UK/Euro Financial Market Daily Morning Briefing 14-02-2014

UK stocks edge lower as investors await Eurozone GDP

- Eurozone GDP figures ahead
- Italian politics in focus as PM resigns
- Miners rise strongly, banks and retailers fall

techMARK 2,822.53 -0.05%
FTSE 100 6,650.83 -0.13%
FTSE 250 16,045.41 +0.10%

UK stocks opened slightly lower on Friday morning with strong gains from mining stocks outweighed by weakness in the banking and retail sectors.

Investors were showing caution ahead of the release of economic growth data from the Eurozone, while keeping a close watch on political instability in Italy.

The FTSE 100 was trading down 0.1% at 6,651 in early trade.

Eurozone gross domestic product (GDP) figures released this morning are expected to show that the single-currency region expanded at a quarter-on-quarter rate of 0.2% in the fourth quarter of 2013, picking up slightly from the 0.1% growth seen in the third quarter.

In Italy, Prime Minister Enrico Letta has said he will resign today after his Democratic Party pushed for a new leader.

Party leader Matteo Renzi called for a change of government yesterday following a meeting with Letta. Renzi, who has previously accused Letta of lack of action on improving the economy, is widely expected to take over the helm without an election.

Banks, retailers under the weather

Banking stocks were among the worst performers early on with RBS, Standard Chartered, HSBC and Barclays registering losses. Lloyds was extending losses after its poorly-received 2013 results on Thursday with selling pressure continuing despite an upgrade by JPMorgan Cazenove to ‘overweight’.

Tate & Lyle and Rolls-Royce were also continuing to trade lower after plummeting yesterday as both companies warned on profits.

Retailers were also out of favour today with Morrison leading the decline after Exane BNP Paribas downgraded the stock to ‘underperform’. Sainsbury, Next and Tesco also retreated.

In contrast, High Street department store Marks & Spencer edged higher on the back of speculation that it could soon unveil plans for a share buyback in an attempt to win back investor confidence in its turnaround.

Mining stocks were leading the upside today with Anglo American among the best performers after reporting a 6% increase in 2013 underlying profits to $6.6bn as currency gains offset falling commodity prices during the year. Fresnillo, Antofagasta and BHP Billiton were also in demand this morning, tracking metal prices higher.

Oilfield services group Petrofac was higher after Berenberg raised its rating on the stock to ‘buy’ and hiked its target from 1,370p to 1,740p.

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FTSE 100 - Risers
Fresnillo (FRES) 964.50p +4.55%
Antofagasta (ANTO) 923.00p +1.93%
BHP Billiton (BLT) 1,902.00p +1.66%
Petrofac Ltd. (PFC) 1,285.00p +1.58%
Anglo American (AAL) 1,557.00p +1.53%
International Consolidated Airlines Group SA (CDI) (IAG) 448.70p +1.52%
Randgold Resources Ltd. (RRS) 4,753.00p +1.41%
Glencore Xstrata (GLEN) 336.60p +1.37%
Mondi (MNDI) 992.00p +1.28%
Melrose Industries (MRO) 308.80p +1.11%

FTSE 100 - Fallers
Morrison (Wm) Supermarkets (MRW) 232.20p -1.65%
Aberdeen Asset Management (ADN) 402.00p -1.52%
Imperial Tobacco Group (IMT) 2,318.00p -1.40%
Tullow Oil (TLW) 749.00p -1.25%
Royal Bank of Scotland Group (RBS) 340.40p -1.02%
Associated British Foods (ABF) 2,783.00p -0.96%
ARM Holdings (ARM) 928.50p -0.96%
Sainsbury (J) (SBRY) 348.80p -0.91%
Vodafone Group (VOD) 219.45p -0.90%
RSA Insurance Group (RSA) 96.70p -0.87%

FTSE 250 - Risers
Hikma Pharmaceuticals (HIK) 1,327.00p +6.67%
African Barrick Gold (ABG) 288.00p +5.53%
Kenmare Resources (KMR) 16.69p +4.64%
Kazakhmys (KAZ) 214.40p +3.93%
Centamin (DI) (CEY) 51.85p +3.18%
AL Noor Hospitals Group (ANH) 862.50p +2.74%
Ladbrokes (LAD) 149.30p +2.47%
Polymetal International (POLY) 650.00p +2.12%
Fidessa Group (FDSA) 2,364.00p +1.55%
Alent (ALNT) 327.50p +1.33%

FTSE 250 - Fallers
Cranswick (CWK) 1,271.00p -2.98%
Rank Group (RNK) 140.00p -2.51%
PayPoint (PAY) 1,103.00p -2.39%
Unite Group (UTG) 431.02p -1.14%
Home Retail Group (HOME) 184.90p -1.12%
KCOM Group (KCOM) 98.50p -1.10%
Riverstone Energy Limited (RSE) 920.00p -1.08%
Catlin Group Ltd. (CGL) 556.50p -1.07%
Millennium & Copthorne Hotels (MLC) 575.50p -0.95%
Lonmin (LMI) 322.50p -0.83%

INTERIM DIVIDEND PAYMENT DATE
Anite, Consort Medical, CVC Credit Partners European Opportunities Ltd EURO, CVC Credit Partners European Opportunities Ltd GBP, QinetiQ Group

QUARTERLY PAYMENT DATE
British Land Co

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Balance of Trade (EU) (10:00)
Capacity Utilisation (US) (16:30)
GDP (Flash Estimate) (EU) (10:00)
Gross Domestic Product (GER) (07:00)
Import and Export Price Indexes (US) (13:30)
Industrial Production (US) (16:15)
U. of Michigan Confidence (Prelim) (US) (14:55)

Q4
Afarak Group (DI)

FINALS
Afarak Group (DI), Anglo American, Coca-Cola HBC AG (CDI), Heavitree Brewery, Hrvatske Telekom D.D GDR (Reg S), Riverstone Energy Limited

EGMS
BlueCrest AllBlue Fund Ltd. GBP Shares, Qannas Investments Ltd

FINAL DIVIDEND PAYMENT DATE
Numis Corporation, Shaftesbury

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European stocks mixed as traders weigh GDP data

- German GDP rises more than forecast
- China inflation increases
- Italy's Letta to resign

FTSE 100: -0.16%
DAX: 0.14%
CAC 40: -0.08%
FTSE MIB: 0.27%
IBEX 35: -0.24%
Stoxx 600: 0.03%

European stocks were little changed as growth in the economies of Germany, France and Netherlands beat forecasts in the fourth quarter.

German gross domestic product rose 0.4% from the third quarter when it increased by 0.3%, the Federal Statistics Office in Wiesbaden revealed today. Economists had predicted growth of 0.3%.

While the figure surpassed expectations, UniCredit said the German economy was still “punching below its weight”.

“The plus of 0.4% does not represent the ‘true’ underlying speed of the German economy,” said Andreas Rees, Chief German Economist at UniCredit.

“More is to come, as both companies and consumers are in the run-up to a strong recovery. Growth will already accelerate markedly in 1Q14 in line with forward-looking sentiment indicators. We stick to our above-consensus GDP forecast of +2.5% for 2014 as a whole.”

French GDP increased 0.3% after stagnating in the third quarter, exceeding the 0.2% consensus estimate. Barclays said: “All in all, despite only slightly positive numbers, we think this is a strong reading for the French economy.”

The Dutch economy grew 0.7%, compared with estimates for a 0.3% expansion.

Eurozone GDP figures will be released at 10:00 GMT and is anticipated to show a 0.2% rise in the fourth quarter from a 0.1% climb in the previous three months.

Meanwhile in China, consumer prices rose by 2.5% year-on-year in January, matching the previous month’s growth but exceeding the 2.4% forecast.

Italy’s Letta to resign

Italian Prime Minister Enrico Letta has said he will resign today after his Democratic Party pushed for a new leader.

Party leader Matteo Renzi called for a change of government yesterday following a meeting with Letta.

Renzi, who has previously accused Letta of lack of action on improving the economy, is widely expected to take over the helm without an election.

Italian 10-year bond yields were within five basis points of their lowest since 2006 following the news last night. The yield was at 3.71% at 7:26, little changed from yesterday.

Separately, Italy’s GDP grew by 0.1% in the fourth quarter in line with forecasts, compared to the prior month when it held steady.

Miners climb

Anglo American edged higher are reporting a rise in 2013 underlying operating profit as currency gains offset falling commodity prices.

Fellow miners rallied including Fresnillo and Antofagasta as the price of gold and silver rose.

Marks & Spencer gained following news that the UK retailer could soon unveil plans for a share buyback.

UBM declined after Credit Suisse downgraded the media company to ‘neutral’ from ‘outperform’.

Water company Severn Trent edged higher after revealing an in-line trading update and saying it does not expect the floods in the UK to impact its financial performance.

The euro rose 0.12% to $1.3697.

Brent crude futures fell $0.203 to $108.300 per barrel, according to the ICE.

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US stocks end with gains as investors shrug off weak data

- Earnings, Time Warner Cable takeover give markets a boost
- Nasdaq registers longest winning streak in two months
- Retail sales, jobless claims miss forecasts

Dow Jones: 0.40%
Nasdaq: 0.94%
S&P 500: 0.58%

US stocks pulled into positive territory after a weak start on Thursday despite data showing an unexpected decline in retail sales and a surprise jump in jobless claims.

Strong results from the likes of Goodyear, CBS and Applied Materials helped give markets a boost, along with a $45bn takeover offer for Time Warner Cable from Comcast.

The Dow Jones Industrial Average rose 0.4%; the S&P 500 added 0.6%; while the Nasdaq jumped over 0.9% to advance for the sixth straight day, its longest winning streak in two months.

In other news, government offices in Washington closed on Thursday with Federal Reserve Chair Janet Yellen being forced to postpone her testimony before the Senate Banking Committee due to the icy weather that downed power lines across the east coast.

Data misses forecasts

US retail sales declined by 0.4% in January, compared with a downwardly revised 0.2% increase the month before, due to weakness in the auto, department stores and eating out categories. The consensus of analysts had expected no change.

Analyst Peter Newland at Barclays Research said that the above factors could be partly explained by the bad weather during the month, but other movements such as a drop in internet sales and a strong gain in building materials “are more difficult to square with that as a catch-all explanation”.

Meanwhile, US initial jobless claims increased by 8,000 from 331,000 to 339,000 in the week ending February 8th, slightly ahead of the fall to 330,000 expected by the market.

Comcast to buy Time Warner Cable

Comcast has agreed to buy Time Warner Cable for $45.2bn in an all-stock deal that combines the two US cable operators. Time Warner’s shares jumped after the announcement while Comcast fell, along with Charter Communications which had wanted to buy the firm.

Tyre company Goodyear accelerated after the company reiterated its medium-term guidance as fourth-quarter earnings came in ahead of expectations.

TV network owner CBS was also higher after beating forecasts with quarterly profits and increased its share buyback programme.

Tech group Applied Materials also surpassed estimates with quarterly figures and said that sales in the current quarter would grow as much as 10%.

PepsiCo advanced after reporting a 5% increase in quarterly profit, driven by strong sales of Frito Lay chips in the Americas and cost cuts.

In contrast, Cisco Systems declined after the company forecast a drop of 6-8% in revenue in the third quarter. This comes after an 8% decline in revenue to $11.2bn for the three months to January, while earnings fell by over half after a charge related to faulty memory chips sold in previous years.

Whole Foods Market dipped after the US organic and natural food retailer slashed its 2014 sales forecast for the second time in three months.

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Vodafone, Shell, Pound

Britain’s biggest telecoms company is to have a new auditor for the first time since floating on the stock market in 1988. Vodafone will end its 26-year relationship with Deloitte, handing its audit mandate to PwC, one of the firm’s “Big Four” rivals and the auditor of more FTSE 100 companies than any other. – The Times

Shell is to sell off three oil and gas producing assets in the North Sea as the new chief executive's divestment gathers pace. The disposal of the Anasuria, Nelson and Sean platforms and production systems come at a sensitive political time when other energy bosses have signalled that the forthcoming referendum on Scottish independence is undermining the investment climate. – The Guardian

The pound climbed close to a three-year high against the dollar on Thursday, amid signs Britain’s economy will continue to strengthen. Sterling rose by almost a cent to $1.6673, its highest level since May 2011. The pound has risen more than 13% against the dollar since July 2013 amid a positive run of economic data and stronger-than-expected growth. On Wednesday, the Bank of England upgraded its forecast for UK growth to 3.4% in 2014, from a previous projection of 2.8%. – The Telegraph

Budget airline EasyJet has suffered a backlash over its boardroom pay plans, which saw Chief Executive Carolyn McCall enjoy a 75% jump in her total package last year. The carrier has had numerous disputes with its founder and largest shareholder, Sir Stelios Haji-Ioannou, over its pay deals and expansion plans, and said 45% of investors voted against its remuneration policy at yesterday’s annual meeting. - Scotsman

European politicians have called for a thorough investigation of the International Financial Reporting Standards (IFRS) Foundation after The Telegraph disclosed reporting irregularities stretching back over a decade. Sharon Bowles, chairwoman of the European Parliament’s Econ committee, has written to Michel Barnier, the internal markets Commissioner, to raise “serious concerns” about the London-based organisation’s governance. – The Telegraph

The former Chief Executive of Lloyds Banking Group, Eric Daniels, is facing the confiscation of a past bonus over the escalating insurance mis-selling bill, which sent the bank to an after-tax loss of £802m last year. The board pay committee, chaired by Tony Watson, will meet within the next few days to consider whether more of a share-based award to Mr Daniels in 2010 should be clawed back as the bill for mis-sold payment protection insurance ballooned by another £3.05bn last year to total £9.8bn. – The Times

Vodafone claimed last night that the price paid for India’s new telecoms licences would leave companies saddled with debts for years and harm consumers, after the government celebrated raising 610bn rupees, more than treble initial forecasts. The British operator has paid 196bn rupees (£1.9bn), nearly a third of the total amount raised, to retain its three existing licence zones. – The Times

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