPhone by as early as 2019."
Bankhaus noted there are currently 16 different job openings on the Apple website for analogue/power management engineers for the design centre in Munich alone. In addition, a search on social networks such as LinkedIn revealed that Apple has already poached about 20 chip designers, some of them with long-standing experience from Dialog.
The bank said that whether these plans will be successful or not remains uncertain but either way, Dialog is facing "significant uncertainty".
Last week, shares in London-listed chip designer Imagination Technologies tumbled after tech giant Apple said it would stop using its graphics technology for new products.
Balfour Beatty
Balfour Beatty got a boost as Bank of America Merrill Lynch upgraded the stock to 'buy' from 'neutral' and lifted the price target to 345p from 295p, citing improved confidence in US, UK and Hong Kong margin recovery.
In addition, the bank pointed to hidden value in the public-private partnership assets, balance sheet optimisation and potential favourable tax regime changes in the US.
"Balfour has undergone a significant transformation since the arrival of new management in early 2015. The group has stepped-up efficiency efforts, taken £124m out of its cost base, exited some activities (i.e., engineering services for external clients) and overhauled its order selection, monitoring of project execution and cash management.
"The US construction outlook has improved, and while Brexit casts a shadow on the UK, the pipeline of infrastructure projects could provide an offset," the bank said
It argued that PPP assets are still the core, with the company's internal valuation of the PPPs standing at £1.2bn at December 2016, but said they remain underappreciated.
Merrill also highlighted potential upside from US tax reform, saying that if the corporate tax rate were to drop to 20% from 35%, this would imply an £11mn net income benefit for Balfour Beatty in 2018E, or an 8% earnings per share uplift for the group.
SSE
Berenberg upgraded SSE to 'buy' from 'neutral' as it believes that the utility's sector-topping 6.5% yield and promise of retail price index (RPI) linked dividend growth is sustainable.
The bank also said debt ratios are manageable and will reduce, political risk in the UK is "overplayed", and that the risk to power prices in the wholesale market is skewed to the upside.
The broker increased its price target to 1,650p per share from 1,550p , an 11% potential upside and a 17% 12-month total return.
It said that the 6.5% yield and RPI-linked dividend policy is the highest dividend yield in the sector - the average being 5.1% - "from a company for which the dividend is sacrosanct".
Berenberg expects the company's philosophy of putting the sustainability of its dividend at the forefront of its shareholder proposition for the foreseeable future and thinks that capital expenditure growth will give before the dividend if balance sheet pressure needs to be eased.
It forecasts a dividend cover remaining within SSE's 1.2-1.4 times range over the next three years.
An expected net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of 4.3 times in 2017/18 is "a little high" for Berenberg, even for a company with about 60% regulated or quasi-regulated EBITDA, but it believes that this will be the peak.
A reduction in capital expenditure growth is expected to help reduce leverage to below four times in subsequent years, avoiding disruption to the dividend.
The broker maintained that political risk is"overplayed" as the "heavy-handed intervention in the supply market would be unnecessary and, frankly, a bad idea" and that political meddling, such as a price cap, would be bad for competition, customers and investment in the economy.
"Undermining the findings of the Competition and Markets Authority would have negative ramifications well beyond the bounds of the most recent probe into the energy supply market. Politics will always feature in this sector. Nonetheless, we continue to expect common sense will prevail when it comes to actual intervention."
In addition, Berenberg said that the tight reserve margin and a hiatus in new capacity investment could remain a potentially inflationary feature of the UK power market for some time, especially if the government presses ahead with plans to phase out coal and start to close old nuclear power stations by 2025, while Brexit also puts currency pressure on price-setting thermal generation costs.
European oil and gas companies
Analysts at Barclays lowered their targets for a swathe of European oil and gas explorers as they marked down their short and medium-term assumptions for the Brent price deck.
The broker lowered its assumptions for the price of Brent in 2017 and 2018 from $57 and $70 a barrel to $56 and $67 a barrel, respectively.
From 2019 onwards, Brent was now seen at $60 a barrel, down from $70 before.
"Although we continue to believe in a continued recovery in oil through 2017-18E, we now feel $60 is a more appropriate long-term assumption, better reflecting the planning assumption of management teams (and investors) assessing future investment opportunities," analyst James Hosie said.
The average result of those revisions was a 21% reduction in his estimates for the group's tangible net asset value.
Furthermore, the new price targets which flowed on from those revisions meant the average upside potential for stocks in the group was reduced from 21% to 9%.
Lundin Petroleum continued to be his 'top-pick', with Hosie touting the outfit's "high-quality" Norwegian production and development portfolio and strong financial position.
Its other 'overweight' recommendations were Africa Oil, Amerisur Resources, Cairn Energy and Ophir Energy.
Target prices were lowered for Cairn Energy (from 295p to 270p), Enquest (from 53p to 54p), Faroe Petroleum (from 115p to 110p), Ophir Energy (from 125p to 110p), Premier Oil (from 100p to 70p) and Soco (from 155p to 140p). | | | | To advertise in the Euro Markets Bulletin please contact [email protected] |
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