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| | London close: Stocks gain as Wall Street surprises, rising after CPI report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | London equity markets finished near their best levels of the session on Wednesday, after an unexpectedly strong reading on US consumer prices failed to knock Wall Street lower, arguably the biggest surprise of the session. At the closing bell, the FTSE 100 was up 0.64% to 7,213.97, alongside a 0.49% jump in the pound to 1.3955 US dollars, partly on the heels of a speech from the Chancellor highlighting that a transition period following Brexit was in the best interests of both Brussels and London. Also worth noting, the Bank of England's summary of Agents' summary of business conditions showed recruitment difficulties were continuing, alongside a pick-up in wage growth. Over in the States, the Bureau of Labor Statistics reported that US consumer prices printed at up by 2.1% year-on-year for January, unchanged from the month before but ahead of economists' forecasts calling for a dip to 2.0%. Thursday's CPI surprise in the States was all the more surprising given recent revisions to the so-called seasonal adjustment factors for that report, which had been expected to contribute to a fall. Nonetheless, in reaction to that inflation data, Ian Shepherdson at Pantheon Macroeconomics said: "Coming so soon after the out-sized Jan wages numbers, it will be easy for inflation bears to spin a story of rising wage gains lifting inflation. "That's a premature judgement, not least because just two components - apparel and medical services - account for the overshoot against consensus." Nevertheless, all told he believed the underlying trend was at roughly 0.2% per month, although that meant CPI would gradually move towards 2.5%, which was consistent with 'core' PCE (the Fed's preferred price gauge) to 2.0% year-on-year. "[...] likely rather quicker than the Fed and the markets expect. This report does not constitute an inflation disaster, but it's clearly a threat to markets which still don't fully price-in the three hikes the Fed expects; we think four are more likely," Shepherdson added. On a slightly discordant note, and despite early gains on Wall Street, the Japanese yen, widely considered a gauge of risk aversion, was at 15-month highs against the US dollar. In corporate news, Coca Cola HBC rallied as it reported full year earnings before interest and tax (EBIT) of €621m, a rise of 20% on net sales revenue of £6.5bn, up 4.9%. Sky and BT were also both on the front foot as they picked up the rights to the Premier League for £4.46bn. Engineer GKN, which is currently fighting off a hostile bid from turnaround specialist Melrose Industries, was in the black after saying it is targeting a cash return of up to £2.5bn to shareholders over the next three years. The knock-on effects of Carillion's collapse were being felt as Galliford Try tumbled after announcing a £150m capital raising to cover the impact. The announcement came alongside the firm's latest interims and a decision to pay out a dividend of 28p for the six months to 31 December, versus 32p in the first half of 2017. However, Serco advanced after saying it has signed a revised purchase agreement with Carillion's liquidators allowing it to buy some of Carillion's UK healthcare facilities management business for £29.7m, down from a previously agreed price of £47.7m. Sirius Minerals gained after entering into a design and build contract with shaft sinking and mining contractor DMC Mining Services for the construction of the four shafts required for its polyhalite project in North Yorkshire. Spirax-Sarco Engineering nudged up after it said chairman Bill Whiteley plans to retire from the board in May, and will be succeeded by senior independent director Jamie Pike. CYBG was boosted by an upgrade to 'sector perform' at RBC Capital Markets, but Virgin Money was hit by a downgrade to 'underperform' by the same outfit. Aviva was higher after an upgrade to 'buy' at Goldman Sachs, while TalkTalk edged up after an upgrade to 'hold' at Societe Generale. AG Barr slid after JPMorgan cut the stock to 'underweight'. Market Movers FTSE 100 (UKX) 7,213.97 0.64%
FTSE 250 (MCX) 19,448.38 0.66%
techMARK (TASX) 3,260.68 0.52% FTSE 100 - Risers Randgold Resources Ltd. (RRS) 6,386.00p 4.86%
Coca-Cola HBC AG (CDI) (CCH) 2,346.00p 4.83%
Fresnillo (FRES) 1,331.00p 4.60%
Evraz (EVR) 375.30p 4.08%
WPP (WPP) 1,384.00p 3.63%
GKN (GKN) 411.30p 3.34%
Old Mutual (OML) 239.40p 3.01%
Antofagasta (ANTO) 916.00p 2.97%
ITV (ITV) 165.05p 2.96%
BHP Billiton (BLT) 1,574.60p 2.81% FTSE 100 - Fallers TUI AG Reg Shs (DI) (TUI) 1,539.50p -4.58%
Standard Life Aberdeen (SLA) 390.10p -2.38%
Shire Plc (SHP) 3,135.50p -1.43%
CRH (CRH) 2,434.00p -1.30%
Reckitt Benckiser Group (RB.) 6,323.00p -0.96%
Rolls-Royce Holdings (RR.) 820.60p -0.80%
Hammerson (HMSO) 459.80p -0.73%
Sainsbury (J) (SBRY) 245.60p -0.73%
Morrison (Wm) Supermarkets (MRW) 217.40p -0.60%
Barratt Developments (BDEV) 547.80p -0.58% FTSE 250 - Risers Provident Financial (PFG) 709.00p 8.51%
Convatec Group (CTEC) 198.45p 5.47%
Ferrexpo (FXPO) 284.60p 4.58%
Hikma Pharmaceuticals (HIK) 893.20p 4.39%
Merlin Entertainments (MERL) 335.10p 4.31%
Melrose Industries (MRO) 221.50p 4.24%
Serco Group (SRP) 86.95p 4.07%
IWG (IWG) 242.20p 4.04%
TBC Bank Group (TBCG) 1,650.00p 4.04%
Polymetal International (POLY) 789.20p 3.95% FTSE 250 - Fallers Galliford Try (GFRD) 800.00p -18.99%
Virgin Money Holdings (UK) (VM.) 259.90p -4.18%
Sanne Group (SNN) 612.00p -3.79%
NewRiver REIT (NRR) 294.50p -3.12%
Kier Group (KIE) 1,052.00p -3.03%
Vectura Group (VEC) 76.00p -2.69%
St. Modwen Properties (SMP) 383.00p -2.58%
Go-Ahead Group (GOG) 1,369.00p -2.56%
Hansteen Holdings (HSTN) 130.60p -2.47%
Barr (A.G.) (BAG) 642.10p -2.42% |
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| | Europe close: Stocks recover from abrupt drop after US CPI |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | Stocks finished higher across the Continent, seeing the day out from their best levels of the session after an abrupt US CPI-inspired drop in the afternoon. As feared, US consumer prices data for January surprised to the upside, but so too did stocks on both sides of the Atlantic, even in the face of higher government bond yields. Stockmarket volatility was lower on both sides of the Pond as well, with the VStoxx index down 20.18% to 20.71, mirroring a similar fall in the Chicago Board of Options Exchange's VIX index. "Markets were very volatile on the back of the US inflation and retail sales figures. In January the inflation rate held steady at 2.1%, which caught traders off guard as the consensus was for a decline to 1.9%. Retail sale actually declined by 0.3%, which was a big a miss as economists were forecasting an increase of 0.2%. "The initial reaction was a hawkish one, as traders viewed the headline CPI number as more evident the Federal Reserve could hike interest rates four times this year. As trader digested the data, it sunk in that CPI just held steady and there was a sizeable decline in retail sales, so the numbers weren’t as good an initially thought," explained David Madden at CMC Markets UK. Against that backdrop, at the market close in Paris the benchmark Stoxx 600 was up by 1.07% or 3.95 points to 374.53, alongside a rise of 1.17% or 142.66 points on the German Dax to 12,339.16. Having lagged behind its peers throughout the morning, Italy's FTSE Mibtel was the top gainer among the main European indices, tacking 1.81% or 399.33 points to 22,433.75. As such, the wooden spoon went to Spain's Ibex 35, which advanced 0.37% to 9,686.20. Acting as a backdrop, politics were the name of the game after German SPD leader Martin Schulz stepped down as party head on Tuesday evening. On a related note, earlier in the day economists at Barclays said domestic demand in the euro area's largest economy could be expected to remain weak until political uncertainty in the country was removed. Their comments came on the heels of the latest GDP print out of Germany on Wednesday morning revealing stagnant household consumption acted as a drag on economic growth in the fourth quarter of 2017. "Despite the tailwind from the Global economy, we expect domestic demand to remain weak until the political uncertainty is resolved. Whether or not this resolution occurs in Q1 2018 heavily depends on the outcome of the SPD party member vote on the 4 March," they said. Trade tensions were also in the news on Wednesday morning, with German business lobby BDI reportedly warning the US risked a dangerous spiral if it moved on the White House's suggestions of fresh taxes on countries that imposed tariffs on American goods. Separately, Bundesanzeiger reported on US hedge fund Bridgewater's decision to enter into short positions on several of the country's blue-chip names, including Deutsche Bank, Allianz and BASF. Meanwhile, in economic news, Germany's Ministry of Financereported that the rate of growth in the country's gross domestic product slowed from a 0.7% pace quarter-on-quarter for the three months to September to 0.6% for the fourth quarter of 2017 (Barclays: 0.7%). Government statisticians also revised lower their estimate for third quarter GDP growth from 0.8% to 0.7%. On a more positive note, according to Eurostat, Eurozone industrial production was ahead by 5.2% year-on-year in December (consensus: 4.2%). Back in the corporate patch, industrial conglomerate Thyssen Krupp failed to please, despite posting a 52% jump in first quarter 2018 profitability. Elsewhere, French lender Credit Agricole posted a 33% rise in quarterly profits on the back of the solid performance put in by investment banking unit, but its shares too ended lower. |
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Top of the stocks Number of Deals Bought Number of Deals Sold |
| | Cryptocurrencies Report | | Top Cryptocurrencies | # | Name | Market Cap($) | Price(%) | Change | Price Graph(3m) | | 1 |  | Bitcoin (BTC) | 156,949,622,696 | 9,305 | +9.33% |  | | 2 |  | Ethereum (ETH) | 88,760,429,898 | 904.68 | +7.74% |  | | 3 |  | Ripple (XRP) | 43,792,915,976 | 1.13 | +14.75% |  | | 4 |  | Bitcoin Cash / BCC (BCH) | 22,624,767,516 | 1,330 | +9.19% |  | | 5 |  | Litecoin (LTC) | 11,423,073,626 | 206.94 | +30.06% |  | | 6 |  | Cardano (ADA) | 10,079,589,432 | 0.38 | +6.58% |  | |
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| | US open: Wall Street does its best to give CPI data the slip | Early trading pointed to another positive session on Wall Street on Wednesday, while there was some volatility after the release of the latest inflation figures, stocks had come off their session lows, with all the main indices having pivoted into the green. At 1515 GMT, the Dow Jones Industrial Average and the S&P 500 were up 0.01% and 0.11%, while the Nasdaq had gained 0.43%. Wednesday's hotly awaited CPI report revealed that the cost of living in the US turned out to have held steady last month, buoyed by unusually large increases in clothing and medical care prices, with those for the former rising at their quickest pace since 1990. Consumer prices edged past economists' forecasts, despite much ballyhooed revisions to the government's seasonal adjustment factors which had been expected to contribute to a small decline in the rate of advance in prices. The rate of gains in headline consumer prices was at 2.1% year-on-year in January, according to the Bureau of Labor Statistics (consensus: 2.0%), unchanged from the month before, while at the 'core' level CPI came in at 1.8% (consensus: 1.7%), which was also the same as in the month before. When compared to December, CPI was 0.5% higher, led by a higher cost of gasoline (5.7%), apparel (0.8%) and medical care services (0.6%). As Jim Reid at Deutsche Bank pointed out in a research note sent to clients on 12 February, Thursday's print meant the CPI release extended a 25-year run of consistently coming in ahead of the consensus forecasts in January to 26. Now, it remained to be seen whether CPI would also extend its 25-year streak of falling short during the following month, in February. "The expectation is that there won’t be any nasty upside surprises from CPI this time round. The year-on-year comparison should be quite flattering due to a high reading for January 2017." Also announced on Wednesday was the news that January retail sales fell 0.3%, well below the consensus forecast for growth of 0.2%, and sales excluding-autos and the control measure were both unchanged, but also well below consensus of 0.5% and 0.4% growth, respectively. Ian Shepherdson, chief economist at Pantheon Macroeconomics, said, "We thought the consensus here was optimistic, given the softer Redbook chainstore sales numbers last month, but the core data are a bit weaker still than we expected. Note too that prior sales were revised down by a net 0.4%, which will subtract 0.2 percentage points from the headline Q4 GDP growth number. "The numbers were hit by a bigger drop in auto sales than was implied by the manufacturers' volume numbers, and a 2.4% plunge in sales of building materials, mean-reverting after their post-hurricane leap. The core numbers were soft too, but at this point we're inclined to see that as a reaction to the unsustainably strong Q4 data. Total consumption jumped at a 3.8% rate in Q4, and that pace can't be sustained without a further big drop in the saving rate, which is already close to record lows." Traders will also be keeping a close eye on key technical levels, with the S&P 500 currently hovering around 2,670 - its 100-day simple moving average. "A close above here opens up the possibility of a retest and break of resistance around 2,700, raising the probability of a resumption of the bull market. In contrast, a sell-off which sees the index break below 2,600 by the weekend would suggest that we’re looking at something more damaging than a 10% correction," said David Morrison, senior market strategist at GKFX. In corporate news, Fossil Inc rocketed ahead as much as 65.05% after the watchmaker released better-than-expected earnings late on Tuesday. Elsewhere, shares in Chipotle Mexican Grill saw a 14.83% bump after it said Brian Nicol, who was chief executive of Taco Bell, will be its new CEO from March and Hilton Worldwide Holdings, had crawled ahead 1.96% after its fourth-quarter profits outshone market expectations. Molson Coors Brewing grew 4.40% and Dr Pepper Snapple lost 0.16%. In FX news, Connor Campbell, financial analyst at SpreadEx, said, "After a truly wild, if not unprecedented, initial reaction the markets quickly calmed down following news of January’s US inflation data." "Understandably the faster than forecast jump in inflation was catnip for the dollar, which soon found itself up half a percent against the pound and the euro. However, that growth proved to be short-lived, with investors seemingly deciding that today’s data didn’t change much, with the greenback slipping into the red against its currency rivals." |
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| | Broker tips: Victrex, Virgin Money, AG Barr, Accesso | Analysts at Credit Suisse retained their 'buy' recommendation for shares of Victrex on Wednesday, telling clients that it estimates the plastics manufacturers' technology pipeline could deliver high single-digit top-line growth to 2025 and forecast a 5% FCF and total dividend yield. In the same research note, the broker revised its target price up to 2,650.00p from its prior estimate of 2530.72p, explaining that it was expecting 7-8% volume growth per annum in 2018 and 2019, powered by 3-4% above market penetration from transport, electronics and oil and gas. Credit Suisse went on to highlight Victrex's achieving its first orders in automotive gears and that company partner Magma had qualified to supply a 2.5km flowline into Tullow Oil, commenting that these steps show "proof of concept in potentially very large markets". Successful execution on Victrex's pipeline should lead to the business growing approximately 10% per annum on a 10-year view, the broker said. Victrex's dividends per share were seen as dropping 10% to 109.24p for 2018 and 2019, but afterwards improving to 113.39 in 2020. Reflecting the overall positivity of the note, Credit Suisse said: "Q1 results highlighted a robust start to the year and promising ramp of the growth pipeline." Virgin Money took a hit on Wednesday as RBC Capital Marketsdowngraded the challenger bank to 'underperform' from 'outperform', slashing the price target to 250p from 350p as it took a look at UK banks. RBC said UK banks have benefited from cheap liquidity in the form of the funding for lending scheme and the term funding scheme since 2012. The last FLS drawdown was end of January and the last TFS drawdown will be at the end of this month. From then, liquidity will slowly be withdrawn in 2018/19 through FLS repayments and decline significantly when TFS maturities start in 2020. It pointed out that Virgin has one of the highest usages of TFS and FLS funding of all the UK banks, at 18%. As these liquidity schemes end, growth and margin will become more challenging for VM, particularly as only 98% of its deposits are term deposits and savings accounts. RBC also noted that VM has a high loan to deposit ratio. "Given liquidity is less freely available in the UK from February, we expect that loan growth will likely be curtailed to maintain an LTD ratio lower than 120%," said RBC, adding that 1% lower loan growth reduces its pre-tax profit estimate for 2018 by 2.3%. RBC said it fully supports the strategy of building the digital bank and entering the SME market, which should significantly enhance returns in the long term, but argued that near-term potential consensus downgrades are more likely to impact in 2018. AG Barr shares fizzed lower on Wednesday as JPMorgan Cazenove cut its stance on the Irn Bru maker to 'underweight' from 'neutral' and chopped the price target to 570p from 630p amid concerns about growing competition. The bank said it expects the UK soft drinks market to come under pressure following the introduction of the sugar levy in April. It expects carbonates volumes to fall by 1% as consumers switch to healthier and low sugar drinks, and for competition to intensify. JPM said that while AG Barr should be "sugar tax immune", the reformulation of Irn Bru - which accounts for 42% of sales - puts it at risk of losing customers. Earlier this year, some Irn Bru fans were up in arms after the company launched its new lower-sugar version of the drink, with many going so far as stockpiling their favourite fizzy drink ahead of the recipe change. "AG Barr has reformulated its portfolio and is currently 99% immune from the sugar levy; however with competition increasing, we believe it is too small of a player and could face structurally lower margins as it invests more in pricing and innovation to support its current market position. "We believe the rapid reformulation of Irn Bru may risk losing some customers and see circa 10% of revenues at risk of rationalization from the retailers." The bank added that AG Barr's premium valuation is at risk. It currently trades at CY18E EV/EBITDA of 14.5x, which is a 56% premium to other European soft drink players. Analysts at Berenberg initiated coverage on leisure industry group Accesso Technology with a 'buy' rating on Wednesday, citing several factors that they believed would lead to "double-digit organic revenue growth" over the coming years as their reasoning. Berenberg stated that Accesso and its end-to-end technology stack, married with its global footprint, position it well in "a market that is fragmented by product, geography and vertical". "We believe this will allow Accesso to take market share in its core theme park market, but also expand in the broader leisure industry where it has less penetration," the Tuesday morning research note read. Berenberg initiated coverage with a 'buy' rating and a 2,700p price target. Berenberg said, "Accesso has spent c$170m on five acquisitions since 2012. With more than $120m of balance sheet firepower over 2018-20E, we believe that accesso will likely use M&A to accelerate growth in new verticals and geographies. Our analysis indicates that M&A could deliver 30%+ earnings upgrades over 2018-20E and add up to 1,100p to our base-case DCF price target." "We value accesso on a 80/20 blend of our base-case DCF and blue-sky valuation. Accesso trades on 37x 2018 P/E for a 20% 2018-20E EPS CAGR," the analysts concluded. | | | | To advertise in the Euro Markets Bulletin please contact advertise@advfn.com |
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