UK/Euro Financial Market Daily Morning Briefing 22-12-2011

Market Movers

• techMARK 1,838.17 +0.82%
• FTSE 100 5,442.37 +0.98%
• FTSE 250 9,926.54 +0.85%

If Footsie is to show a gain on the year, it needs to add about 600 points between now and the close of play on December 30th and though the top-share index has made modest inroads into that deficit this morning, helped by the strength of banks, it is looking increasingly likely that 2011 will be a down year for the London stock market.

International Airlines Group (IAG) has managed to beat out rival Virgin in the battle to land the British Midland (bmi) airline. IAG, the company formed by the merger of British Airways and Iberia, is to pay £172.5m in cash for British Midland (bmi). Crucially, from IAG's point of view, the purchase gives it 56 additional daily slot pairs at London's Heathrow airport.

IAG's previous target of making an operating profit of €1.5bn by 2015 has now increased by €100m with the bmi acquisition expected to become earnings per share enhancing by 2014. However, IAG will be forced to incur restructuring costs (in regards to bmi) but these will be spread over three years and are said to be significantly lower than bmi's current annual losses.

Ring out the old, ring in the new

Media distribution group Perform has signed a four-year deal with the Women's Tennis Association (WTA) to manage and oversee the development of all media rights for the WTA from the start of 2013 to the end of 2016, outside of the USA and Canada. Perform plans to double the number of current live matches produced, by increasing both the number of courts and days covered.

Perform is a distributor of digital content, and its business model seems to be holding up better than that of Metrodome, the old-school DVD and film distributor. Metrodome's shares plunged in early trading after the company issued a profit warning.

Hansteen, the investor in UK and Continental European property, has bought up 88 property assets from The Spencer Group of Companies, a commercial property specialist. Hansteen is paying £150m for some 88 assets totalling 4.1m square feet of predominantly industrial property located across the UK.

AIM-quoted diagnostic tests and testing equipment supplier Avacta tumbled after conditionally placing 1.03m shares at 0.5p, and announcing the £1.48m acquisition of diagnostics firm Aptuscan.

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FTSE 100 - Risers
Royal Bank of Scotland Group (RBS) 20.33p +2.57%
Barclays (BARC) 176.30p +2.53%
International Consolidated Airlines Group SA (IAG) 148.50p +2.34%
BP (BP.) 447.90p +1.90%
Schroders (SDR) 1,291.00p +1.89%
Aviva (AV.) 297.30p +1.88%
Resolution Ltd. (RSL) 247.70p +1.85%
RSA Insurance Group (RSA) 103.70p +1.67%
Old Mutual (OML) 132.30p +1.61%
HSBC Holdings (HSBA) 487.75p +1.59%

FTSE 100 - Fallers
Vedanta Resources (VED) 1,025.00p -1.63%
Evraz (EVR) 373.60p -0.45%
Polymetal International (POLY) 1,079.00p +0.09%
British American Tobacco (BATS) 2,954.50p +0.14%
Randgold Resources Ltd. (RRS) 6,710.00p +0.15%
Man Group (EMG) 126.10p +0.16%
United Utilities Group (UU.) 590.00p +0.17%
CRH (CRH) 1,207.00p +0.25%
Vodafone Group (VOD) 173.55p +0.29%
Fresnillo (FRES) 1,533.00p +0.33%

FTSE 250 - Risers
Exillon Energy (EXI) 250.60p +4.85%
Spirent Communications (SPT) 114.70p +4.27%
Perform Group (PER) 208.20p +4.10%
Imagination Technologies Group (IMG) 545.00p +3.42%
Supergroup (SGP) 494.90p +3.10%

FTSE 250 - Fallers
COLT Group SA (COLT) 84.00p -1.93%
Regus (RGU) 80.15p -1.90%
Stagecoach Group (SGC) 265.70p -1.67%

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Thursday December 22

INTERIM DIVIDEND PAYMENT DATE
Charles Stanley Group, Helical Bar

QUARTERLY PAYMENT DATE
Total SA

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Bloomberg Consumer Confidence (US) (14:45)
Continuing Claims (US) (13:30)
GDP (Final) (US) (13:30)
House Price Index (US) (15:00)
Initial Jobless Claims (US) (13:30)
Leading Indicators (US) (15:00)
U. of Michigan Confidence (Final) (US) (15:00)

GMS
Brightside Group, European Goldfields Ltd.

AGMS
Blue Planet Worldwide Financials Inv Trust, Gem BioFuels, Peninsular Gold Ltd., Zambeef Products

UK ECONOMIC ANNOUNCEMENTS
Balance of Payments (09:30)
Current Account (09:30)
GDP (quarterly national accounts) (09:30)
Index of Services (09:30)

FINAL DIVIDEND PAYMENT DATE
GETECH Group, Ultimate Finance Group

FINAL EX-DIVIDEND DATE
Zambeef Products

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DOW: +4 at 12,108
NASDAQ: -26 at 2,578
S&P 500: +2 at 1,244

US benchmarks finished mixed on Wednesday but losses were pared late in the day. Bank of America and Yahoo were providing a lift on the S&P and the Dow, respectively, while Oracle was dragging the NASDAQ into the red.

The big news of the day was European banks asking to borrow €489bn from the ECB's new three-year loan facility. This is significantly ahead of reported market forecasts of €293bn. A total of 523 banks made loan applications and will receive the money tomorrow.

The early interpretation of the auction was broadly positive with markets in Europe rising strongly. However, equities then pared gains, causing Wall Street to fall from the start of the session, with market chatter turning to the European banks' obvious desperation for liquidity.

"Some market operators are attributing the fall in equity markets, in the aftermath of the ECB move, to the dawning realisation that banks may use the bulk of the funds obtained today to meet their own funding needs (as opposed to supporting the economy or purchasing government debt)," according to analysts at Digital Look.

Rumours of a French sovereign debt downgrade were also making the rounds, which further soured sentiment.

BofA RISES AFTER SETTLEMENT

Bank of America finished higher after the Justice Department filed a $335m settlement to resolve allegations that Countrywide Financial Corporation engaged in discriminatory lending practices against African-American and Hispanic borrowers from 2004 to 2008.

"These institutions should make judgments based on applicants' creditworthiness, not on the color of their skin. With today's settlement, the federal government will ensure that the more than 200,000 African-American and Hispanic borrowers who were discriminated against by Countrywide will be entitled to compensation," said Attorney General Eric Holder.

RIM JUMPS, ORACLE PLUMMETS

Microsoft, Nokia and Amazon.com have been considering the idea of making a joint offer for Research In Motion according to sources close to negotiations, reported The Wall Street Journal. Shares rose 10%. The financial daily indicated that it is not clear how far negotiations have gone but the fact that they have taken place reveals the challenges the group faces and an opportunity for rivals.

Tech stocks were leading the decline on the Dow, with IBM, Cisco Systems, Hewlett-Packard, United Technologies, Microsoft and Intel finished firmly in the red.

Software giant Oracle plummeted after its second-quarter earnings figures disappointed. Earnings fell from 51 cents ashare to 43 cents, but well under expectations of 57 cents, according to FactSet Research consensus. Revenues, while increases year-on-year also missed forecasts.

Pharmacy chain Walgreen finished lower after earnings per share in the first quarter fell short of consensus expectations.

EXISTING HOME SALES

In economic news, the National Association of Realtors said that existing home sales increased by 4% in November to an annual rate of 4.42m, higher than the revised down figure of 4.25m seen the month before. However, the group also revealed that average annual home sales between 2007 and 2010 were revised down from 5.16m to 4.42m.

According to Lawrence Yun, NAR chief economist, "more people are taking advantage of the buyer's market. Sales reached the highest mark in 10 months and are 34% above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing (…)".

S&P 500 - Risers
Cintas Corp. (CTAS) $34.19 +9.30%
Yahoo! Inc. (YHOO) $15.99 +5.82%
Tenet Hlthcre Corp. (THC) $4.88 +4.50%
Constellation Brands Inc. Class A (STZ) $20.40 +4.45%
Tesoro Corp. (TSO) $23.09 +3.59%
J.C. Penney Co. Inc. (JCP) $34.61 +3.50%
Weyerhaeuser Co. (WY) $17.92 +3.46%
Cablevision Systems Corp. (CVC) $13.82 +3.44%
St Jude Medical Inc. (STJ) $33.67 +3.44%
DeVry Inc. (DV) $36.52 +3.37%

S&P 500 - Fallers
Oracle Corp. (ORCL) $25.77 -11.66%
Citrix Systems Inc. (CTXS) $58.46 -7.76%
F5 Networks Inc. (FFIV) $102.13 -6.64%
Cognizant Technology Solutions Corp. (CTSH) $63.48 -6.14%
Carmax Inc. (KMX) $29.35 -5.54%
Teradata Corp. (TDC) $47.70 -5.51%
MEMC Electronic Materials (WFR) $3.79 -5.49%
Emerson Electric Co. (EMR) $46.97 -5.44%
Salesforce.Com Inc. (CRM) $99.03 -5.07%
Red Hat Inc. (RHT) $39.90 -4.89%

Dow Jones I.A - Risers
General Electric Co. (GE) $17.71 +2.49%
Coca-Cola Co. (KO) $69.57 +1.71%
Travelers Company Inc. (TRV) $59.09 +1.62%
Chevron Corp. (CVX) $105.34 +1.61%
Exxon Mobil Corp. (XOM) $83.12 +1.37%
Kraft Foods Inc. (KFT) $37.35 +1.19%
Bank of America Corp. (BAC) $5.23 +1.16%
Pfizer Inc. (PFE) $21.68 +1.03%
Boeing Co. (BA) $73.09 +0.89%
Merck & Co. Inc. (MRK) $37.34 +0.73%

Dow Jones I.A - Fallers
International Business Machines Corp. (IBM) $181.47 -3.08%
Cisco Systems Inc. (CSCO) $17.92 -2.64%
Hewlett-Packard Co. (HPQ) $25.44 -1.81%
United Technologies Corp. (UTX) $73.62 -1.05%
Microsoft Corp. (MSFT) $25.76 -1.02%
American Express Co. (AXP) $47.49 -0.90%
Intel Corp. (INTC) $23.68 -0.67%
3M Co. (MMM) $80.00 -0.39%
Alcoa Inc. (AA) $8.85 -0.34%
Caterpillar Inc. (CAT) $91.63 -0.11%

Nasdaq 100 - Risers
Research in Motion Ltd. (RIMM) $13.78 +10.06%
Cintas Corp. (CTAS) $34.19 +9.30%
Yahoo! Inc. (YHOO) $15.99 +5.82%
Warner Chilcott Plc (WCRX) $14.75 +3.47%
Amgen Inc. (AMGN) $63.14 +3.24%
Liberty Interactive Corp (LINTA) $16.29 +1.84%
Lam Research Corp. (LRCX) $36.71 +1.83%
Gilead Sciences Inc. (GILD) $38.85 +1.81%
Illumina Inc. (ILMN) $27.17 +1.72%
Garmin Ltd. (GRMN) $39.56 +1.46%

Nasdaq 100 - Fallers
Oracle Corp. (ORCL) $25.77 -11.66%
Citrix Systems Inc. (CTXS) $58.46 -7.76%
Cognizant Technology Solutions Corp. (CTSH) $63.48 -6.14%
Baidu Inc. (BIDU) $112.97 -4.59%
Check Point Software Technologies Ltd. (CHKP) $52.14 -4.52%
Amazon.Com Inc. (AMZN) $174.35 -4.48%
Infosys Technologies Ltd. (INFY) $49.35 -4.12%
BMC Software Inc. (BMC) $33.00 -4.04%
Autodesk Inc. (ADSK) $30.31 -3.75%

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George Osborne was given a boost yesterday after public sector borrowing fell by more than expected last month on the back of the bank levy and the 20% VAT rate. The Office for National Statistics said that public sector net borrowing had fallen to £18.1bn, compared with £20.5bn in November last year. Analysts had expected a figure of £19.7 bn. However, Olivier Blanchard, the chief economist of the International Monetary Fund, warned against cutting too fast. "It should be, in the words of Angela Merkel, a marathon rather than a sprint," he wrote in an IMF blog. "It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here, too: slow and steady wins the race." The Government is broadly on track to meet the full-year borrowing target of £127bn set by the Office for Budget Responsibility, but economists warned that this could be derailed if the Eurozone debt crisis worsened, writes The Times.

Scottish Equity Partners, one of the UK's highest profile technology investment companies, yesterday emerged as another player in the battle for control over IndigoVision. The Glasgow-based venture capital business has bought a 6.6% stake in the Edinburgh-based firm through a recently established limited company, Kuiper, in an investment likely to have cost it more than £1.2m (…), it emerged yesterday that IndigoVision's chairman Hamish Grossart had also further increased his stake, buying 10,000 shares at 255p each to increase his holding to 5.5%,The Scotsman reports.

Fitch has warned that America could lose its prized AAA credit rating by the end of 2013 unless US politicians agree on a credible plan to address the country's rising debt burden. The ratings agency changed America's credit rating outlook to negative from stable last month, citing the failure of a special congressional committee to agree on at least $1.2 trn (£770bn) in deficit-reduction measures. In a new fiscal projection, Fitch said at least $3.5trn of additional deficit reduction measures will be required to stabilize the federal debt held by the public at around 90% of gross domestic product in the latter half of the current decade. "Federal debt will rise in the absence of expenditure and tax reforms that would address the challenges of rising health and social security spending as the population ages," Fitch said in a statement, according to The Telegraph.

Millions of workers are enjoying almost a fortnight's holiday this Christmas because business is so slow there is no point in them coming in, a leading think tank said. The Centre for Economics and Business Research expects one in six workers, some five million people, to enjoy an extended holiday from today until Jan 3. Thousands of businesses will stay closed because their customers have so little money to spend in the downturn they fear they will not make enough to justify opening their doors, it said. Local authority workers will enjoy breaks of up to 12 days with councils throughout the country shutting down from tomorrow, The Telegraph says.

The Treasury must bite the bullet and tell Britons the whole truth about pension fees even though the shocking facts risk 'permanently damaging' our savings culture, advisers say. This is Money can reveal the inside story on a damning presentation on pension charges, in which consultants showed the Treasury evidence of a £67bn-a-year hit. Advisers from a low cost investment provider laid their facts bare for officials, revealing how hard-hit retirees are sometimes left with less than they paid in once an average 3.2% in fees is siphoned off each year, The Daily Mail reports.

Government plans to cut subsidies for solar panels on homes before consultation ended were today ruled legally flawed by the High Court. The decision was a victory for environmental campaigners Friends of the Earth (FoE) and two solar companies - Solarcentury and HomeSun - who challenged the proposals and said they were creating 'huge economic uncertainty'. Energy Secretary Chris Huhne wants to cut feed-in tariff subsidies (FITs) - payments made to households and communities that generate green electricity through solar panels - on any installations completed after December 12 this year, The Daily Mail says.

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