UK/Euro Financial Market Daily Morning Briefing 27-01-2014

London open: Markets drop as sell-off continues, BG Group plummets

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Monday January 27

INTERIM EX-DIVIDEND DATE
Tongaat-Hulett Ltd.

QUARTERLY EX-DIVIDEND DATE
Marsh & Mclennan Cos Inc.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
New Homes Sales (US) (15:00)
IFO Business confidence index (GER) (09:00)

Q4
Telefonica SA

GMS
ViaLogy

FINALS
Amino Technologies, OJSC Magnit GDR (Reg S), Porvair, Telefonica SA

IMSS
Aveva Group, APR Energy

EGMS
KT Corp. ADR, Urals Energy Public Co Ltd. (DI)

AGMS
British Assets Trust, Edinburgh Worldwide Inv Trust, John Lewis of Hungerford, JPMorgan Chinese Inv Trust

TRADING ANNOUNCEMENTS
OJSC Novolipetsk Steel GDS (Reg S)

FINAL DIVIDEND PAYMENT DATE
Jelf Group

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Europe open: Stocks little changed before German and US data

- Ifo releases German business climate index
- US new home sales report released
- Eurogroup's finance ministers meet
- Draghi addresses deflation risk

FTSE 100: -1.08%
DAX: -0.06%
CAC 40: -0.01%
FTSE MIB: -0.57%
IBEX 35: 0.03%
Stoxx 600: -0.62%

European stocks were little changed as investors awaited the Ifo institute's business climate index for Germany and a report on US new home sales.

The business climate index, which measures firms' sentiment about the current business situation and their expectations for the next six months, is forecast to rise to 110 in January from 109.5 in December.

Later in the US, a report on new home sales is expected to show a 1.9% drop for December, compared to a 2.1% fall a month earlier.

The data comes ahead of the Federal Reserve's policy meeting on Wednesday. Policymakers are looking for signs of further recovery before announcing another round of monetary stimulus tapering. The Fed began unwinding its monthly asset purchases by $10bn to $75n in December.

Meanwhile, Eurogroup finance ministers are scheduled to meet this afternoon and the banking union will be on the agenda.

On Saturday, Eurogroup Chairman Jeroen Dijsselbloem said he hopes this year's asset quality review and stress tests of European banks will reveal some bad news to give the process credibility.

"Actually I rather hope it's going to unveil some unpleasantness because that will give us confidence that things are being done properly," he told the World Economic Forum in Davos, Switzerland.

ECB to tackle deflation risk

European Central Bank (ECB) President Mario Draghi has signalled that the monetary authority would begin buying packages of bank loans to households and companies to ward off deflation.

Speaking at Davos, Draghi said he favoured looking at a way to package bank loans to the private sector and for the ECB to buy them if economic conditions worsened.

It would be in stark contrast to traditional quantitative easing and provide a potential fix to the collapse in bank lending in the currency bloc.

"What other assets would we buy? One thing is bank loans […] the issue for further thinking in the future is to have an asset that would capture and package bank loans in the proper way," Draghi added.

AT&T rules out bid for Vodafone

Vodafone's shares declined after AT&T said it doesn't intend to make an offer for the mobile-phone operator.

RSA Insurance Group dropped after The Sunday Times reported it is considering scrapping its final dividend to raise £500m to fill a balance-sheet loss.

Lanxess rallied after the chemical maker announced the appointment of Matthias Zachert as its new Chief Executive Officer.

The euro rose 0.11% to $1.3693.

Brent crude futures fell $0.372 to $107.480 per barrel, according to ICE data.

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US close: Markets drop two per cent amid emerging-market fears

- S&P 500 registers worst weekly loss since June 2012
- Emerging-market currency volatility sinks stocks
- Fed speculation ramps up ahead of meeting
- Microsoft gains as Xbox sales boost results

Dow Jones: -1.96%
Nasdaq: -2.15%
S&P 500: -2.09%

Wall Street indices suffered a steep sell-off on Friday on the back of worries about global economic growth amid ongoing volatility in emerging-market currency markets.

The three major US benchmarks sunk by around 2% each, with many labelling it as the start of a long-awaited correction following a strong end to 2013 for stocks.

Even during a shortened week due to the Martin Luther King Jr. Day holiday on Monday, the S&P 500 finished 2.6% lower than where it was last Friday, respresenting its worst weekly percentage loss since June 2012.

Weakness in the Argentinian peso, Turkish lira, Russian ruble, Ukrainian hryvnia, South African rand and Brazilian real was prompting investors to shy away from riskier assets and move towards safer investments such as gold and US Treasuries.

Markets were still reacting to data on Thursday which revealed a surprise contraction in China's manufacturing sector this month, along with a poor batch of economic figures from the US on manufacturing and existing-home sales.

Concerns over the effects of the Federal Reserve's tapering plans were also still having an impact on developing markets, with speculation ramping up ahead of the next policy meeting at the end of the month.

Investors are waiting to see whether policymakers will continue to reduce asset purchases by $10bn a month after last month's decision to cut them from $85bn to $75bn.

Microsoft jumps after strong results

Software giant Microsoft advanced after reporting a better-than-expected rise in both revenue and profit for its fiscal second quarter. Results were helped by strong demand for its new Xbox game console.

Procter & Gamble gained after the consumer-products firm reported a less-than-expected fall in second-quarter earnings and kept its full-year forecasts.

Microsoft and Procter & Gamble, however, were among the few stocks on the Dow Jones Industrial Average to finish in positive territory, with heavyweights General Electric, 3M, Boeing and Visa among the worst performers on global growth concerns.

After a strong start, pharmaceuticals group Bristol-Myers Squibb dropped sharply after profits fell 21% in the fourth quarter.

International Game Technology was a heavy faller after the Las Vegas-based company posted first-quarter profit that missed analysts' estimates.

Intuitive Surgical retreated after the maker of a robotic-surgery devices posted a fall in fourth-quarter sales of systems.

Starbucks edged higher as the coffee chain reported an increase in net income that beat market expectations. Revenues also rose to a record $4.2bn during its fiscal first quarter.


S&P 500 - Risers
Juniper Networks Inc. (JNPR) $27.72 +6.57%
Discover Financial Services (DFS) $53.88 +2.82%
F5 Networks Inc. (FFIV) $104.91 +2.36%
Starbucks Corp. (SBUX) $74.98 +2.17%
Sears Holdings Corp. (SHLD) $38.15 +2.11%
Microsoft Corp. (MSFT) $36.81 +2.08%
Kimberly-Clark Corp. (KMB) $107.40 +1.88%
Covidien Plc (COV) $68.00 +1.28%
Procter & Gamble Co. (PG) $79.18 +1.20%
Campbell Soup Co. (CPB) $42.29 +1.03%

S&P 500 - Fallers
Kansas City Southern (KSU) $99.49 -15.17%
International Game Technology (IGT) $15.04 -14.79%
Intuitive Surgical Inc. (ISRG) $410.76 -6.43%
Wynn Resorts Ltd. (WYNN) $193.14 -5.90%
W.W. Grainger Inc. (GWW) $241.85 -5.77%
Bristol-Myers Squibb (BMY) $50.92 -5.62%
Janus Capital Group Inc. (JNS) $11.45 -5.61%
Keycorp (KEY) $12.93 -5.48%
Avon Products Inc. (AVP) $15.50 -5.26%
Alcoa Inc. (AA) $11.44 -5.22%

Dow Jones I.A - Risers
Microsoft Corp. (MSFT) $36.81 +2.08%
Procter & Gamble Co. (PG) $79.18 +1.20%
Merck & Co. Inc. (MRK) $51.98 +0.74%

Dow Jones I.A - Fallers
General Electric Co. (GE) $24.95 -3.37%
3M Co. (MMM) $130.22 -3.33%
Boeing Co. (BA) $136.65 -3.30%
Visa Inc. (V) $221.25 -3.07%
Pfizer Inc. (PFE) $30.09 -2.97%
E.I. du Pont de Nemours and Co. (DD) $59.97 -2.88%
Walt Disney Co. (DIS) $72.72 -2.77%
United Technologies Corp. (UTX) $111.80 -2.65%
Caterpillar Inc. (CAT) $86.17 -2.61%
American Express Co. (AXP) $86.95 -2.49%

Nasdaq 100 - Risers
F5 Networks Inc. (FFIV) $104.91 +2.36%
Starbucks Corp. (SBUX) $74.98 +2.17%
Microsoft Corp. (MSFT) $36.81 +2.08%
Maxim Integrated Products Inc. (MXIM) $29.20 +1.11%
Equinix Inc. (EQIX) $183.88 +0.68%
Whole Foods Market Inc. (WFM) $51.61 +0.21%
Mattel Inc. (MAT) $43.00 +0.09%

Nasdaq 100 - Fallers
Vimpelcom Ltd Ads (VIP) $11.60 -6.60%
Intuitive Surgical Inc. (ISRG) $410.76 -6.43%
Wynn Resorts Ltd. (WYNN) $193.14 -5.90%
Fastenal Co. (FAST) $45.09 -5.15%
Vertex Pharmaceuticals Inc. (VRTX) $79.77 -4.84%
Nxp Semiconductors Nv (NXPI) $45.58 -4.74%
Celgene Corp. (CELG) $161.22 -4.35%
NetApp Inc. (NTAP) $43.96 -4.12%
Regeneron Pharmaceuticals Inc. (REGN) $279.61 -4.11%
Facebook Inc. (FB) $54.45 -3.85%

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Monday newspaper round-up: ECB, Vodafone, Rolls Royce

Mario Draghi has signalled that he would be prepared for the European Central Bank to fight deflation in Europe by buying packages of bank loans to households and companies. Such a move would mark a sharp departure from traditional quantitative easing and provide a potential fix to the collapse in bank lending in the currency bloc. – Financial Times

Vodafone has approached the private equity owners of a Spanish broadband operator about a potential £7bn offer as part of its efforts to expand across Europe. The British company, already one of the largest telecoms operators in Spain, is understood to have entered into talks with the shareholders of Ono, which recently declared its interest in a flotation in its home market. – The Times

US jet-turbine manufacturer Pratt&Whitney is hoping to make a comeback with its new generation of jet engines – centred around the "geared turbofan" – which allows for greater fuel-efficiency. For Zafar Khan, analyst at Societe Generale, since Rolls Royce is a relatively small outfit, while its US rival is part of a deep-pocketed conglomerate, United Technologies, the latter might contemplate a bid for the UK outfit to ensure its return to the market for widebodied aircraft. – The Economist

Britain's water companies could be told they cannot impose the increases on customer bills they had hoped to as regulators clamp down on the rises. Ofwat is expected on Monday morning to announce it has blocked the planned increases in water costs for the years 2015-2020 in an effort to call time on the industry's debt-driven business model. – Daily Telegraph

Plans to boost North Sea oil and gas production, which experts say could generate at least £200bn for the UK economy, are set to be adopted by the energy secretary. Ed Davey is expected to back demands from the industry for a much tougher regulatory regime in the North Sea, requiring companies to collaborate to maximise the recovery of oil and gas from existing fields and new discoveries. – Financial Times

Ed Balls has hit back at accusations that Labour is anti-business for bringing back the 50p top rate of income tax for those earning over £150,000, suggesting it should be only a temporary measure. Amid complaints from City tycoons and donors about a return to the days of Labour kicking the rich, the shadow chancellor won the backing of senior party figures on the understanding the main purpose of the tax rise is fairness at a time of spending restraint. – The Guardian

The scale of London's dominance of the economy will be revealed today in figures showing a "desperately unbalanced" recovery, in which ten times as many jobs are being created in the capital as in any other British city. To the likely concern of economists and opposition politicians, London accounted for 80% of national private sector jobs growth between 2010 and 2012, while Britain's next nine largest cities created only 10% of all new private sector work. – The Times

Mark Carney, the Governor of the Bank of England, has told a group of senior bankers that dealing with the legacy of past wrongdoing is becoming the most pressing issue for the industry. Mr Carney is understood to have discussed the growing problem of conduct risks with Douglas Flint, chairman of HSBC, Peter Sands, chief executive of Standard Chartered, and Deutsche co-chief executive Anshu Jain, in a private session at the World Economic Forum. – Daily Telegraph

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