UK/Euro Financial Market Daily Morning Briefing 07-06-2012

London open: Stocks rise on stimulus hopes

Market Movers

• techMARK 1,946.79 +0.23%
• FTSE 100 5,406.40 +0.41%
• FTSE 250 10,602.57 +0.18%

- Eyes on Spanish auction
- Central bank stimulus speculation boosts stocks
- MPC to reveal rate decision at noon

UK stocks headed higher on Thursday morning ahead of a crucial bond auction in Spain later on today; meanwhile speculation of central bank stimulus at home and abroad lifted sentiment early on.

Investors will be keeping a close eye on a crucial bond auction in Madrid as Spain attempts to sell up between €1bn and €2bn of two-, four- and 10-year bonds.

US stocks surged last night following the release of the Federal Reserve's Beige Book which painted a more upbeat picture of the world's largest economy. However, Janet Yellen, the vice-chair of the Fed, said that if the recovery fails to be satisfactory, "I am convinced that scope remains for the Federal Open Market Committee to provide further policy accommodation."

The European Central Bank (ECB) yesterday left its key interest rate unchanged at 1%, saying that it will extend its liquidity loans for banks for the rest of the year. In the subsequent press conference, ECB President Mario Draghi said: "We monitor all developments closely and we stand ready to act".

Meanwhile, eyes will be on the Bank of England (BoE) with the Monetary Policy Committee (MPC) expected to make its interest rate decision at midday. While there are some that are calling for a rate cut, most are expecting the status quo to be maintained. However, following an increase to the asset purchase programme last month and some gloomy economic data since then, many economists - such as those at Deutsche Bank and Citigroup - expect another £50bn in quantitative easing to be announced.

FTSE 100: Johnson Matthey leads the rise

Platinum refiner Johnson Matthey jumped after hailing another year of strong growth as it delivered numbers ahead of market expectations and a special divi worth a quid a share. Revenue in the year to March 31st rose 20% to £12,023m from £9,985m the year before, comfortably ahead of market expectations of £11,213m.

Banks were also providing a lift early on, with Royal Bank of Scotland, Lloyds and Barclays making decent gains. Luxury brand Burberry was also a high riser after Credit Suisse upgraded the stock to outperform.

Tullow Oil edged higher after its Paon-1X exploration well offshore Côte d'Ivoire found good quality light oil in a Turonian fan system.

Telecoms giant Vodafone fell slightly after announcing an agreement with Telefonica to create one national grid in the UK by pooling together parts of their network infrastructure.

FTSE 250: Betfair on the up

Online betting exchange Betfair rose after confirming it has received an online gaming licence from the Spanish government. The move had been anticipated since the end of May but the decision sees the final stage of a process begun in the Spring of last year, when Spain's new gambling legislation was first introduced. Sector peers bwin.party and Ladbrokes, who announced they had won licences on June 1st, rose in sympathy.

Gold miner African Barrick Gold (ABG) retreated after yesterday's near-15% jump. Its parent company Barrick Gold announced on Wednesday afternoon that President and CEO Aaron Regent has been replaced with the group citing disappointment over its recent share price performance. Regent has now left ABG as Chairman.

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UK Event Calendar

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Europe open: Spain to test market waters, Europe market’s patience

-France may lower retirement age for some workers
-Spain to sell up to €2bn in debt
-Nowotny (ECB) says Spain asking for EU aid would be sensible
-BoE decision on asset purchases close call
-Williams (Fed) says must stand ready to do even more
-Yellen: Fed has scope to do more
-Banks deposit €784.6bn overnight at ECB

FTSE-100: 0.28%
Dax-30:0.22%
Cac-40:0.40%
Stoxx 600:0.18%
FTSE-Mibtel: -0.34%
Ibex 35: 1.58%

The main European equity benchmarks have begun the day slightly higher for the most part, although the of late rambunctious Ibex 35 has moved quickly higher. The latter probably has to do with unconfirmed reports last night regarding the possibility of a rescue package for Spanish banks being provided with limited conditionality. As well, some of Chancellor's Merkel's coalition partners were described as having warmed to the possibility of 'debt sharing' within the Eurozone.

Nonetheless, for now those reports are only well informed speculation at best. That ahead of this morning's auction of debt by the Spanish treasury.

There is also quite a bit of market chatter this morning regarding the possibility of further quantitative easing (QE) Stateside. In fact, some strategists believe that was the main reason behind yesterday's rally and nothing that European Central Bank President (ECB) Mario Draghi said. Of note in this regard, this afternoon's speech by the president of the Federal Reserve, Ben S.Bernanke, will be closely watched for clues of any possible new QE measures.

In any case, "the situation continues to be quite tense in financial markets, even if Draghi may be right when he says that Europe's political will is being underestimated," comment analysts at Digital Look.

Bankia in the firing line

Light data calendar (Swiss data, as expected)

Oil and euro steady ahead of Spanish Treasury debt sale

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US close: Stocks jump on stimulus hopes

Dow Jones: 12,415 (+2.37%)
Nasdaq: 2,845 (+2.40%)
S&P 500: 1,315 (+2.31%)

Banks lead stocks higher

Banking groups were among the best performers of the day on the back of stimulus hopes in Europe and an upbeat tone to the Beige Book: Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase finished with strong gains.

Energy giant Chesapeake Energy jumped over 7% after reports that it is in discussion to offload $4bn of pipelines to Global Infrastructure Partners.

Social media group Facebook rose nearly 4% to $26.81 after reaching a new low of $25.52 the day before. Despite the rise, shares are still well below its debut price o $38.

Economic data

Unit labour costs rose by 1.3% in the first three months of the year, well below the 2.2% pace expected by the consensus.

Labour productivity contracted at an 0.9% quarter-on-quarter pace (Consensus: 0.7%).

S&P 500 - Risers
Iron Mountain Inc. (IRM) $32.32 +13.80%
MEMC Electronic Materials (WFR) $1.73 +12.34%
Morgan Stanley (MS) $13.94 +8.40%
Bank of America Corp. (BAC) $7.64 +7.61%
Sprint Nxtel Corp. (S) $2.72 +7.51%
PulteGroup Inc. (PHM) $8.76 +7.35%
Chesapeake Energy Corp. (CHK) $18.21 +7.12%
Genworth Financial Inc. (GNW) $5.44 +6.67%
Apollo Group Inc. (APOL) $34.81 +6.49%
Federated Investors Inc. (FII) $20.43 +6.41%

S&P 500 - Fallers
Alpha Natural Res (ANR) $9.72 -5.36%
Halliburton Co. (HAL) $28.10 -3.50%
Coach Inc. (COH) $62.84 -1.74%
Baker Hughes Inc. (BHI) $40.65 -1.05%
GameStop Corp. (GME) $19.35 -0.97%
Edwards Lifesciences Corp. (EW) $86.34 -0.95%
Supervalu Inc. (SVU) $4.49 -0.88%
CenturyLink Inc. (CTL) $37.33 -0.67%
PPL Corp. (PPL) $27.56 -0.14%
DIRECTV (DTV) $44.18 -0.12%

Dow Jones I.A - Risers
Bank of America Corp. (BAC) $7.64 +7.61%
United Technologies Corp. (UTX) $73.64 +3.89%
Caterpillar Inc. (CAT) $86.66 +3.60%
General Electric Co. (GE) $18.88 +3.51%
Cisco Systems Inc. (CSCO) $16.68 +3.50%
Home Depot Inc. (HD) $50.60 +3.43%
Chevron Corp. (CVX) $99.80 +3.43%
JP Morgan Chase & Co. (JPM) $33.07 +3.38%
Exxon Mobil Corp. (XOM) $80.18 +3.32%
Hewlett-Packard Co. (HPQ) $22.35 +3.09%

Dow Jones I.A - Fallers

Nasdaq 100 - Risers
Apollo Group Inc. (APOL) $34.81 +6.49%
Foster Wheeler AG (FWLT) $18.19 +6.13%
Autodesk Inc. (ADSK) $33.11 +5.88%
Sears Holdings Corp. (SHLD) $50.48 +5.50%
First Solar Inc. (FSLR) $13.31 +5.26%
Sandisk Corp. (SNDK) $35.09 +5.03%
Seagate Technology Plc (STX) $23.67 +4.73%
Broadcom Corp. (BRCM) $34.22 +4.65%
Citrix Systems Inc. (CTXS) $76.95 +4.44%
Electronic Arts Inc. (EA) $13.71 +4.34%

Nasdaq 100 - Fallers
Vodafone Group Plc ADS (VOD) $26.26 -2.16%
Vertex Pharmaceuticals Inc. (VRTX) $57.84 -1.23%
Illumina Inc. (ILMN) $40.50 -1.17%
Garmin Ltd. (GRMN) $41.90 -0.52%
DIRECTV (DTV) $44.18 -0.12%

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Thursday newspaper round-up: Bail-outs, ARM Holdings, House prices

The Government is facing another battle with Brussels after the European Union raised the prospect of cross-border bank bail-outs under wide-ranging reforms to protect taxpayers from a future financial sector collapse. Although the Treasury supported the broad thrust of the reforms, which mirrored those already being introduced in the UK, Michel Barnier, Europe's financial services commissioner, suggested one member state could in future help rescue another's banks under a joint liability plan that would move Europe closer to a "banking union". Treasury sources said that, while the EU's main ideas were "sensible and welcome", "we will want to make sure UK taxpayers are not put into a position of bailing out European banks," The Telegraph explains.

For months they have been described as cash-strapped, hard-pressed, struggling and wary but yesterday Britons suddenly appeared ready to answer calls from Westminster and the City for a consumer-led recovery. After April's high street washout, a month in which retail sales slumped and speculation spread that the Bank of England would have to approve yet more fiscal stimulus for an ailing economy, shoppers reacted to May's heatwave with an unexpected splurge. Spending in stores rose 3.4% in May, according to the BRC-KPMG Retail Sales Monitor, after a 1% decline in April — a slide that, according to the Office for National Statistics, was a 2.3% drop on March figures, The Times reports.

Britain could see more than 1,600 jobs created under a new energy partnership with Norway to be announced by David Cameron, according to Downing Street sources. The bulk of those are expected to come through plans from Norwegian oil services group Aker Solutions to develop its west London offices into an engineering hub, creating 1,300 jobs by 2015. It currently has around 3,100 employees in the UK. More concrete announcements on companies' expansion and investment plans are expected after Mr Cameron and his Norwegian counterpart Jens Stoltenberg on Thursday meet senior executives from ten energy companies, including Aker, National Grid, Centrica, Shell and Norway's state-owned giant Statoil, The Telegraph says.

Acquisitions of foreign companies by UK businesses have fallen to their lowest level in 25 years as corporate Britain takes shelter from the recession and Eurozone crisis. The value of cross-border acquisitions by British businesses tumbled from £12.6bn in the fourth quarter of 2011 to just £700m in the first quarter of 2012, according to the Office of National Statistics (ONS). This is the lowest quarterly level for acquisitions since the ONS series began in the first quarter of 1987. Bankers blamed the slowdown in deal-making on a combination of factors, the major reason being the uncertainty caused by the Eurozone debt crisis and concerns that it could trigger another banking crisis, according to The Telegraph.

It may be a funny-looking Trojan horse, but Intel won't mind if its latest gadget can successfully open the gate to one of the world's biggest and most exciting technology markets. This week's launch in Britain of the Orange San Diego is more than than merely the unveiling of another lightweight but speedy smartphone. Intel, the company that gave Silicon Valley its name, is hoping to break the stranglehold that Cambridge's ARM Holdings has on chips used to power mobile phones. It has dominated the market for semiconductors used in personal computers for decades, but the American giant has failed to tap into demand for the low-power chips used in small devices. This, then, according to Mike Bell, the head of Intel's mobile and communications division, is a landmark moment, The Times explains.

Huge house price inflation means Britain's property goldmine is worth £5.6tn, with almost a third of it stashed in the homes of the South East, according to a new report. But while the paper value of our homes has barely been dented by the financial crisis, the mortgage crunch means Britons are no longer able to use them as the cash machines they once were. Despite low interest rates, much tougher lending conditions mean families can no longer pull money out their homes as they rushed to do in the remortgage boom in the decade before house prices peaked in 2007. Research from property website PrimeLocation claims that there is £5.6tn worth of residential property in Britain - although this has been calculated on estate agent asking prices which can be notoriously optimistic, writes The Daily Mail.

A European Union plan to draw closer links between the member nations' regulators to protect taxpayers from bank crises will be published today. European officials want to protect taxpayers from future banking disasters and the proposals from the European Commission will aim to protect everyday banking functions - such as cash machines - and pass any bailout bills onto bank creditors and shareholders in the event that a bank runs into difficulty. The Commission's 156-page draft legislation, to be published today, will suggest giving regulators powers to 'bail in' or force losses onto bondholders of a failing bank so that taxpayers are kept off the hook, and forge closer links between national back-up funds to wind up cross-border lenders, The Daily Mail reports.

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