UK/Euro Financial Market Daily Morning Briefing 16-01-2012

Market Movers

• techMARK 1,919.10 +0.07%
• FTSE 100 5,623.83 -0.23%
• FTSE 250 10,432.27 -0.24%

The Footsie slipped 0.2% in the opening minutes, following Friday's move by S&P to downgrade nine Eurozone nations. Meanwhile, cruise ship operator Carnival saw shares drop early on after releasing a statement relating to the grounding of a luxury liner off the Italian coast.

Standard & Poor's (S&P) "finally" confirmed on Friday night that both France and Austria have lost their coveted AAA ratings, while the credit ratings of seven other Eurozone countries were also hit by a downgrade. Analysts lowered the long-term ratings on Italy, Spain, Portugal and Cyprus by two notches; France, Austria, Malta, Slovakia and Slovenia by one notch.

S&P is clear in stating that these decisions are "primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone."

Closer to home, economic forecaster Ernst & Young Item club believes that the UK is already in a recession and growth will flat-line this year. Professor Peter Spencer, chief economic advisor to the ITEM Club, said: "Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement."

In other news, Wall Street is closed today for Martin Luther King Jr. day.

CARNIVAL DROPS AFTER ASSESSING CRUISE SHIP DISASTER

Carnival, the FTSE 100 company which owns the Costa Concordia, the cruise ship which grounded off the coast of Italy at the weekend, says the cost of not having the boat in service will be between $85m and $95m. Shares dropped nearly 20% in early trading.

Carnival is the parent company of Costa Cruises, the operator of the Concordia. The death toll from the damaged ship rose to six on Monday morning, as bodies continue to be recovered from the luxury liner, which hit rocks off the island of Giglio in the Mediterranean on Friday evening.

Banking giants Royal Bank of Scotland, Lloyds and Barclays were also out of favour early on.

Meanwhile, Morrison was the high riser following last week's sell-off which saw shares lose around 7% of their value. The supermarket chain reported last Monday that like-for-like sales growth had slowed in the third quarter.

Exillon Energy was a high riser on the FTSE 250 after the group's average daily production reached 11,055 barrels for the month of December, up from November's 10,935 barrels a day.

House builder Bovis Homes rose after saying that pre-tax profits for the year ended 31 December 2011 will be in line with market consensus and it is well positioned to improve returns further in 2012 and beyond.

Infrastructure firm Balfour Beatty fell despite announcing that it has been awarded several construction contracts in the commercial sector worth £100m.

Milk producer Robert Wiseman Dairies surged after saying turnover and trading for the last fifteen weeks has been in line with expectations, bolstered by increased volumes at the Co-operative and Tesco.

Construction services company Interior Services plummeted after warning that group profits for the year to 30 June 2012 will now be below expectations after a further deterioration in UK trading conditions, particularly among food retail and retail banking sectors.

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UK Event Calendar

Monday January 16

INTERIM DIVIDEND PAYMENT DATE
Cyril Sweett Group, JPMorgan European Smaller Companies Trust , Phoenix IT Group

INTERIM EX-DIVIDEND DATE
Tongaat-Hulett Ltd.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Harmonised Competitiveness Indicators (EU) (09:00)

EGMS
Squarestone Brasil Ltd., Vimetco GDR NV GDR (Reg S)

AGMS
Ferrex, Superglass Holdings

TRADING ANNOUNCEMENTS
Bovis Homes Group

FINAL DIVIDEND PAYMENT DATE
Barloworld Ltd., Cambria Automobiles

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-France to auction €8.7bn in bills today at 2pm.

-Jim O'Neill (GS) criticizes lack of growth measures to offset fiscal consolidation in Eurozone.

-EFSF will auction €1.5bn in debt tomorrow.

-Eurozone banks deposited €493.27bn at the BCE on Friday.

-Bill Gross (PIMCO) sees risk of Greek debt default.

FTSE -100: 0.02%

Dax-30: -0.04%

Cac-40: 0.00%

Stoxx 600: -0.21%

Ibex 35: -0.42%

The main European equity benchmarks are now registering ever so slight falls, following ratings agency Standard&Poor's decision last Friday to downgrade nine Eurozone nations, including stripping France and Austria of their triple AAA ratings. Most nations, however, have now been removed from 'credit watch negative', although most of them continue to have a 'negative outlook' assigned to their ratings. The latter means that there remains a one-in-three chance of a further downgrade in 2012 or 2013 for those countries.




Partly compensating for the above, apparently, most market observers seemed to have already been expecting such a move for some time now. Nonetheless, there are some worries as regards whether the European Financial Stability Fund (EFSF) will now lose its AAA rating or not. As well, clearing house LCH Clearnet has slightly increased its margin requirements for trading in some Italian public debt.

France will auction €8.7bn in bills this afternoon, at 2pm, while the EFSF will sell another €1.5bn tomorrow.

Of interest as regards the above, Bloomberg is today commenting how JPMorgan Chase research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year's U.S. downgrade rose an average of two basis points in the following week.

On the company front, and by sectors, the worst performers now on the DJ Stoxx 600 are: travel (-1.52%), banks (-109%) and construction (-0.68%).

Shares in Carnival are plummeting 18% after its Costa Concordia cruise liner ran aground this past weekend on the Italian coast.

France's biggest listed bank, BNP Paribas, could save jobs and soften the pain of its investment-banking cutbacks by scrapping its dividend for 2011, according to an auditor's report obtained by Reuters.

Swiss cement-maker Holcim will incur in a 775mn Swiss franc ($819mn) charge in the fourth quarter, due to weaker demand in the US and the restructuring of its South African unit.

MACROECONOMY

German wholesale prices remained flat in on the month terms in December, following an 0.7% rise in November.

OTHER MARKETS

The Euro/dollar is now down by 0.14% to 1.2657 dollars.

Front month Brent crude futures are now moving up by 0.746% to the 111.27 dollar mark on ICE.

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DJI: -0.68%
Nasdaq Composite:-0.65%
S&P 500: -0.71%

The main US equity benchmarks are now trading moderately lower, with a surprising dose of calmness despite reports that many European countries have seen their credit ratings slashed by ratings agency Standard&Poor's. Perhaps most concerning is the news that Italy's debt rating is to be cut by two notches and that clearing house LCH Clearnet has raised its margin requirements on some Italian bonds (for maturities greater than 3.25 years and inflation linked instruments).

Trading volumes are being described by some as extremely low.

The above follows on the heels of some mixed macroeconomic figures and weaker than expected quarterly figures from JP Morgan Chase.

Also very much worth noting, a report in the Wall Street Journal that Bank of America could cut back its US operations should its financial situation continue to be as complicated as it currently is. That is apparently the response which the lender proposed to the Federal Reserve under one of the emergency scenarios set out in a report submitted to the regulator last year.

Of interest, at first glance the Presidents of several Federal Reserve banks (Richmond, Chicago and St.Louis) seem to have argued this evening that for now further stimulus may not be warranted.

JP Morgan has cut its US GDP forecast for the first three months of the year to 3% from 3.5% previously.

From a sector stand-point the weakest performance is now to be seen in: coal (-6%), mining (-4.02%) and platinum (-3.31%).

MACROECONOMY

The University of Michigan's preliminary consumer confidence index for the month of January has come in at 74.0 (Consensus: 71.5).

Import prices decreased by 0.1% on the month in December, as expected.

The trade deficit worsened to -$47.75bn in November, versus -$43.27bn the month before.

OTHER MARKETS

Front month West Texas crude futures are now moving down by 0.22% to the $98.88/barrel mark on the NYMEX. Goldman Sachs has raised its 3 month forecast for West Texas crude futures to $113/barrel from $104/barrel previously.

US 10 year bonds are now falling by 21/32 dollars, with yields at 1.85%.

S&P 500 - Risers
CF Industries Holdings Inc. (CF) $171.57 +3.18%
Harley-Davidson Inc. (HOG) $42.00 +3.07%
St Jude Medical Inc. (STJ) $37.11 +2.29%
Noble Corp (NE) $31.87 +2.25%
Netflix Inc. (NFLX) $94.12 +2.14%
Whole Foods Market Inc. (WFM) $73.45 +2.11%
Carmax Inc. (KMX) $32.60 +2.02%
Safeway Inc. (SWY) $20.93 +1.95%
NiSource Inc. (NI) $22.94 +1.82%
Diamond Offshore Drilling Inc. (DO) $59.44 +1.81%

S&P 500 - Fallers
Alpha Natural Res (ANR) $20.14 -10.69%
MEMC Electronic Materials (WFR) $4.44 -9.59%
CONSOL Energy Inc. (CNX) $33.90 -7.15%
Electronic Arts Inc. (EA) $18.30 -6.23%
QEP Resources Inc (QEP) $26.95 -5.11%
United States Steel Corp. (X) $27.38 -4.52%
Denbury Resources Inc. (DNR) $16.87 -4.31%
AK Steel Holding Corp. (AKS) $9.12 -4.30%
First Solar Inc. (FSLR) $39.84 -4.21%
Akamai Technologies Inc. (AKAM) $32.25 -3.93%

Dow Jones I.A - Risers
E.I. du Pont de Nemours and Co. (DD) $48.30 +0.42%
Chevron Corp. (CVX) $105.38 +0.39%
Caterpillar Inc. (CAT) $102.28 +0.33%
Microsoft Corp. (MSFT) $28.05 +0.19%

Dow Jones I.A - Fallers
JP Morgan Chase & Co. (JPM) $35.70 -3.12%
Bank of America Corp. (BAC) $6.59 -2.87%
Intel Corp. (INTC) $25.24 -1.98%
Alcoa Inc. (AA) $9.74 -1.91%
Hewlett-Packard Co. (HPQ) $26.45 -1.84%
United Technologies Corp. (UTX) $75.89 -1.75%
Boeing Co. (BA) $74.53 -1.30%
Walt Disney Co. (DIS) $38.23 -1.29%
Coca-Cola Co. (KO) $66.71 -1.27%
Kraft Foods Inc. (KFT) $37.76 -1.20%

Nasdaq 100 - Risers
Urban Outfitters Inc. (URBN) $24.99 +1.79%
Seagate Technology Plc (STX) $19.60 +1.17%
Fastenal Co. (FAST) $46.32 +1.00%
DIRECTV (DTV) $43.52 +1.00%
Amazon.Com Inc. (AMZN) $177.40 +0.84%
Costco Wholesale Corp. (COST) $80.39 +0.55%
Teva Pharmaceutical Industries Ltd. ADS (TEVA) $44.50 +0.54%
J.B. Hunt Transport Services Inc. (JBHT) $47.51 +0.36%
CH Robinson Worldwide Inc (CHRW) $66.57 +0.34%
Dish Network Corp. (DISH) $28.76 +0.27%

Nasdaq 100 - Fallers
Electronic Arts Inc. (EA) $18.30 -6.23%
Nll Holdings Inc. (NIHD) $20.98 -5.03%
First Solar Inc. (FSLR) $39.84 -4.21%
Vodafone Group Plc ADS (VOD) $26.82 -3.58%
Altera Corp. (ALTR) $37.29 -3.47%
Logitech International S.A. (LOGI) $7.75 -3.37%
Warner Chilcott Plc (WCRX) $16.14 -3.35%
Lam Research Corp. (LRCX) $38.64 -3.11%
eBay Inc. (EBAY) $30.69 -2.82%
Applied Materials Inc. (AMAT) $11.48 -2.71%

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China can maintain an annual growth rate of 8% for the next two decades, the World Bank has said, raising hopes that the powerhouse economy will help lead other countries back to growth. Justin Lin, the World Bank's chief economist used a wide-ranging speech in Beijing to issue the upbeat prognosis for the Chinese economy. Economists remain split over whether China can avoid a hard landing in the wake of rampant inflation and rocketing property prices, but Mr Lin said the country's government had the room to use policies to maintain demand and growth. Mr Lin described the country's fiscal position as "sound" and said there was room for significant industrial development, urbanisation and infrastructure development to help drive growth, The Telegraph reports.

Global markets are set for a rocky day of trading after German leader Angela Merkel warned that it could take many months to rebuild confidence in the Eurozone and schisms over financing the bloc's bail-out fund re-emerged. The German chancellor warned that Standard & Poor's decision to downgrade nine Eurozone countries on Friday evening demonstrated that politicians needed to step up their efforts to resolve the crisis, warning that it was a "longer process" that would take more than a few months. "The decision confirms my conviction that we have a long way ahead of us before investor confidence returns," she said in a radio address. Germany was not among the countries downgraded, The Telegraph says.

George Osborne will hail a ground breaking agreement with China today that will bring a multibillion-pound boost to the City of London. Speaking in Hong Kong, the Chancellor will say that Britain must look to the Asian "engine of world growth" as he announces that London will become an offshore trading centre for the Chinese currency, the yuan. Mr Osborne, who faces warnings that Britain has slipped back into recession, will contrast the struggling economies of Europe with the burgeoning growth of China. While he will admit that European countries are working hard to improve the situation, he will add: "The Chinese economy is 15 times larger than it was when I first visited China as a student two decades ago. In 1960, South Korea had the same income per head as those in sub-Saharan Africa. Today, South Koreans enjoy an average income of $23,000 [£15,000]," writes The Times.

The Royal Bank of Scotland has emerged as the main lender refusing to save Peacocks, the struggling retailer, putting 10,000 jobs at risk. The bank, majority owned by the taxpayer, is believed to be reluctant to inject any more money into the company, which is burdened with £240m of debt. RBS's unwillingness to prop up Peacocks is not just worrying for the retailer, which runs 700 shops, it is also of great concern for a number of high street names backed by the lender. A source close to the bank said: "Yes, RBS is owned by the taxpayer, but that means it has a responsibility to look after that money wisely. Should it throw good money at the sector, when we've seen how bad conditions are?" RBS also supports HMV and Clinton Cards, both of whom have been hit hard in recent months, The Telegraph reports.

The slowdown in Scottish economic growth finally began to catch up with the country's jobs market last month, according to data released today. Figures from Bank of Scotland showed the number of people being placed into permanent jobs fell for the first time since September 2010. The bank's labour market barometer – which is designed to give a snapshot of the employment market – fell from 51.4 in November to 50.3 in December, its lowest reading in 14 months. Although any figure above 50 indicates an improvement in the market, last month's reading shows only marginal growth. However, Scotland's jobs market continues to outperform the UK as a whole – it posted a reading of 48.6 in December, showing the overall market had got worse, The Scotsman says.

Glencore is facing legal action over pollution caused by its vast and lucrative copper operations in Zambia. Glencore's Mopani Copper Mines subsidiary has been a thorn in the firm's side since its £6bn float in May last year, throwing up allegations of environmental recklessness and tax avoidance, which the company denies. The Swiss-based firm could find itself dragged through the courts after Zambian campaign group the Centre for Trade Policy and Development demanded the company explain itself or face a lawsuit, The Daily Mail says.

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