UK/Euro Financial Market Daily Morning Briefing 13-01-2014

London open: Banking stocks buoy markets early on

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Europe open: Stocks rise on easing of Basel rules

- Global regulators ease banking rules
- US releases monthly budget

FTSE 100: 0.19%
DAX: 0.25%
CAC 40: 0.23%
FTSE MIB: 0.41%
IBEX 35: 0.60%
Stoxx 600: 0.25%

European stocks gained after global regulators eased the leverage-ratio rule for banks.

The Basel Committee on Banking Supervision diluted a planned debt limit for banks following a meeting in Switzerland yesterday.

The committee said the leverage ratio, which penalises low-risk financial activities and curtails lending, was adjusted after thoroughly analysing bank data.

Banking stocks posted the second-biggest gain on the Stoxx 600 after the news. Deutsche Bank and Barclays were among the big risers.

Turning to today's agenda, the US will release its monthly budget statement for December. It will otherwise be a quiet day for economic data and trading releases today.

"This should give investors time to digest to huge amount of releases and central-bank decisions from last week and decide what they all actually mean for the markets going forward," said Craig Erlam, Market Analyst at Alpari.

"The key one here will be Friday's US jobs report, which showed only 74,000 jobs being added in December."

The non-farm payrolls report on Friday was well below estimates of around 200,000, fuelling speculation over whether the Federal Reserve will continue scaling back asset purchases at its meeting at the end of the month.

The Fed last month announced it would begin reducing monthly bond purchases by $10bn to $85bn.

UBS, Suedzucker

UBS gained after Chief Executive Sergio Ermotti dismissed reports that the lender will spin off its investment-banking business to meet regulators' demands for holding more capital.

Suedzucker edged higher after the maker of sugar, starch and bakery additives reiterated its full-year forecasts.

Debenhams jumped after Sports Direct International bought a 4.63% interest in the UK department store.

Alcatel-Lucent rallied following reports the French network-equipment maker is in talks to sell its enterprise business to potential buyers including Unify GmH & Co.

The euro fell 0.08% to $1.3659.

Brent crude futures fell $0,047 to $107.200.

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US close: Stocks erase losses on stimulus hopes after poor data

- Markets turn broadly positive after shock jobs report
- Non-farm payrolls rise by 74,000 in December (November: 241,000)
- Alcoa falls after quarterly results; retailers in focus

Dow Jones: -0.05%
S&P 500: 0.45%
Nasdaq: 0.21%

US markets rallied in afternoon trading on Friday with the Dow Jones erasing losses to finish flat and the S&P 500 ending with gains as investors continued to react to the surprise plunge in non-farm payrolls in December.

Nevertheless, it was a choppy session for Wall Street indices as investors attempted to gauge what impact last month's jobs report would have on the future of Federal Reserve monetary policy.

Analysts are hoping that the woeful data may prompt the US central bank to hold off from accelerating the rate of tapering at its next meeting later this month.

"This number probably doesn't change the direction of travel too much with respect to tapering but it certainly slows it down. What this does mean is that we probably won't see any further tapering until March," said Michael Hewson, Chief Market Analyst at CMC Markets.

US jobs shock

US non-farm payrolls increased by just 74,000 in December, according to the Bureau of Labor Statistics, significantly lower than the 241,000 gain in November, with poor weather conditions largely to blame. While the previous two months' gains were revised higher by a combined 38,000, December's data came as a real shock to analysts who had expected a reading closer to 193,000.

The focus has now turned to the Fed ahead of its policy meeting later this month, following December's decision to scale back its quantitative easing programme.

The unemployment rate unexpectedly declined from 7% to 6.7%, but the participation rate fell from 63% to 62.8%. This was the lowest level of participation in over three decades and is a cause for concern among economists as people continue to leave the labour force.

"The participation rate is a major factor when measuring the rate of unemployment – such a low participation rate has taken the shine off the unexpected drop in unemployment," said David Madden, Market Analyst at IG.

"Now that the dust is settling investors are viewing the jobs numbers for what they are - weak. Quantitative easing may be proving to be less effective, but we are a long way from the next round of tapering."

Alcoa kicks off earnings season poorly

Results from aluminium producer Alcoa - regarded as the unofficial beginning to the new quarterly earnings season – failed to impress investors after the closing bell on Thursday night, with the stock falling sharply this morning after profits missed analysts' estimates.

Fashion retailer Gap gained after the group said it expects full-year profits to reach the upper end of its guidance, while Abercrombie & Fitch rallied after raising its annual earnings prediction. Jewellery firm Tiffany & Co also rose after holiday sales rose.

In contrast, retail peer Sears sunk sharply as investors reacted to a significant fall in same-store sales over Christmas and worse-than-estimated guidance.

Software group Microsoft performed well after analysts at Barclays raised their rating on the stock from 'neutral' to 'overweight'.


S&P 500 - Risers
Abercrombie & Fitch Co. (ANF) $37.19 +11.98%
Ventas Inc. (VTR) $60.70 +4.58%
HCP Inc. (HCP) $38.87 +3.90%
Family Dollar Stores Inc. (FDO) $67.48 +3.86%
Newfield Exploration Co (NFX) $25.69 +3.71%
W.W. Grainger Inc. (GWW) $263.71 +3.62%
Constellation Brands Inc. Class A (STZ) $80.05 +3.36%
Carnival Corp. (CCL) $41.25 +3.23%
Juniper Networks Inc. (JNPR) $23.54 +3.11%
Harman International Industries Inc. (HAR) $88.28 +2.81%

S&P 500 - Fallers
Alcoa Inc. (AA) $10.11 -5.43%
J.C. Penney Co. Inc. (JCP) $7.34 -3.93%
Teradata Corp. (TDC) $44.31 -2.38%
Humana Inc. (HUM) $96.96 -2.05%
Chevron Corp. (CVX) $121.01 -1.85%
Tiffany & Co. (TIF) $90.36 -1.79%
Western Union Co. (WU) $16.77 -1.70%
Whirlpool Corp. (WHR) $156.64 -1.49%
DaVita HealthCare Partners Inc (DVA) $64.74 -1.37%
Bank Of New York Mellon Corp. (BK) $34.23 -1.35%

Dow Jones I.A - Risers
Coca-Cola Co. (KO) $40.13 +1.01%
Caterpillar Inc. (CAT) $90.51 +0.89%
Exxon Mobil Corp. (XOM) $100.52 +0.76%
Merck & Co. Inc. (MRK) $49.88 +0.73%
Walt Disney Co. (DIS) $75.39 +0.65%
Goldman Sachs Group Inc. (GS) $178.39 +0.56%
Home Depot Inc. (HD) $82.01 +0.54%
Verizon Communications Inc. (VZ) $47.75 +0.53%
McDonald's Corp. (MCD) $95.80 +0.36%
AT&T Inc. (T) $33.62 +0.24%

Dow Jones I.A - Fallers
Chevron Corp. (CVX) $121.01 -1.85%
Unitedhealth Group Inc. (UNH) $74.70 -1.81%
General Electric Co. (GE) $26.96 -0.96%
Pfizer Inc. (PFE) $30.69 -0.78%
E.I. du Pont de Nemours and Co. (DD) $63.54 -0.63%
JP Morgan Chase & Co. (JPM) $58.49 -0.46%
American Express Co. (AXP) $88.55 -0.37%
Visa Inc. (V) $221.13 -0.35%
Nike Inc. (NKE) $76.92 -0.22%
Travelers Company Inc. (TRV) $87.49 -0.22%

Have you heard of the stock market phenomenon called the Santa Rally? The FTSE 100 has risen in 18 of the last 20 Decembers*. Download your free report showing a breaking down of what the average rise has been for the stocks within the FTSE over the month of December.  Losses can exceed deposits. * Past performance is no guarantee of the future

Monday newspaper round-up: Fracking, Jaguar Land Rover, City pay...

Oil and gas fracking in the UK will receive a major boost on Monday when Prime Minister David Cameron says that local communities will be allowed to keep millions of pounds of tax generated by the industry. The announcement comes after it emerged that French energy giant Total will become the first oil and gas major to back UK fracking, a move that could be a catalyst for the sector. Total is expected to invest close to 30m pounds in shale exploration in the East Midlands. - The Telegraph

Britain's largest car manufacturer, Jaguar Land Rover, owned by India's biggest carmaker, Tata Motors, has reported record-breaking global sales for 2013, the company has said. Together the British brands sold 425,006 vehicles in 2013 – up 19% on 2012 – setting new sales records in 38 international markets. - The Guardian

Controversy over City pay is likely to be reignited this week when the major US banks – including JP Morgan and Goldman Sachs – release their results for 2013. The publication of the profitability of banks will clear the way for their staff to be told the size of their annual bonuses and signal a round of job moves around the financial sector as well as a wave of outcry about the payouts for thousands of staff in London. - The Guardian

A controversial ruling by the Indonesian government that bans miners from exporting unprocessed minerals has prompted fears of a supply squeeze, propelling share prices in nickel and bauxite producers. Indonesia is the world's biggest supplier of nickel ore, and shares in nickel miners jumped on Monday morning on expectations of higher global prices. However, savvy Chinese users have cushioned themselves by heavy stockpiling ahead of the move, analysts say, limiting price gains. - Financial Times

One of Britain's biggest shareholders in Amazon, Google, Facebook and Apple has warned them not to be so aggressive in avoiding UK corporation tax in the wake of parliamentary and public anger last year. James Anderson, manager of the £2.6 billion Scottish Mortgage Investment Trust, said the American companies were taking risks by so aggressively seeking to minimise their tax bills. "We say to these companies, don't overplay it," he told The Times. - The Times

Britain's banks are more ­optimistic about the prospects of an economic recovery than their European counterparts, ­according to a new study that also shows lending is predicted to rise across all sectors of the economy. […] EY's European banking barometer found that 74% of senior bankers in the UK expect economic conditions to improve this year, compared with a Europe-wide figure of 56%. - The Scotsman

The Treasury will on Monday pledge to guarantee all of Britain's debt even if Scotland votes to leave the UK, in an attempt to prevent creditors from pushing up the cost of government borrowing. In a memorandum being sent to members of the financial community this morning, the Treasury will commit to holding all of the UK's £1.2 trillion in debt, whether or not the Scottish people vote for independence this September. - The Telegraph

Business must brace itself for a wave of "catch-up" pay demands in the private sector after five years of pay freezes or below-inflation raises. The warning has come from the outgoing head of Acas, the industrial dispute mediation agency, who has also cautioned that private sector pay claims could fuel unrest over wages in the public sector. - The Times

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