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Apr 30, 2018

Evening Euro Markets Bulletin

 
ADVFN III Evening Euro Markets Bulletin
Daily world financial news Monday, 30 April 2018 17:36:24
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London close: Stocks end off highs as pound claws back some ground; Sainsbury's surges
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London stocks ended just in the black on Monday, off earlier highs as the pound reversed its earlier drop against the euro and clawed back some ground versus the greenback, with deal news underpinning sentiment after Sainsbury's announced plans to merge with Walmart's UK unit, Asda.

The FTSE 100 rose 0.1% to 7,509.30 as sterling regained some poise, trading up 0.2% versus the euro at 1.1390 and down 0.2% against the dollar at 1.3754, halving its earlier losses. The currency has been under pressure since last week's weak UK GDP data dashed any remaining hopes of an interest rate hike in May.

Sainsbury's closed up 15% after confirming that it has agreed terms with Walmart over a merger with UK supermarket chain Asda to create a £51bn-revenue giant in exchange for a £3bn cash payment.

The agreed deal will see Sainsbury's, which also reported its final results on Monday, hold 58% of combined business and retain its chairman, chief executive and chief financial officer, as well as its listing in London. Tesco shares ended down but Morrisons reversed earlier losses to close up.

Spreadex analyst Connor Campbell said: "Obviously regulators are going to have a LOT to say about such a landscape-shifting deal, meaning there's a long way to go before this bonkers but potentially brilliant marriage becomes a reality."

"Investors are already signalling how they feel about the merger, however; Sainsbury's rocketed as much as 20% higher after the bell, sitting between £3.15 and £3.20 for the first time in a few months shy of four years."

In its 52-week fiscal year, Sainsbury's reported a return to profit growth, with underlying profit before tax up 1.4% to £589m, with profits up 11% in the second half after cutting £185m of costs. Looking to the current year, chief executive Mike Coupe said he was "comfortable" with the current City forecast for underlying pre-tax profit of 7% to £629m.

Elsewhere, advertising giant WPP racked up impressive gains after it posted a 0.8% increase in first-quarter like-for-like revenue and reiterated its guidance for 2018, as it said it would take a "fresh look" at business in light of Martin Sorrell's exit, amid talk that it could spin off assets.

Aviva edged higher after saying it will make goodwill payments to shareholders who sold preference shares in the period from 8 to 22 March, while gambling company Rank Group ticked higher after appointing former Ladbrokes executive John O'Reilly as chief executive.

On the downside, Glencore retreated after saying late on Friday that two of its subsidiaries in the Democratic Republic of Congo had been served freezing orders for $3bn of damages for alleged unpaid royalty agreements, news which prompted RBC Capital Markets to downgrade the stock to 'outperform' from 'top pick'.

Randgold Resources slipped saying that industrial disputes at its Tongon gold mine in Côte d'Ivoire would hit 2018 production guidance of 290,000 ounces although it was making efforts to recover lost output.

Mike Ashley's Sports Direct was in the red after disclosing stakes in US companies Finish Line and Iconic Brand Group, while Old Mutual declined as the Anglo-South African financial services group said that its businesses continue to trade in line with the expectations outlined in its results back in March.

On the broker note front, Barclays downgraded Victrex to 'underweight' and reinstated Elementis at 'equalweight', while Thomas Cook was boosted by an initiation at 'buy' by Jefferies.


Daily cryptocurrency Tracker 30.4.18: Bitcoin holding above $9,300

Relatively lower volatility was seen in the crypto market over the weekend, as Bitcoin held above $9,300. All top 8 cryptos registered losses over the past 24 hours, with EOS...

Read More..


Market Status
 
 
change pct
+0.23%
 
cur price
7,519.26
 
change
+17.05
 
 
change pct
+0.26%
 
cur price
20,324.23
 
change
+52.60
 
 
change pct
+0.27%
 
cur price
3,456.60
 
change
+9.43

Top 10 FTSE 100 Risers

# NameChange PctChangeCur Price
1Sainsbury+14.90%+40.20310.00
2WPP Plc+8.45%+97.001,245.50
3Rentokil Initial+1.73%+5.30311.80
4Old Mutual+1.45%+3.70258.40
5Vodafone Group+1.23%+2.60213.15
6Pearson Plc+1.19%+9.80832.00
7HSBC Holdings+1.14%+8.20727.80
8Standard Chartered+1.02%+7.80769.50
9Convatec+0.98%+2.10217.10
10BT Group+0.95%+2.35250.35

Top 10 FTSE 100 Fallers

# NameChange PctChangeCur Price
1Glencore-2.98%-11.00358.00
2Tesco-1.30%-3.10235.00
3Babcock International Group-0.78%-5.80735.20
4Marks & Spencer-0.66%-1.90284.70
5British American Tobacco-0.57%-23.004,007.50
6Royal Dutch Shell A-0.55%-14.002,517.50
7British Petroleum-0.48%-2.60534.80
8Royal Dutch Shell B-0.46%-12.002,584.00
9G4S-0.46%-1.20260.40
10Sage Group-0.44%-2.80638.20

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Crypto Currencies
#1 Bitcoin (BTC)
change
-1.66%
mktcap
157.22B
volume
54014.63T
price
9,245.02
#2 Ethereum (ETH)
change
-0.92%
mktcap
67.44B
volume
20581.23T
price
680.79
#3 Ripple (XRP)
change
-3.55%
mktcap
33.21B
volume
11439.34T
price
0.84
#4 Bitcoin Cash / BCC (BCH)
change
-3.63%
mktcap
23.87B
volume
5851.34T
price
1,390.08
#5 EOS (EOS)
change
-11.78%
mktcap
15.27B
volume
31797.65T
price
18.35

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US open: Strong earnings from McDonald's boost Dow

Wall Street trading opened on a positive note Monday, as a profit beat at fast food giant McDonald's helped boost sentiment ahead of a slew of data releases.

At 1530 BST, the Dow Jones Industrial Average was up 0.31%, while the S&P 500 and Nasdaq had gained 0.26% and 0.46%, respectively.

SpeadEx analyst Connor Campbell said: "The index's 100 point climb did all ow the Dow to cross 24400; if it maintains those gains until closing time then it will close April around 300 points higher than where it started."

Deal news was in focus as T-Mobile and Sprint agreed a $26bn merger that would reduce the major US wireless providers to three from four. However, RBC Capital Markets said regulatory approval for the deal was likely to be challenging.

"We believe Department of Justice staff feel vindicated in blocking the AT&T/T-Mobile merger several years ago and would want to maintain a four-player market to preserve competitive behaviour, whereas a three-player market may be susceptible to coordinated effects," RBC said.

Elsewhere, refiner Marathon Petroleum agreed to buy rival Andeavor for more than $23bn in a deal that is expected to produce synergies of $1bn.

Walmart was up 2.51% as its UK unit, Asda, agreed to merge with London-listed supermarket retailer Sainsbury's.

David Cheetham, chief market analyst at XTB, said that while the UK's Competition and Markets Authority has already stated that the merger will "likely be subject to review", it appears unlikely that the deal will be blocked.

"A market share in the low 30-percents is a long way from monopolistic and given the intense competition in the sector, aptly highlighted by the emergence of Lidl and Aldi, as well as the fact that the new market share will not be that much more than the one currently enjoyed by the market leader Tesco, the CMA are unlikely to stand in the way and scupper the arrangement."

McDonald's gained 4.910% in early trading after menu price increases fueled higher first-quarter earnings.

Arconic tanked 12.43% after cutting its full-year profit forecast and AK Steel Holding lost 5.89% despite posting better than expected earnings.

On the data front, economic activity in the Chicago area improved a touch less than expected in April, according to figures released on Monday.

The MNI Chicago business barometer rose to 57.6 from 57.4 in March, snapping a three-month downward trend but still coming in below expectations for a reading of 57.9.

Elsewhere, a key measure of US inflation rose to the Federal Reserve's target for the first time in a year, lifting market expectations for future US interest rate rises.

Growth in March's personal consumption expenditures index picked up to 2% compared to a year ago, from a 1.7% pace in February, as economists expected. This was despite no change movement month-on-month between the headline PCE index.

Core PCE inflation, the Fed's preferred measure of inflation, reached 1.9% from 1.6%, in line with the market forecast, as the core PCE deflator rose 0.2% on the month.

Lastly, contracts to buy previously owned homes rose less than expected in March as a lack of properties for sale held back activity for another month, according to the National Association of Realtors.

The pending home sales index nudged higher to a reading of 107.6, up 0.4% from February and the second consecutive monthly rise. January's index was slightly downwardly revised to 107.2.


Broker tips: Thomas Cook, DFS, Glencore

The chance to regain lost demand for its Eastern Mediterranean and North African offerings makes package holiday provider Thomas Cook a "compelling recovery play", said Jefferies.

Jefferies analysts signalled that Thomas Cook's 10% increase to its airline capacity throughout the first quarter, helping it tap into ancillary sales and regain some of its lost customers in the Eastern Med market, should drive a step change in organic growth.

The broker believes that Thomas Cook's self-help programme is beginning to bear fruit, with the potential for job rationalization to come through recent innovative partnerships with the likes of Expedia.

Jefferies initiated coverage on Thomas Cook with a 'buy' rating and a price target of 180p on Monday, noting that capacity gaps left in the wake of Air Berlin and Monarch's recent collapses would introduce new angles for revenue improvement.

"We conclude that a consumer downturn is not necessarily a material risk to the package holiday and that Thomas Cook stands to benefit from the structural growth of an ageing population," the analysts wrote.

Elsewhere, analysts at Jefferies upgraded their rating of furniture retailer DFS from ‘hold’ to ‘buy’ on Monday, citing the company’s acquisition of Sofology and its "resilience" in the face of a challenging market.

The UK upholstery market is expected to decline by 2-3% over the next 12 months but Jefferies analysts noted that the first-half results for DFS showed that with "better visibility of market growth, flexibility in operating expenses and marketing cost deflation, it is able to limit operating deleverage.”

The retailer’s like-for-like sales fell 4.6% over the period but EBITDA margins fell by just 20 basis points and DFS also managed to expand its market share to over 30% through the acquisition of Sofology and eight Multi York stores.

The Sofology deal from August is viewed as particularly crucial by Jefferies, which expects it to result in the addition of 28% more stores, 25% more sales, 10% more EBITDA and 5% more EPS by the end of 2020.

Risks that the company may face in the near future include potential difficulties with the integration of Sofology, rising interest rates, IFC legislation changes and manufacturing issues.

However, as Jefferies analysts see further market deterioration as unlikely they have raised DFS’s target price to 255p from 210p.

"We like DFS's sofa market leadership and ability to flex its operating costs (more than 85% variable) to deliver growth in profits. Increased visibility over DFS's cash flows and limited downside risk to the market declining further leads us to increase our target multiple for DFS.”

Complications at mining giant Glencore continue to mount following the freezing of its assets in the Democratic Republic of the Congo as a result of a $3.0bn claim from an Israeli businessman, leading analysts at RBC Capital Markets to reassess their stance.

Late last week, the Swiss commodities group announced that Katanga Copper and Mutanda Mining, Glencore's Congolese majority-owned businesses, had been served freezing orders via a claim from tycoon Dan Gertler, the company's former partner in Congo, who said he had not received due royalties following his inclusion on the recent US sanctions lists.

Gertler's Ventora issued freezing orders against Katanga and Mutanda for roughly $2.28bn and $695m respectively, which it said would be the damages relating to future royalties due to it. Katanga disputes that Ventora has any claim against it. The contracts between Mutanda and Ventora are subject to English Law and arbitration in Hong Kong, while the agreement between Katanga and Ventora is subject the exclusive jurisdiction of the English courts, Glencore said.

Although the situation remains unclear and Glencore denies any breach of its agreements with Gertler, RBC still saw cause to downgrade its stance on the group from 'top pick' to 'outperform'.

"Assuming Glencore's DRC assets halt production, the impact on the copper market is likely to be large," the Monday note from RBC said.

"Our analysis suggests the lost 360kt of copper will shift the copper market into deficit for 2018," it added.

However, RBC still likes the look of Glencore, as its forecasts still managed to place the FTSE 100 group in line with its sector peers and even went as far to say that if the miners marketing business was capable of providing lower earnings volatility, a premium rating would be expected to be reissued in just a short time.

"Owing to the nature of the challenges facing Glencore's presence in the DRC, it will be nearly impossible to provide definitive forecasts for the DRC assets until further developments occur," RBC said.

"For now, we think it prudent to remove these operations from our forecasts and shift to a risked value for the assets," RBC's analysts added.

RBC also dropped Glencore's target price from 460p to 410p.

 

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