UK/Euro Financial Market Daily Morning Briefing 03-07-2012

London close: US data, stimulus hopes drive gains

Market Movers

• techMARK 2,048.77 +0.67%
• FTSE 100 5,687.73 +0.83%
• FTSE 250 11,189.81 +0.87%

- US factory data beats forecasts
- Stimulus hopes drive gains for equity markets
- Barclays choppy after CEO, COO departures

Following a tentative start, the FTSE 100 surged in afternoon trade on the back of some strong factory-order data in the US. Hopes that central banks from across the globe will ease monetary policy were also driving gains for equity markets.

US factory orders increased by 0.7% in May, according to the Commerce Department, better than the 0.1% increase expected. The figures saw US benchmarks jump in morning trade on Wall Street.

Shavaz Dhalla, a trader from Spreadex, said: "Global markets were optimistic during today's afternoon trading session as traders had one eye on major central banks and whether they will take further action to support a faltering global economy and the other eye on an early finish to US trading today as well as a US bank holiday tomorrow owing to their Independence Day."

Yesterday's disappointing manufacturing data in the US has prompted calls for the Federal Reserve to begin fresh stimulus into the world's largest economy. According to BNP Paribas, weak employment figures later this week may add to pressure on the Fed. Meanwhile, there are also calls for China to cut its reserve requirement ratio (RRR) for its banks in an effort to boost liquidity.

Investors were also looking ahead to policy decisions by the European Central Bank (ECB) and the Bank of England (BoE) on Thursday. The ECB is widely expected to cut interest rates to a new record-low, while the BoE is predicted to ramp up its asset purchase programme.

FTSE 100: Barclays volatile after boardroom shake-up

Shares in Barclays jumped in early trading on the news that Bob Diamond has resigned after the bank was involved in LIBOR manipulation. Marcus Agius, who said yesterday that he would resign as Chairman, is to become a full-time Chairman while the board searches for a new CEO. However, gains were quickly pared in afternoon trade after it emerged that Chief Executive Officer Jerry del Missier has now quit.

Sector peer RBS, which was reported yesterday to have sacked numerous traders over alleged LIBOR-fixing during the last year, was also out of favour. Prime Minister David Cameron announced yesterday that there would be a parliamentary inquiry into the matter and that the Serious Fraud Office is looking at whether criminal prosecutions are needed.

Oilfield services (OFS) group AMEC was a high riser after Nomura named it as its top pick in the European OFS sector. The broker hosted the Global OFS Conference in London last week and said that "we came away incrementally more positive on the outlook for engineering-based companies well placed to benefit from global tightness in highly qualified project managers." Sector peers Petrofac was also higher after Liberum Capital upgraded its rating on the stock to 'buy'.

Fund manager Aberdeen Asset Management was a heavy faller today after Credit Suisse offloaded a 7% interest in the group by selling 80.4m shares.

FTSE 250: Talvivaara and Avocet sold off

Resource group Talvivaara was bucking the trend after saying that it is unlikely to hit its nickel production targets this year as a result of flooding, scheduled maintenance and a fatality-related stoppage during its second quarter. Shares were 14% lower by midday. Sector peer Avocet fell after Nomura slashed its target on the stock by 45% following the recent production downgrade and news of a delayed project expansion.

Meanwhile, mining groups Aquarius Platinum, African Barrick Gold and Centamin were among the best performers of the day on the second-tier index.

Soft drinks firm Britvic fell sharply after saying that it is recalling all of its Robinsons Fruit Shoot and Fruit Shoot Hydro packs, which feature a new design cap, due to a potential packaging safety issue, resulting in a reduction to profits.

Hedge fund manager Man Group was hit with a downgrade by Credit Suisse from 'outperform' to 'neutral', with the broker estimating that assets under management have fallen by 12% in the second quarter owing to a "tough" market environment.

Earn a tax free income trading, from just 20 minutes a day – no experience needed
Our powerful trading software will help you decide when to enter trades and how to maximise profits.

Register for a FREE brochure and trading guide, Click Here.

Dealing, Shares ISA and SIPP Dealing accounts available with Selftrade. Standard flat £12.50 charge per online trade and an annual Management Fee of £35 + VAT with 3 free trades.  Frequent trader rate £6 per online trade.  No dealing fee on fund purchases.  Extensive market data and news plus advanced charting and technical analysis.
Click here 

Europe mid-morning: Stocks gain slightly

-Greece will seek changes in rescue package
-Greece will seek Spanish style bank aid
-Noyer (ECB) says deposit guarantee scheme should have massive firepower

FTSE-100: 0.15%
Dax-30: 0.43%
Cac-40: 0.26%
FTSE-Mibtel: 0.21%
Stoxx 600: 0.33%
Ibex 35: 0.46%

The main European equity benchmarks are now registering slight gains, with quite a bit of market commentary currently pointing to sideways markets until at least next Thursday, when the European Central Bank and the Bank of England will hold their respective rate setting meetings.

Acting as a backdrop, yesterday´s drop in the ISM manufacturing survey Stateside has lit a fire under speculation for further action from the US Federal Reserve, given its historically very strong correlation with changes in monetary policy in that country. Nevertheless, there are some analysts who believe that American companies still believe that the current weak spot is transitory. Time will tell how that possibility impacts expectations for Fed easing, or not.

Spain is also very much on the markets´ radar, ahead of Thursday´s Treasury auction there. The Spanish Treasury yesterday announced a small increase in the amount of debt it will offer, probably so as to gauge how solid the recent down-tick in yields really is.

Finally, some observers are also calling attention to "a growing rift within German Chancellor Angela Merkel's governing coalition," as the FDP shies away from hints that the country may be willing to move towards joint debt liabilities once controls over taxation and spending are in place, The Wall Street Journal reports. Even so, it must be said that the German opposition seems to be in favour.

Spanish unemployment drops more than was foreseen

Euro moves back up a touch

InterTrader.com provides an award-winning suite of products and tools to help you back your judgement Spread betting in the financial markets. Our aims are simple: to make the markets accessible to all, to make CFD trading and Spread betting affordable and to provide a service that you can trust. Click here

US open: Microsoft lower after announcing multi-billion dollar write-down

The main US equity benchmarks have begun today´s session moving slightly higher, by 0.1% on average. That ahead of the July 4th holiday tomorrow, which should see trading volumes fall even further.

Acting as a backdrop is this past night´s report in the Chinese press regarding the need for a further reduction on banks´ reserve ratios.

Meantime, and as for the Eurozone, traders are anxiously scanning markets for any sign that the recent and more cohesive effort at reducing periphery bond yields might succumb to political infighting and frictions.

Microsoft is down 1.5% after announcing a $6.2bn write-down.

Sun Trust is gaining after a favourable court ruling.

Chrysler has unveiled a 20% increase in June sales.

The New York ISM services sector purchasing managers´ index for the month of June will be released at 3PM.

10 year US Treasuries are now off by 2/32 dollars, with yields at 1.59%.

Front month West Texas crude futures for their part are 0.62% higher at the moment, at 84.27 dollars on NYMEX.

Invest in solar today to earn an extra £1000 tax free annually thanks to the Government back Feed-in Tariff plus protect your family from rise energy prices. Get in before the subsidy is reduced on 1 August, cut your bills, and earn guaranteed RPI linked 8-10% returns. See what your roof could be doing for you. Click here

Broker tips: Barclays, Man Group, Avocet Mining

Investec has reiterated its 'buy' recommendation and 240p target for UK banking group Barclays, but said it is disappointed with the news that Chief Executive Officer Bob Diamond has resigned.

"We are disappointed by Bob's resignation this morning. That said, it is undeniable that the unrelenting political/media campaign had centred on Bob personally, and this was leading to a persistent misrepresentation of Barclays' position in relation to the multi-bank LIBOR investigations, and a clear distraction from the execution of Barclays' strategic repositioning," said analyst Ian Gordon.

The broker says that, given Diamond's departure, it expects the pressure on Barclays to ease slightly due to the increased recognition that the LIBOR investigation is a multi-bank issue "rather than Barclays-specific". "We expect Barclays's sharp share price underperformance to reverse as the market takes a more dispassionate look at the facts."

Credit Suisse has downgraded its rating for hedge fund manager Man Group from 'outperform' to 'neutral' and slashed its target from 130p to just 88p, saying that the market environment remains 'tough'.

"We believe Man Group's diverse product suite and strong distribution platform offer medium-term opportunities. However in the near term, we believe market conditions are not conducive for significant asset growth and weakness in AHL pushes out further the timing for material performance fees and new fund launches," the broker said.

Nomura has slashed its target for FTSE 250 west Africa-focused gold miner Avocet Mining by nearly a half following the recent production downgrade and news of delayed project expansion.

"After a positive commissioning phase in which nearly all production and cost targets were met, the Inata mine is now going through significant teething problems." As such, the broker has reduced its full-year production estimates by 15% to 131k ounces of gold and increased its cash cost estimates by 25% to $1,081 per ounce.

Nomura said: "Due to the collapse in margins and the increasing impact of hedged ounces, our earnings per share (EPS) forecasts fall by 64% to 6.6 cents." Next year's EPS forecast is cut by 16% to 15.7 cents. As such, the target comes down to 120p, form 220p previously. A 'neutral' rating is kept.

New ADVFN Service - FREE Reports

Get your free report on Isa's, Investment Trusts, Funds,
Sipps Travel and Cars - FREE and Easy service CLICK HERE