UK/Euro Financial Market Daily Morning Briefing 10-03-2010

Very quiet start

London’s blue chips have opened lower but there is little momentum either way at present with modest gains for the banks offset by a stack of companies going ex-dividend.

Derivatives broker Tullett Prebon is the stand-out after it confirmed preliminary discussions with a third party which may or may not lead to an offer.

A much improved performance from Northern Rock has lifted the other state-controlled banks Lloyds and Royal Bank of Scotland.

The Rock reduced losses to £257m, down from £1.36bn in 2008 and swung into the black in the second half of the year. Underlying losses were cut from £1.29bn to £383m, generating a bonus pot of £14.9m to staff for beating the loss target.

In the press, the FT writes that Barclays is looking at buying a large US retail bank as it tries to rebalance its business away from a booming investment banking franchise. According to people briefed on the plan, Antony Jenkins, the new head of Barclays’ retail banking activities, is preparing a strategy paper that will go to the board in the next two to three months.

Life insurer Standard Life is lifting its efficiency targets for 2010 after delivering ‘good profits and healthy cash flow’ in 2009. Underlying profit before tax in 2009 rose to £291m from £154m the year before.

Lower oil prices and production slashed Tullow Oil’s net income in 2009, though it had an outstanding year for drilling with 13 out of 15 wells striking oil or gas. Net income fell 92% to £19m in 2009, as sales dipped 16% to £582m due to lower production volumes and commodity prices.

Spread bet firm IG Group reported a 11% rise in quarterly revenue and said it is well positioned for further growth. Total revenue for the three months ended 28 February was approximately £69m compared with £62m in the corresponding quarter last year.

Interserve, the services, maintenance and building group, has won contracts in the UK and through its Middle East associates worth over £200m in aggregate.

Fund manager F&C missed out on the strong market rally since last March, though it did move back into profit last year. FCAM has been hit by a steady stream of institutions moving their money away in recent years and saw a further outflow in 2009, though the pace slowed.

Car dealer Inchcape said 2009 profit fell less than expected but on a cautionary note, it warned market conditions in 2010 are expected to remain challenging.

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INTERIMS
Regenersis

INTERIM DIVIDEND PAYMENT DATE
System C Healthcare

INTERIM EX-DIVIDEND DATE
AI Claims Solutions, Ashmore Group, Character Group, Downing Planned Exit VCT 1, Dunelm Group, Hargreaves Lansdown, Haynes Publishing Group, Keystone Inv Trust, Kier Group, London Finance & Investment Group, Phoenix IT Group, Quayle Munro, Ricardo Group, Sportingbet

QUARTERLY PAYMENT DATE
Canaccord Financial Inc., Prodesse Investment Ltd.

QUARTERLY EX-DIVIDEND DATE
Orpak Systems, Premier Energy & Water Trust, Virgin Media Inc.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Consumer Price Index(GER) (07:00)
Corporate Goods Price Index (JPN) (23:50)
Industrial Production (EU) (10:00)
New Home Sales (AUS) (00:00)
Wholesales Inventories (US) (15:00)
Monthly Budget Statement (19:00)
Trade Balance (GER) (07.00)
Current Account (GER) (07.00)
Industrial Production (FRA) (08.45)
Manufacturing Output (FRA) (08.45)
GDP (JPN)
GDP Deflator (JPN)

UK ECONOMIC ANNOUNCEMENTS
Industrial Production (09.30)
Manufacturing Output (09.30)
NIESR GDP Estimate

Q4
ReneSola

GMS
CVS Group, Glisten

FINALS
Ark Therapeutics, Brady, Chime Communications, Costain Group, Glanbia, Inchcape, Interserve, Oxford Biomedica, ReneSola, SQS Software Quality Systems, StatPro Group, Standard Life, Terrace Hill, Yule Catto

AGMS
CareTech Holding, Interbulk Group, Invista European Real Estate Trust, Sperati (Ca)

FINAL EX-DIVIDEND DATE
Admiral Group, Alphameric, Brewin Dolphin, British American Tobacco, CareTech Holding, Chrysalis VCT, CRH, Edinburgh Inv Trust, F&C Commercial Property Trust, FBD Holdings, Foresight 2 VCT, Foresight 2 VCT 'C' Shares, Future, Goldenport, Hargreaves Lansdown, Heavitree, Invesco Income Growth Trust, Lavendon Group, Low & Bonar, LSL Property Services, Maintel Holdings, Meggitt, Morgan Sindall, Paddy Power, Premier Energy & Water Trust, RIT Capital Partners, Serco Group, Shire Plc, Spirent Communications, Standard Chartered, Temple Bar Inv Trust, TUI Travel

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The ebb and flow of risk appetite over the past few days has continued to confuse markets as the major currencies continue to trade in fairly well defined ranges.
China’s export recovery will undoubtedly lead to pressure on rates after the February figures released today showed a rise by more than economists expected, and increased fears that the Chinese authorities may continue paring back stimulus measures and raise rates as soon as this month to head off inflationary pressures building in the economy.

The pound was hit by yesterday’s increase in Britain’s trade deficit in January which surprised the market and sent the pound tumbling. Data from the office for National Statistics showed the UK’s deficit on trade in goods widened to £7.99bn from £7.01bn the previous month, about £1bn more than economists had predicted, though given the recent propensity for economists to get it wrong, it really wasn’t that much of a surprise. It also casts doubt on the often repeated argument that a lower pound would boost exports.
The pound was dealt a further blow when Fitch ratings criticised the credibility of the Government's budget plans, warning that Britain risks a loss of investor confidence and erosion of its “AAA” rating unless it maps out clear austerity measures.

Meanwhile the Euro had been starting to regain some ground after IMF chief Dominic Strauss-Kahn said “there's no reason” to expect that Spain and Portugal would need external support.
The markets are yet to be convinced of that let alone the ability of the Greeks to be able to sort out their debt problems, and it seems that Fitch also has doubts about whether Greece can deliver on its austerity plans, once the pain starts to bite. With dissent already appearing in the Greek cabinet there is no guarantee that the Greek government will be able to implement their plans over the next few months and years. The ambiguity by the EU with respect to a bail-out for Greece while buying some time will not assuage the markets concerns indefinitely.

It is still hoped that today’s UK industrial production and manufacturing data figures will continue to show month on month increases after December’s positive numbers. Industrial production is expected to show an increase of 0.3% while manufacturing production an increase of 0.2%.

EURUSD – the Euro continues to trade in a broad range between the key downside support at 1.3485 on a daily close and the recent highs around 1.3700. The trend line resistance from the 1.5145 highs continues to weigh down on the market with the resistance now at 1.3820.

GBPUSD – Yesterday’s poor UK trade data and comments by Fitch have continued to weigh on the pound in the last 24 hours. Support can be found at yesterday’s lows around 1.4930; however the key level on a daily close remains 1.4850 which is the 61.8% Fibonacci Retracement of the up move from 1.3500 to 1.7045. A break below here would re-target 1.4400, the 22nd April 2009 lows. Resistance can be found at 1.5020 in the short-term.

EURGBP - the November and December 2009 highs at 0.9150 are the key barriers to further Euro upside here. Last week’s rally stalled at this level and remains the key barrier to further sterling losses. Euro dips should find some buyers around 0.8980 and 0.9020.

USDJPY – the yen has weakened slightly over the past few days finding resistance at the 90.70 resistance. The key resistance level remains at the 200 day MA at 91.90 while it should find support around the 89.30 area which is the bottom of the cloud.

Oil pressured by stronger dollar 
 
Crude oil prices slipped on Tuesday pressured by a stronger dollar.

Crude for April delivery settled 38 cents lower at $81.49 a barrel on the New York Mercantile Exchange, after skidding to a low of $80.16 a barrel earlier.

The dollar rose against most major currencies making commodities, priced in US dollars, more expensive for holders of other currencies. Otherwise there was little else to move oil prices with economic data thin on the ground and no other major news to digest.

The market will be keeping a close eye on Wednesday’s Energy Information Administration’s weekly oil inventory report which is expected to show US crude oil supplies rose by 2.1m barrels last week.

Gold futures settled lower on Tuesday as the dollar gathered strength against major currencies and as risk appetite faded and profit takers moved in. Gold for April delivery fell $1.7 to $1,122.3 an ounce in New York.

May silver fell 7 cents to $17.34 an ounce. 

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Dow makes modest gains on anniversary

US stocks eased back near the close but still closed higher a year on from the bottom of the recent market weakness.

Dow Jones closed 11 higher at 10,564. Nasdaq added 8 to 2,340, while the S&P gained 1 at 1,140. The Dow has now risen over 61% since it hit a 12-year low of 6,547 on 9 March.

Cisco Systems has introduced a router that can cope with 12 times as much internet traffic as any competitor product. Cisco claims the router can deliver every film ever made in four minutes. AT&T is trialling the technology.

Late on Monday, Northrop Grumman and Airbus parent EADS pulled out of bidding for a $35bn contract to build refuelling tankers for the US air force. Rival Boeing, the world's second-biggest aerospace company, is now expected to pick up the work making it one of the best performers in the Dow.

Shares in mobile communications firm Sprint-Nextel continue to rise after yesterday’s positive figures. Health care giants Merck and French peer Sanofi-Aventis have agreed to form a 50-50 animal-health joint venture.

Jet engines and elevators manufacturer United Technologies was raised from neutral to outperform by Cowen & Co. JPMorgan Chase cut First Solar from neutral to underweight.

S&P 500 - Risers
American International Group Inc. (AIG) $32.77 +12.61%
Citigroup Inc. (C) $3.82 +7.30%
Sprint Nxtel Corp. (S) $3.61 +6.18%
Southwestern Energy (SWN) $43.89 +3.88%

S&P 500 - Fallers
Invesco Ads (IVZ) $19.99 -5.17%
Charles Schwab Corp. (SCHW) $18.43 -3.20%
Kroger Co (KR) $22.35 -2.40%
CF Industries Holdings Inc. (CF) $100.63 -2.28%

Dow Jones I.A - Risers
United Technologies Corp. (UTX) $71.78 +1.44%
General Electric Co. (GE) $16.49 +1.35%
AT&T Inc. (T) $25.56 +1.11%
Verizon Communications Inc. (VZ) $29.91 +0.94%

Dow Jones I.A - Fallers
Home Depot Inc. (HD) $31.68 -0.88%
Merck & Co. Inc. (MRK) $37.04 -0.83%
Alcoa Inc. (AA) $13.67 -0.80%
Pfizer Inc. (PFE) $17.23 -0.69%

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EADS, Barclays, Google

Lord Mandelson has tried to head off a transatlantic trade war by expressing concern at Washington’s handling of a $35bn Pentagon procurement project that could spark European retaliation.

At the centre of the row are allegations made by EADS that the Pentagon has skewed the terms of a competitive tender to favour Boeing. EADS, the owner of Airbus, and its American partner Northrop Grumman said on Monday night that they were pulling out of the race to build air refuelling tankers for the US Air Force, the Times reports.

Barclays is looking at buying a large US retail bank as it tries to rebalance its business away from a booming investment banking franchise. According to people briefed on the plan, Antony Jenkins, the new head of Barclays’ retail banking activities, is preparing a strategy paper that will go to the board in the next two to three months, the FT reports.

Fitch Ratings has delivered a serious blow to the credibility of the Government's budget plans, warning that Britain risks a loss of investor confidence and erosion of its AAA rating unless it maps out clear austerity measures. Brian Coulton, the agency's head of sovereign ratings, said the UK has seen "the most rapid rise in the ratio of public debt to GDP of any AAA-rated country" and is courting fate with its leisurely plan to halve the deficit by the middle of the decade, the Telegraph reports.

Germany and France are stepping up the pressure for urgent action by the European Union to regulate speculation in sovereign debt markets, in the wake of the Greek debt crisis. Angela Merkel, German chancellor, called on Tuesday for the “fastest possible” adoption of new rules to clamp down on the most speculative elements of derivatives trading, including so-called naked transactions, which do not hedge the value of real assets, the FT reports.

Google, the internet giant, is believed to be testing a new technology which will allow consumers to search programme listings on their own television sets. The new product, which utilises parts of Google's Android mobile operating system, also lets users find and watch YouTube video clips on their televisions. The system, details of which were first reported by the Wall Street Journal, is currently on trial in a small number of homes belonging to Google employees and their families. The exact trial size not currently known, the Telegraph reports.

Merlin Entertainments, the private equity-owned operator of attraction parks, held the door open to a potential flotation later this year as it revealed that it was on track for another record performance in 2010. The operator of the London Eye and Alton Towers withdrew plans for a £2bn initial public offering (IPO) last month after potential investors were spooked by the volatility of the equity markets, the Independent reports.

Meanwhile, Ferrous Resources, the emerging Brazilian iron ore producer, has revived plans for a London flotation that could be worth $3bn-$4bn. The company could come to market as early as May, according to people familiar with its planning, the FT reports.

City law firms are preparing to raise millions of pounds from external investors as the British legal market braces for its own version of Big Bang. At least 20 firms are planning to raise outside funding under rules that will allow non-lawyers to own a stake in legal practices for the first time, accountants advising the firms told The Times. Three of these firms are planning to raise a war chest for acquisitions of more than £20m, either through an initial public offering or from private equity investors.

Ark Therapeutics, the AIM-listed pharmaceuticals group, said yesterday that it would consider offers for the company after its potential brain cancer treatment, Cerepro, was rejected by European regulators. The European Medicines Agency's oncology advisory group refused to reverse a decision it made last December, when it said that the drug did not sufficiently demonstrate that patients gained any clinical benefit after using Cerepro, the Independent reports.

New York state is to examine the amount of taxes paid by Wall Street bankers as it tries to narrow its ballooning $9.2bn budget deficit in an attempt to fend off financial collapse. The state –America's third-largest by population – is considering a raft of drastic measures similar to those enacted by California to stay afloat. The measures, such as enforced, unpaid holidays for state workers and issuing IOU's, are being discussed alongside targeting the state's most lucrative asset: New York's financial centre, the Telegraph reports.

Shore Capital, the London-based stockbroking house, is moving its head office to Guernsey in a bid to save tax and find a more benign home for its internationally expanding business. Shore, which is currently headquartered in the West End of London, will move at the end of the month as part of a revamp designed to demerge a German property fund it rescued last year, the Times reports.

A company director who tricked thousands of people out of their savings by promising them a fivefold return on their investment was convicted yesterday of a £34m Ponzi fraud. Kevin Foster was remanded in custody to await sentence next month after being found guilty of 14 counts of theft and deception. Harrow Crown Court in London had been told that he had attracted investments in his KF Concept firm through roadshows at hotels and conference centres, where he promised high returns on gambling and network marketing schemes, the Times reports.

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