| | | | | Q2's Top 10 Stock Picks | | What trading opportunities do the next 3 months hold? Our latest quarterly stocks report unveils our Top 10 Stock Picks for Q2 as well as a review of the key Q1 stories & preview of the coming quarter's pivotal events, and analysis of the best, and worst, FTSE share price performances year to date. Losses can exceed deposits. Download Report | | |
| | London close: Footsie edges higher ahead of US Fed decision |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | Continuing weakness in the pound ahead of the US central bank's policy announcement later in the day boosted London's top flight index on Wednesday. The FTSE 100 was 0.30% firmer at 7,543.20, while the pound was up 0.11% against the euro at 1.1365 and off by 0.12% versus the US dollar at 1.3607, respectively. Also helping to boost investor sentiment a tad was data showing that construction activity in Britain bounced back a little last month, after weakness in the first quarter undermined expectations of the Bank of England's monetary policy plans. IHS Markit's construction purchasing managers' index showed a rebound to 52.5 in April from the dreadful 46.0 a month earlier that capped off a 3.3% quarter-on-quarter fall in output in the first quarter as a whole. With a PMI reading above 50 indicating growth, April's PMI was the highest in five months and beat the average economist estimate of 50.5 but was only slightly ahead of its 12-month average of 52.1 and short of the 53 level that historically equates to actual output growth. Howard Archer, chief economic advisor to the EY Item Club, cautioned that despite the pick-up, construction activity was still far from racing ahead in April and a stronger rebound could realistically have been hoped for given the extent of March's weakness. "Consequently, the April purchasing managers' survey did little to dilute underlying concerns over the softness of the construction sector." Still to come on Wednesday, the Federal Reserve's latest policy announcement is at 1900 BST. With no change to policy expected, investors will eye the accompanying statement for clues on more rate hikes this year. Of particular interest would be US rate-setters' description of recent readings on inflation, with the latest print on 'core' personal consumption expenditures' prices having reached its long-sough goal of 2.0%. Just as important would be markets' reaction to any change in the Fed's policy statement. Against that backdrop, miners lent a hand in London, with Glencore, Fresnillo, Antofagasta, Rio Tinto and BHP Billiton all stronger on stronger prices for metals including copper and nickel, and against a background of mixed China data. Overnight, the Caixin manufacturing purchasing managers' index for China edged up to 51.1 in April from 51.0 in March, beating expectations for a small drop to 50.9. However, the report said the country's manufacturers were facing a "sharply deteriorating foreign demand environment", with new export orders declining for the first time in 17 months. Glencore was also boosted by a London court ruling a day earlier, which granted the FTSE 100 mining group an injunction after Israeli tycoon Dan Gertler filed a legal action last week in the DRC seeking to freeze proceeds from its mines in the country. In other corporate news, Inmarsat rocketed as it said first-quarter pre-tax profit grew to $56m from $1.3m the year before, while Ocado shot higher as it announced a new international partnership with Sweden's ICA to develop its online grocery business. Kitchen maker Howden Joinery's shares rallied after it posted a 15% jump in first-quarter UK revenue as it benefited from an extra week of trading compared to 2017, higher volumes and a weak comparative. Stock in Sage meanwhile ticked up after the business software provider delivered first-half revenue growth of 6.3%, in line with its recent profit warning, and assured it had rooted out the problems. Thomas Cook was boosted by an upgrade to 'outperform' from 'neutral' at Credit Suisse, which pointed to clearer skies ahead. On the downside, shares in Paddy Power Betfair slumped after the bookie said underlying first-quarter earnings fell 6% as a result of new betting taxes and levies and start-up losses in its US businesses, while workspace provider IWG declined even as it reported an increase in first-quarter group revenue. Standard Chartered reversed earlier gains as traders booked some profits after it posted a 20% increase in profit for the first quarter as revenue rose across the bank's business. Pre-tax profit for the three months to the end of March rose to $1.19bn (£880m) from $990m as operating income increased 7% to £3.87bn. Insurer Direct Line fell after it reported a 5% drop in gross written premiums for the first quarter and warned that claims associated with the cold weather at the beginning of the year would eat up its full annual weather budget. Indivior lost ground despite releasing in-line first-quarter results and saying it was no track to meet full-year guidance, while building materials group CRH slipped as it began the first phase of its share buyback programme. |
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| | Europe close: Stocks higher on euro weakness ahead of Fed |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Stocks in the Eurozone finished near their best levels of the day on the back of the prior session's fall in the single currency's value ahead of a US interest rate decision later on Wednesday. Also lifting investor sentiment were slightly better-than-expected readings for activity levels last month in the single currency bloc and China's factory sectors. By the close of trading, the German Dax was higher by 190.14 points or 1.51% to 12,802.25, alongside a gain of just 0.16% or 8.72 points to 5,529.22 for the French Cac and a 1.19% or 286.24 point advance on the FTSE Mibtel to 24,265.61. Most major European bourses were shut on Tuesday due to local holidays. At the sector level, the Stoxx 600 Techonology gauge was among the strongest areas of the market, adding 1.16% to trade at 453.54 on the heels of US tech giant Apple's latest quarterly update overnight. "Yet another earnings boost from the US overnight has helped drive a positive market sentiment for this morning's trade, with impressive Apple earnings expected to raise US indices at the open. The DAX is the big outperformer in early trade today, with the German index boosted by the tech sector, with chipmakers gaining alongside iPhone supplier AMS in the wake of yesterday's Apple earnings beat," said IG's Joshua Mahony. Even so, the best performance was put in by Basic Resources, with the corresponding sector subindex trading 2.77% higher to 478.94 following a slightly better-than-expected reading on China's factory sector overnight. Auto&Parts companies also did well, with the corresponding Stoxx 600 subindex adding 1.89% to 640.21 after figures released on Tuesday had shown US new vehicle sales running at an anualised clip of 17.15m units in April, which was a shade above analysts' expectations. On the back of those figures, Volkswagen was among the top performs on Wednesday. German polymers manufacturer Covestro was also in the headlines, after a regional newspaper cited its chief as saying the company was still looking into potential acquisitions. Meanwhile, ahead of a policy announcement by rate-setters in the States on Wednesday evening, traders pushed euro/dollar below its 200-day moving average, for a loss of 0.29% on the day and was changing hands at 1.19581. Back in the euro area, earlier in the session revised figures from IHS Markit had shown that manufacturing activity slowed by less than expected last month, with its Purchasing Managers' Index for the sector retreating from March's print of 56.6 to 56.2 in April (consensus: 56.0), but that was in any case better than a preliminary reading of 56.0 published two weeks before. In other data, Eurostat reported that the rate of growth in the Eurozone's gross domestic domestic product slowed from the torrid 2.8% year-on-year pace observed over the last three months of 2017 to 2.5% over the first quarter of 2018. Separately, data published on Wednesday revealed that the rate of unemployment in the euro area was unchanged in March from the month before at 8.5%. Both of those readings had been correctly anticipated by economists. |
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| | US open: Early losses on Wall Street ahead of Fed policy announcement | | Losses were seen across most major indices after the open on Wall Street on Wednesday, albeit with the tech-heavy Nasdaq underpinned by solid results from Apple as investors waited patiently for the latest policy announcement from the Federal Reserve. At 1530 BST, the Dow Jones Industrial Average and S&P 500 were down by 0.37% and 0.32%, respectively, while the Nasdaq Composite was 0.05% higher. Pacing gains at the sector level were: Computer hardware (3.34%), Auto Parts (2.26%), Gambling (1.75%), Aluminium (1.73%) and Iron & Steel (1.47%). Connor Campbell, a financial analyst at SpreadEx, noted, "There wasn't much to the US open, investors holding off from anything drastic ahead of May's Federal Reserve meeting." "Despite Apple rising 4% following its best ever set of second quarter results – not that the tech giant's update was free of the expected iPhone-related issues – the Dow Jones ended up dipping 50 points after the bell, giving up 24100 in the process," he added. However, those better-than-expected earnings from Apple after the market close on Tuesday provided some cheer, as the tech company posted a 16% jump in second-quarter revenue to just over $61bn and said it was returning another $100bn to shareholders. David Morrison, chief market analyst at GKFX, said: "There was some relief overnight after Apple not only produced a strong set of sales and earnings but also released positive forward guidance. There had been fears that the company would caution a slowdown in iPhone sales going into the next quarter." The Fed's latest policy announcement is due at 1900 BST. With no change expected to policy, eyes will be on the accompanying statement for any clues on the number of rate hikes this year. "But otherwise traders may not be in too much of a hurry to add to positions ahead of tonight's FOMC rate decision," Morrison added. "While there's little expectation of any change in the Fed funds rate, market participants will be paying very close attention to the accompanying statement," he said. Morrison also noted that the recent pick-up in inflation and bond yields, together with the related turnaround in the dollar, would leave many investors thinking that the FOMC could possibly lead to a tightening in monetary policy at a faster rate than indicated at the March meeting. "This could weigh on equities, unless the committee expresses bullishness on the outlook for US economic growth," Morrison concluded. Against that backdrop, earlier in the session the ADP employment report showed that job gains in America's private sector slowed down last month. The payroll consultancy's closely-followed gauge of private sector hiring revealed that companies in the US took on 204,000 new workers last month. Although that was less than the 241,000 seen in the month before, it was slightly better than the 193,000 that economists had penciled-in. On the corporate front, shares in Humana lost 1.98% despite the health insurer having posted first quarter profit and revenue beats, as did cosmetics firm Estee Lauder; whose shares were down 3.86% in early trading. Pharmacist CVS saw shares drop 2.91% after it reported a first-quarter profit beat and provided upbeat 2018 guidance, while beverage maker Molson Coors stumbled 11.82% on news its sales volumes were continuing to dry up. Kraft Heinz and Tesla are also due to report after markets close. |
| | Broker tips: Petrofac, Just Eat, Thomas Cook | | JP Morgan upped its target for shares of Petrofac even after the consensus forecast for the company's earnings per share in 2019 had been revised up by 25% since the start of 2018, pointing to multiple factors that might drive further upside. According to analysts James Thompson and Christyan F Malek, an improvement in market dynamics would follow from fiscal year 2018 order intake in Engineering and Construction at the upper end of expectations, a successful bond refinancing (expected in May), more non-core disposals and a favourable outcome to the Serious Fraud Office's inquiry. Their raised target price, which was upped from 590p to 680p, also followed the outfit's first site visit in eight years, which the analysts said had butressed their confidence in the medium-term outlook for Petrofac. It had also revealed that spending growth in the Middle East and North Africa was again on the up and yielded improved insights into the company's core abilities and competitive advantages, they said. Indeed, the return of confidence in the core MENA markets underpinned prospects for the firm's order pipeline over the medium-term. So while Kuwait was to remain a revenue focus, "growth ambitions" were also mirrored in Algeria, UAE and Saudi, the analysts said citing company presentations. On the back of all of the above, and with 13% upside to its new target for the shares, the investment bank also reiterated its 'overweight' recommendation for the shares. "It showed us that, while the share price may have been derailed by the SFO, the company hasn’t. We update our forecasts, narrowing our SOTP discount as the outlook improves and including the sale of JSD6000," it said. Berenberg bumped its price target on Just Eat to 880p from 840p on Wednesday following better-than-expected first-quarter numbers, which saw revenue beat the bank's estimate by 9%. Berenberg, which rates the stock at 'buy', said its estimates now sit above the top end of the revenue guidance range. "Going into these results we were already of the view that the 2018 revenue guidance looked somewhat conservative and we sat towards the upper end. After the strong Q1 outperformance, however, we update our estimates and now forecast 2018 revenues of £731m, which is comfortably above the £660m-700m range." Berenberg said strong momentum from SkipTheDishes and the developing markets are the key drivers of its upgrades. "Both of these regions are currently taking on investment; Skip is loss-making and Spain and Italy are effectively being run at breakeven with outperformance being reinvested in growth. Therefore, we assume that growth in revenues has a more muted effect at the EBITDA level." The bank said it still reckons the risk/reward from increased investments into own delivery is highly attractive and a good use of capital. "Early data shows that delivery has a positive halo effect on the marketplace business, can help acquire new customers and can negatively affect competitors’ growth," it said. By leveraging its existing brand, corporate overheads and marketplace customers, Just Eat has as good a chance as any of reaching profitability in delivery, Berenberg said, seeing a solid return on its investment in the mid-term. After Thomas Cook's share price was grounded for nine months, Credit Suisse says it now sees clear skies ahead for the travel group as it upgrades its recommendation on the shares to 'outperform' on Wednesday. Thomas Cook's stock has seen very little movement despite finalising key partnership signings with the likes of Expedia and LMEY, competitor bankruptcies over at Monarch and Air Berlin, or even after the FTSE 250 rolled-out more impressive self-help targets, analysts at the Swiss broker told clients. After running the numbers on the basis of the company's new operating model and recent recovery, Credit Suisse saw the potential for faster earnings per share growth and a share price re-rating. The new operating model had delivered more than £130m of gross benefits between 2015 and 2017 (albeit partially offset by cost inflation and investment) and Cook's management saw "significant streamlining" that Credit Suisse expected to manifest itself in the form of further savings in terms of people and technology, alongside further revenue synergies. Credit Suisse also highlighted Thomas Cook's robust margins of 13.3% on an EBITDAR basis, versus 14.5% for EasyJet, returns of 20% on mid-life value, and management's clear strategic efforts to enhance profitability such as by increasing seat-only and long-haul sales, exiting from its Belgian operations and the creation of a low cost Majorca base as further examples of its growth. "TCG's new reporting structure has led us to re-think our approach to setting our target price. Previously we had used a simple multiple based approach with reference to UK focused airlines but not implement a more comprehensive sum-of-the-parts approach," they said. In addition to the upgrade from 'neutral' to 'outperform', Credit Suisse upped its target price on Thomas Cook shares to 160p from 112p. | | | | To advertise in the Euro Markets Bulletin please contact advertise@advfn.com |
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