UK/Euro Financial Market Daily Morning Briefing 13-12-2010

Healthy start for blue chips

      Market Movers
      FTSE 100 5,837.55 +0.42%
      techMARK 1,794.71 +0.24%
      FTSE 250 11,343.27 +0.55%

London has made decent progress in early dealings with oil services groups lifting the mood.

Wood Group expects results this year to be slightly ahead of expectations. The Aberdeen-based firm saw continued progress at most of its key divisions. Its Engineering unit secured a number of awards during the year, as it order book continues to strengthen, the group said in a statement.

Also in oilfield services, reports this morning suggest General Electric is poised to seal a £755m-plus takeover of Wellstream, the UK oil and gas services group. The deal is expected to be higher than 750p a share but less than 800p.

Miners are in demand. ENRC, Kazakhmys and Xstrata are the best of the risers. Elsehwhere, British Airways is also going well.

Capital Shopping Centres (CSC) has given short shrift to a proposal by David Simon, chairman and chief executive of US Mall owner Simon Property, that the US group subscribes to a sale of up to 205.5m of Capital Shopping shares priced at 400p each to fund the £1.6bn Trafford deal. "Completely impracticable," is CSC's response.

De la Rue has appointed Tim Cobbold as chief executive and an executive director of the company, starting in January. He joins De La Rue from Chloride Group. His first job will be to see off the bid attentions of French group Oberthur.

Yule Catto has roared ahead on an agreement to buy PolymerLatex for a total transaction value of €443m (£376m). A 4-3 rights issue to raise £225m will help pay for it.

ITV shares picked up after reported bumper ad revenues for the final of X Factor, which was won by Matt Cardle.

Mattress and sofa company Airsprung said sales for the six months ended 30 September 2010 fell by 12.8% as it struggled against a very difficult retail environment for beds and furniture.

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INTERIMS
AssetCo, iEnergizer Ltd., Polar Cap Technology Trust, Spice

INTERIM DIVIDEND PAYMENT DATE
C&C Group, Nippon Telegraph & Telephone Corp.

GMS
Digital Barriers, Rugby Estates

EGMS
Bank Audi SAL- Audi Saradar Group GDR (Reg S), Personal Assets Trust

AGMS
Cheerful Scout, KleenAir Systems International, Petmin Ltd. (DI), Physiomics, Schroder Income Growth Fund, Starvest, Watford Leisure

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Current Account (FRA) (07:45)
Wages (FRA) (07:45)

UK ECONOMIC ANNOUNCEMENTS
Rightmove House Price Index (00:00)

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Sterling and dollar set for busy week as inflation and retail sales data loom

Friday’s decision by the Chinese authorities to raise their bank reserve requirements, for the 6th time this year, by 50 basis points from the 20th December, was a little unexpected in that the market had expected a rate hike.

The decision was even more surprising given that Saturday’s inflation data came in much higher than expected at 5.1%. It seems that the Chinese appear to be more concerned about attracting too much in the way of capital inflows than price pressures at the moment hence the inaction, but even allowing for that it appears another hike is only a matter of time.

The pound looks set for an important week this week with inflation, unemployment and retail sales data due out, even as it continues to do fairly well against the single currency. Producer prices output data came in just below 4% year on year for November on Friday, indicating that inflationary pressures still remain a factor in the UK economy.

Input prices have been delayed until today due to data problems, with expectations set for a rise of 8.3% (YoY) while tomorrow the CPI data is due out, and is expected to stay constant at 3.2% (YoY), though it wouldn’t surprise if it came in higher given the surge in commodity prices in recent months.

The single currency has continued to remain under pressure with bond spreads continuing to widen again, despite supportive statements from Messrs Sarkozy of France and Merkel of Germany on Friday, who both indicated that they would do whatever it took to support the euro. This was a view reiterated at the weekend by Germany’s finance minister Schaeuble ahead of this weeks European union meeting to discuss a permanent rescue mechanism for indebted or insolvent nations from 2013. However markets appear now immune to such rhetoric on the basis that talk is cheap, and there being no discernible evidence in terms of action thus far that the authorities have the ability, or consensus to get ahead of the crisis.

The US dollar while being underpinned by rising treasury yields also faces a key week from a data point of view, with the FOMC and retail sales for November tomorrow, followed by inflation data on Wednesday. Expectations are for the Fed to keep its stimulus plan unchanged at $600bn despite the worse than expected employment data early this month.

EURUSD – the single currency continues to find rallies short lived with short-term resistance coming in at 1.3335 from this month’s high at 1.3435. A sustained break below the recent lows between 1.3165/80 remains the catalyst for a retest of the 1.3000 level and the previous lows around 1.2965.
In the meantime look for resistance around 1.3320 and 1.3440.
While the euro remains below the 1.3470 level, which is 38.2% retracement of the down move of 1.4280/1.2965 the momentum remains firmly anchored to the down side.
With this in mind the target of 1.2795, the 61.8% retracement of the 1.1880/1.4280 up move, remains intact.

GBPUSD – Friday’s brief break above the 1.5820 trend line on Friday saw a short push to 1.5860, however the momentum remained difficult to sustain, falling short of the key resistance which remains around the 1.5890 level which is 50% of the down move from 1.6300/1.5485. It seems the choppy range looks set to continue with the key support remaining around the 1.5655/60 level and last weeks lows, while below that the major support remains above trend line support at 1.5540/50 from the 1.4230 lows, and the 38.2% retracement level at 1.5510. The 1.5265 50% retracement level remains the longer term target on a break below 1.5500.

EURGBP – despite the stubborn nature of its rallies the downtrend remains intact here and the single currency looks set to re-test the previous lows around 0.8330. A break below the November lows would then open up the possibility of a move towards trend line support from the 0.8065 lows at 0.8295.
Until the momentum is able to sustain a move below this support the single currency remains susceptible to short squeezes back towards the old support lows at 0.8445/50 and behind that at 0.8500.
Only a break above the 200 day MA around 0.8530 would undermine the potential for a move lower.

USDJPY – despite the dollar not as yet being able to overcome the highs between 84.20/40 the upside potential remains intact as US 10 year yields retain their firmer tone. Friday’s dip lower fell short of the 83.30 support at 83.45 and this remains a key area for further gains.
The potential for a move to test the 85.80 level on a break above 84.20/40 remains intact and would only be negated by a fall through the 50 day moving average and support around the 82.35/45 level, which would then target 81.80.

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Dow moves higher

Dow Jones closed higher as US consumer sentiment hit a six-month high and the trade deficit improved unexpectedly.

The Dow gained 40 at 11,410. Nasdaq composite added 20 at 2,637 while the S&P 500 gained 7 at 1,240.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November.

The Michigan survey’s measure of current conditions, which reflects Americans’ perceptions of their financial situation, increased to 85.7, the highest since January 2008. Unemployment rose to 9.8% in November, which is close to a 26-year high.

The US trade deficit unexpectedly narrowed to $38.7bn in October,down 13% from $44.6bn in September, and much better than expected. It cut the US trade deficit to a 9-month low. Exports jumped 3.2% to $158.7bn, the highest since August 2008, and imports fell 0.5% to $197.4bn.

China's trade surplus fell 16% in November, as exports surged 35% from the prior month, while the Chinese government lifted the amount of capital it requires banks to hold in comparison to loans by 50 basis points as it seeks to prevent its economy from overheating.

Goldman Sachs has upgraded Procter & Gamble from 'neutral' to 'buy'. Books retailer Borders was lower after it warned it might breach banking covenants. It is in refinancing talks.

National Semiconductor fell after it said that its third quarter revenues would be lower than forecast. Occidental Petroleum is paying $3.2bn for oil and gas properties in South Texas and North Dakota, having sold China Petrochemical its Argentinian interests for $2.4bn.

Green Mountain Coffee's fourth-quarter net income came in at $27m, or 20c per share, in line with expectations. But shares fell nearly 10% as it gave no specific guidance about its K-Cup sales.

S&P 500 - Risers
Tenet Hlthcre Corp. (THC) $6.65 +55.01%
Sandisk Corp. (SNDK) $49.61 +4.14%
Pall Corp. (PLL) $50.00 +4.12%
Motorola Inc. (MOT) $8.64 +3.66%

S&P 500 - Fallers
National Semiconductor (NSM) $13.81 -7.75%
Eastman Kodak Co. (EK) $5.12 -3.58%
Texas Instruments Inc. (TXN) $32.79 -2.82%
Akamai Technologies Inc. (AKAM) $51.31 -2.27%

Dow Jones I.A - Risers
General Electric Co. (GE) $17.72 +3.44%
Pfizer Inc. (PFE) $17.02 +1.56%
JP Morgan Chase & Co. (JPM) $41.43 +1.52%
Verizon Communications Inc. (VZ) $34.01 +1.34%

Dow Jones I.A - Fallers
Kraft Foods Inc. (KFT) $30.75 -1.09%
Boeing Co. (BA) $64.16 -0.70%
Coca-Cola Co. (KO) $64.65 -0.28%
Walt Disney Co. (DIS) $36.64 -0.27%

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Wellstream, BHP Billiton, Whitbread...

Millions of families are struggling to pay their bills — and the number is likely to increase in the new year, according to analysis from the Bank of England.

The report published today shows that two fifths of households have difficulty from time to time or constantly in meeting their monthly bills, compared with a third last year, and more than half regard their overdrafts or credit cards as a burden, the Times reports.

More than three years after the start of the credit crunch, the Bank of England warns today that a lack of available credit "continues to be one of the main factors holding back the economic recovery". Writing in the Bank's latest Quarterly Bulletin, officials also repeat warnings about the size and concentration of Britain's banking sector, the Independent adds.

General Electric is poised to seal a £755m-plus takeover of Wellstream, the UK oil and gas services group, as part of an aggressive expansion into energy services. The deal could be announced as early as Monday. Wellstream has twice rebuffed the US conglomerate, but the two sides are understood to have come to an agreement on price in recent days. Its third offer is understood to be substantially higher than 750p a share but less than 800p, the FT reports.

Home sellers slashed their asking prices by nearly £7,000 this month as they struggled to attract the attention of picky buyers, according to figures published today by the Rightmove property website. The 3% drop in December came after a 3.2% fall in November, dragging the average asking price for a home in England and Wales to £222,210 — 6.5% down on where it stood in June, the Times reports.

The US property tycoon stalking Capital Shopping Centres (CSC) yesterday offered to pay for the group's bitterly contested purchase of the Trafford Centre from rival mogul John Whittaker. In a letter to Capital chairman Patrick Burgess, David Simon, chairman and chief executive of US Mall owner Simon Property, said his company was prepared to subscribe to a sale of up to 205.5m of Capital Shopping shares priced at 400p each to fund the £1.6bn Trafford deal, the Independent reports.

Lord Myners, City minister in the last government and a key figure in the financial bail-outs at the height of the global crisis, has called for a break-up of Britain’s biggest banks. Writing in Monday’s Financial Times, he argues that the future of the industry “lies in less monolithic institutions” and urges the Commission on Banking, appointed by the incoming coalition government in the summer, to focus on boosting competition. “The banking commission must give proper consideration to splitting one or both of Lloyds Banking Group and Royal Bank of Scotland.”

Miner BHP Billiton lobbied the Australian government intensively, as it tried to wreck a $19.5bn (£12.3bn) investment by Aluminium Corp of China (Chinalco) in arch rival Rio Tinto, according to a US government cable released by Wikileaks. The leaked cables, which were published in The Sydney Morning Herald over the weekend, showed that BHP was concerned that the investment would give China insight into commercially important information. It was also claimed that BHP, the world's largest miner, had played the situation well, the Telegraph reports.

Whitbread’s new chief executive is expected to scotch speculation tomorrow that he might spin off the Costa coffee shop chain by declaring his determination to continue to expand around the world. Andy Harrison, who took over from Alan Parker at the end of last month, is tipped to use a scheduled trading update to outline the global potential of the Costa brand, arguing that there are no disadvantages to owning both coffee shops and budget hotels, the Times reports.

Sports Direct is expected to reveal this week a bumper bonus share scheme for about 2,000 full-time staff for the two years to 2013, alongside a rise in its half-year profits. Under its current two-year scheme, the sportswear retailer will award eligible staff shares equal to 75% of their base salary if – as forecast – it hits profit targets for the 12 months to April 2011, the Independent reports.

David Cameron hopes to inject private sector discipline into Whitehall by appointing some of Britain’s top business leaders to new corporate-style boards for government departments. The chief executives of GlaxoSmithKline and Centrica are among the new non-executive directors due to be announced this week. Andrew Witty of GSK has agreed to be the lead external director for the Department for Business, Innovation and Skills while Sam Laidlaw of Centrica will take the same role at the Department for Transport, the Times reports.

Frozen food retailer Iceland could become the subject of a bidding war after investors from the Middle East began talks to acquire the business for up to £1.5bn. A consortium of Gulf investors headed by the Global Banking Corporation of Bahrain is said to be in talks with representatives looking after the assets of two collapsed Icelandic banks, Landsbanki and Glitnir, which held 76% of Iceland Foods. The banks' assets are being overseen by the Icelandic government since they called in administrators, the Telegraph reports.

The chances of the euro breaking apart or disintegrating completely have been put at "one-in-five" by one of the UK's leading economics consultancies. In a research paper published today, the Centre for Economics and Business Research (CEBR) claims that keeping "the euro alive will require cuts in living standards greater than the UK faced in the Second World War" for weaker eurozone members, the Telegraph reports.

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