UK/Euro Financial Market Daily Morning Briefing 29-10-2009

London open: Banks cancel Shell shock

Market Movers
techMARK 1,462.71 -0.13%
FTSE 100 5,083.06 +0.05%
FTSE 250 8,854.57 +0.06%

UK blue chips continued yesterday's poor form, falling further in early deals as Shell disappointed with a 73% plunge in quarterly profits, but recovering financial plays soon erased the deficit.

Royal Dutch Shell's third quarter earnings crashed to just $3bn from $10.9bn a year ago on a current cost of supplies (CCS) basis due to weaker oil and gas prices. They sank 68% to $8.6bn for the nine months.

"We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery," said chief executive Peter Voser.

But Lloyds Banking Group attracted fans this morning. The shares have fallen recently on fears that the European Commission could penalise Lloyds and Royal Bank of Scotland for being bailed out by the UK government.

Press reports today say Lloyds is sounding out investors about launching a £25bn capital raising to withdraw from the state insurance scheme for its toxic debts.

Asia-focused bank Standard Chartered also cheered after it said its markets in Asia, Africa and the Middle East are pulling out of the recession quicker than many markets in the West. The group, which notched up record income and profits in the first half of the year, said it continued to make 'good progress' in the third quarter.

Elsewhere, Prudential is better after some positive comment in the papers following yesterday's results. Sales fell 9% during the third quarter. Aviva and Legal & Genral are also higher.

Life assurance group Standard Life saw strong growth in assets in the third quarter as the markets continued their recovery. Assets under management rose by £15.3bn in the third quarter to £136.9bn. Third party assets under management jumped to a record £54.1bn from £47.3bn at the end of June.

Miners are struggling though. Kazakhmys is worst performer despite being on track to hit full year targets. It said maintenance work could hit Q4 output.

Among the mid-caps, the decision by National Express to call off talks with suitor Stagecoach sent its shares tumbling. It will now focus on completing an equity fundraising by the end of this year. Stagecoach said it was disappointed.

Cash-strapped Yellow Pages directory publisher Yell Group has again extended the deadline for its refinancing. The company, which is looking to restructure £3.8bn of debt, extended the deadline for the third time this week after last night's cut-off passed without success.

Rail and bus group Arriva said it has continued to trade in line with expectations since August 27 with strong growth in bus operations and a continued good performance from trains.

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INTERIMS
LiDCO

INTERIM DIVIDEND PAYMENT DATE
International Power, Lighthouse Group

QUARTERLY PAYMENT DATE
Henderson Global Property Companies Ltd.

UK ECONOMIC ANNOUNCEMENTS
Net Consumer Credit (9:30)
Mortgage Approvals (9:30)
Net Lending Secured on Dwellings (9:30)
M4 Money Supply (9:30)

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Gross Domestic Product (US) (12:30)
Initial Jobless Claims (US) (12:30)
Personal Consumption (US) (12:30)
Unemployment (GER) (8:55)
Jobless Rate (JPN)
Household Spending (JPN)
Consumer Prices (JPN)

FINALS
Namakwa Diamonds

EGMS
F&C Commercial Property Trust, Global MENA Financial Assets Ltd.

AGMS
Advance Developing Markets, Amberley Group, Arcontech Group, BHP Billiton, Bright Things, Dyson Group, Framlington Innovative Growth Trust, Go-Ahead Group, MeDaVinci, Murgitroyd Group, Photo-Me International, Syndicate Asset Management, The Directors Dealing Inv Trust, United Carpets

FINAL DIVIDEND PAYMENT DATE
Haynes Publishing Group, Lighthouse Group, Oxford Instruments

QUARTERLY RESULTS
AstraZeneca, CSR, Royal Dutch Shell 'A', Royal Dutch Shell 'B', Standard Life, Virgin Media Inc.

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US close: Dow slides over 100 points

The Dow Jones closed more than 100 points lower amid continued economic concerns and falling commodity prices.

New home sales fell 3.6% to 402,000 in September, a bigger drop than economists had been expecting.

News that troubled consumer finance company GMAC wants up to $5.6bn in additional federal aid was not helping either.

That would be its third taxpayer bailout and could give the government a majority stake in the company, according to the press.

The Dow Jones industrial average closed down 119 at 9,763, the S&P 500 index was 21 points lower at 1,042 and the NASDAQ fell 56 points to 2,060.

On a day of weak commodity prices, oil refiner ConocoPhillips fittingly posted a 71% fall in profits in the third quarter after being hit by the low oil price and weak demand from the US gas market.

Third quarter earnings fell to $1.5bn, or $1 a share, from $5.2bn, or $3.39 a share, a year previously. Revenue slid to $40bn from $70bn.

Back on the economic front, orders for US durable goods were up 1% in September, in line with forecasts. Orders dumped 2.6% the month before.

Mortgage applications fell for the third week in a row last week, down 12.3% from the week before, according to the Mortgage Bankers Association (MBA).

Elsewhere, Hector Ruiz, former chief executive officer of chipmaker AMD, has become the most senior technology industry executive to be drawn into the insider-trading scandal that has engulfed US hedge fund Galleon, writes the FT.

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FX Morning update - US dollar and Sterling testing key resistance

The US dollar index has continued to rise along with sterling over the past 3-4 days as equities have continued to slide. The unwinding of the "carry trade" into what are considered more "safe haven" assets has continued as commodities and stocks have continued their slumps.

The US dollar index made a new one week high yesterday, while sterling equalled its high on its trade-weighted index of a week ago. The key resistance to watch on the US dollar index is at 76.75/80, the 50 day MA while sterling's remains a daily close above 80.20.

EURUSD - the Euro has continued its slide across the board overnight, making a low of 1.4685 in Asia trading. The longer term target remains at 1.4625, while resistance comes in at 1.4780, and 1.4850.

GBPUSD - the pound has managed to consolidate its gains since last Friday at the upper end of its range but is still finding levels above 1.6400 difficult to maintain. It seems to currently range trading at the moment between the resistance at 1.6440/50 and the old neckline support at 1.6240/50. A break either side should determine the future direction.

EURGBP - closed below the key 0.9000 level in New York last night which was last weeks low and also closed below the neckline of potential "head and shoulders" top. If this formation unwinds as it should we could see a move towards 0.8650 unwind over the next few days. Resistance now at 0.9000 and 0.9070.

USDJPY - a low of 90.25 last night has broken the trend line from the 88.00 lows of late September. Yen strength has manifested itself across the board with this equity market slide as EURJPY and GBPJPY have also slide back.
If the USDJPY breaks back below 90.00, then we could see further declines back to the September lows. Resistance now at 90.80 and 91.30.

Commodities: Oil slips below $78, gold retreats

Crude oil futures fell over 2% on Wednesday after an unexpected rise in US gasoline inventories while a mixed bag of economic data helped drive the dollar higher.

Crude oil for December delivery finished down $2.09 at $77.46 a barrel on the New York Mercantile Exchange.

The Energy Information Administration said US crude oil inventories rose by 800,000 barrels, less than expected, while gasoline supplies rose unexpectedly by 1.6m barrels. Analysts had pencilled in a 900,000 barrel increase in crude stocks and for gasoline stockpiles to decline by 1m barrels.

The stronger dollar also hurt demand for the black stuff after economic data triggered fresh concern about the timing of the economic recovery.

New home sales fell 3.6% to 402,000 in September, a bigger drop than economists had been expecting while a separate report showed durable goods orders rose 1%.

The rebound in the dollar also clipped demand for gold on Wednesday. Gold for December delivery fell $4.90 an ounce to $1,030.5 an ounce in New York.

Gold prices had initially risen following the disappointing US home sales report but as the dollar made headway gold prices retreated.

Silver for December delivery was down 30 cents to $16.24 an ounce while December copper dropped 7 cents to $2.93 a pound.

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Thursday newspaper round-up: Lloyds, National Express, Best Buy

Lloyds Banking Group will begin sounding out investors about launching a £25bn capital raising to withdraw from the state insurance scheme for its toxic debts. The Government and other Lloyds shareholders are due to see the bank amid fears that its crumbling share price has thrown the planned £11bn rights issue into jeopardy, writes the Telegraph.

National Express, the beleaguered transport group, has walked away from a last-gasp merger with rival Stagecoach over concerns that competition regulators could derail a deal. The shock move emerged late last night as Stagecoach awaited a decision on whether it would be allowed to access National Express books, the Times says.

The world's largest electricals retailer, Best Buy, is to create 8,000 jobs in the UK over the next five years and is gearing up to open its first stores this coming spring, taking on Currys and Comet. The electricals retailer plans to open about 100 stores, sized between 25,000 and 60,000 square feet, in Europe over the next three years, of which about 80 will be in the UK, according to the Independent.

The Globe Pub Company is on the brink of being placed into administrative receivership, according to a company source. Zolfo Cooper has been lined up as receiver to the Robert Tchenguiz-owned group. An announcement could be made as early as today, the source added, the Times says.

The decline in beer sales is stabilising in the UK, but any recovery could be hit by measures in the Government's pre-Budget report next month. The British Beer & Pub Association said that total UK beer sales fell by just 0.8 per cent in the third quarter, year on year, which is a marked improvement on the 4.8 per cent slump in the second quarter, writes the Independent.

Blackstone’s plans to reduce Hilton Hotels’ $20bn (£12.8bn) debt pile has reignited concern over Ladbroke’s exposure to the struggling hotel chain. The private equity giant is talking to lenders in an attempt to cut $5bn of debt as part of a complex restructuring which could see it inject as much as $800m of new equity into the business. It comes just two years after the $26bn takeover of the hotel chain, writes the Telegraph.

Slaughter and May could lose its crown as the Government’s preferred legal adviser on the banking crisis. In the biggest legal shake-up since the bank bailouts started two years ago, the Treasury is asking other firms to tender for the business, the Times says.

A consortium of utility companies is planning to build a giant nuclear power station at Sellafield, the former home of the world’s oldest reactor, as part of Britain’s next generation of cleaner energy sources. The Nuclear Decommissioning Authority (NDA) said yesterday that it had sold the right to develop the land for a 3.6 gigawatt station to Scottish and Southern, Iberdrola and GDF Suez for £70m, writes the Telegraph.

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