Global slowdown concerns weigh on stocks
Market Movers
techMARK 2,101.76 -1.26%
FTSE 100 5,776.71 -0.58%
FTSE 250 11,828.32 -0.70%
London’s
FTSE 100 index registered its third consecutive day in negative
territory as uncertainty surrounding the outlook for the global economy
continued to weigh on investors sentiment.
“Financial markets struggled to find direction today,
drifting into the red as persistent fears over slowing global growth
combined with a worrying outlook in US aluminium giant Alcoa’s 3Q
results prompted investors to book some profits,” said market strategist
Ishaq Siddiqi from ETX Capital.
Following Monday’s decision by the World Bank
to lower its growth estimates for East Asia warning of a deceleration
in the Chinese economy, stocks slipped yesterday after the International Monetary Fund (IMF) cut its global growth forecasts for this year and the next.
Meanwhile, the IMF said that risks to global financial stability have
increased and financial markets have been volatile as European
policymakers grapple with the ongoing crisis. The Fund notes that
failing to deal with the current issues could end up forcing Eurozone
banks into an asset shrinkage of anywhere from $2.8tn to $4.5tn by the
end of next year.
To make matters worse, David Riley, the global head of sovereign ratings at Fitch Ratings,
has warned of the possibility of additional rating cuts for Eurozone
members. Riley indicated that the recession in Spain and Italy appears
to be intensifying and stated that the European sovereign debt crisis in
tandem with the US fiscal cliff and a Chinese 'hard landing' pose the
biggest risks for the global economy.
Siddiqi said: “That’s three days of constant warnings
about downside risks facing the global economy, so it isn’t a surprise
that investors’ enthusiasm has been whacked. Moreover, the warnings are
not so much new news to traders, but more a reconfirmation that more
needs to be done by global policymakers to avert another major crisis.”
On a more positive note, following his meetings yesterday with the
German Chancellor Angela Merkel, the Greek Prime Minister Antonis
Samaras has said that he is confident that the next tranche of Greece's bailout
will arrive on time. Meanwhile, public- and private-sector labour
unions in Greece have called for a 24-hour general strike on October
18th as a result of the harsh austerity measures tied with the bailout,
according to reports.
FTSE 100: Banking stocks gain as FSA eases capital buffers
Lloyds, RBS and Barclays
finished strongly this afternoon after the Financial Services Authority
(FSA) eased capital buffers for banks, meaning that loans given through
the government’s ‘Funding for Lending’ (FLS) scheme can be effectively
be classed as risk-free. Banks will now not need to hold extra capital
against lending that qualifies for the government scheme.
The
FT said that the FSA has also allowed banks to hold a fixed “numerical
target” for capital instead of the 10% core capital ratio imposed by the
Basel III rules.
Mining stocks were out of favour today after
Goldman Sachs said it expects a slowdown in demand for industrial
metals in the world’s second-largest economy, China. Vedanta, Fresnillo and Antofagasta closed with moderate losses
Defence group BAE Systems
finished lower after officially announcing that the merger between it
and aerospace firm EADS is off. "Discussions with the relevant
governments had not reached a point where both companies could fully
disclose the benefits and detailed business case for this merger," the
firm said.
Randgold was lower after Nomura reiterated
its 'reduce' rating on the shares. While the broker said that gold
equities have the potential for further outperformance, it said that
Randgold is "fully priced (for now)".
Outsourcing group Capita
fell after both RBC Capital Markets and Panmure Gordon downgraded their
ratings for the stock. Panmure said that Capita's premium rating "is at
odds with concerns over the quality of future earnings, above average
financial leverage and on-going reliance on M&A."
Aggreko was off following a profit warning from US outfit Cummins, which was also weighing on the likes of GKN and IMI. Meanwhile, chip group ARM Holdings was a heavy faller after Credit Suisse started coverage with a 'neutral' rating.
FTSE 250: Imagination drops 9%
Chip designer Imagination Technologies
suffered steep falls after Credit Suisse initiated coverage of the
stock with a ‘sell’ rating on the back of “increased competitive
pressures”. The broker said today: “Imagination is a $2bn system on chip
graphics provider that has seen its share price rise 10-fold over the
past four years on supplying graphics processors to the smartphone and
tablet industry. However, we see ARM Holdings increasing its relevance
as a competitor in this space with a full complement of graphics
capabilities at half the price.”
N Brown, the internet
and catalogue home shopping firm, was out of favour after Panmure Gordon
downgraded its recommendation to 'hold' ahead of the group's interim
results next week. "We move to a 'hold' rating from 'buy', following
sector outperformance and consequent multiple expansion towards our
target multiple on the back of the July trading statement," the broker
said.
Fashion retailer SuperGroup jumped after Seymour
Pierce said that the shares are in for a re-rating. "The new management
has ‘steadied the ship’. With confidence returning, we believe the stock
is oversold at 12.9 times FY13 earnings, considering the operational
gearing in the earnings and possible step up in the growth rate," the
broker said.
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FTSE 100 - Risers
Lloyds Banking Group (LLOY) 38.48p +3.99%
Royal Bank of Scotland Group (RBS) 262.70p +2.10%
United Utilities Group (UU.) 729.00p +1.60%
Tate & Lyle (TATE) 688.50p +0.81%
Anglo American (AAL) 1,825.50p +0.66%
Next (NXT) 3,593.00p +0.62%
Hargreaves Lansdown (HL.) 679.00p +0.59%
Severn Trent (SVT) 1,674.00p +0.48%
Amec (AMEC) 1,113.00p +0.45%
RSA Insurance Group (RSA) 112.90p +0.44%
FTSE 100 - Fallers
ARM Holdings (ARM) 578.50p -2.85%
Vedanta Resources (VED) 1,060.00p -2.75%
Smith & Nephew (SN.) 655.00p -2.60%
IMI (IMI) 920.00p -2.49%
CRH (CRH) 1,115.00p -2.45%
Fresnillo (FRES) 1,926.00p -2.38%
Croda International (CRDA) 2,221.00p -2.29%
Polymetal International (POLY) 1,130.00p -2.25%
Evraz (EVR) 242.20p -2.10%
Weir Group (WEIR) 1,738.00p -2.08%
FTSE 250 - Risers
Bumi (BUMI) 185.70p +11.80%
Man Group (EMG) 93.40p +3.84%
Ted Baker (TED) 940.00p +3.30%
Lancashire Holdings (LRE) 855.00p +3.07%
Halfords Group (HFD) 323.50p +2.86%
New World Resources A Shares (NWR) 275.00p +2.73%
Cranswick (CWK) 748.50p +2.18%
Ultra Electronics Holdings (ULE) 1,620.00p +1.95%
Supergroup (SGP) 672.00p +1.82%
Carpetright (CPR) 674.00p +1.74%
FTSE 250 - Fallers
Imagination Technologies Group (IMG) 455.50p -9.35%
Ferrexpo (FXPO) 193.10p -4.69%
Fenner (FENR) 380.00p -4.59%
Brown (N.) Group (BWNG) 266.40p -4.45%
Talvivaara Mining Company (TALV) 151.20p -3.76%
Spirax-Sarco Engineering (SPX) 2,035.00p -3.46%
Hays (HAS) 76.75p -3.46%
Yule Catto & Co (YULC) 162.90p -3.32%
COLT Group SA (COLT) 115.90p -3.26%
Bodycote (BOY) 372.90p -3.14%
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European Markets Unable To Escape Growth Concerns & Finished In The Red
The European markets continued
to be pressured by investor concerns over the situation in Greece and
Spain. Spanish Prime Minister Mariano Rajoy is due to meet French
President Francois Hollande today, a week after he played down reports
of a potential Spanish bailout. The decision by the IMF on Tuesday to
cut its global growth estimate for this year and next continued to weigh
on the markets.
Chancellor Angela Merkel has pledged her
country's continuing support to Greece amid lingering concerns about
Europe's debt crisis. The German leader, who arrived in Athens on
Tuesday to meet with Greek leaders regarding the ongoing debt crisis,
said Greece had made significant progress in dealing with its huge debt
but that it was a "difficult path."
In the absence of decisive
and urgent policy measures, banks in Europe may need to sell as much as
$2.8 trillion to $4.5 trillion worth of assets through the end of 2013,
the International Monetary Fund warned in its latest Global Financial
Stability Report, published Wednesday.
The largest burden of
credit supply contraction will fall on the euro area periphery, today's
report pointed out. Faltering market confidence has led to capital
flight from countries on the 'periphery' to the core of the euro area.
"This
has meant higher borrowing costs and a growing wedge between the
economic and financial 'haves' and 'have-nots'," it added. The report
found that risks to global financial stability have increased.
The
European Union's proposal of imposing a tax on financial transactions
found more supporters at Tuesday's Ecofin meeting in Luxembourg,
signaling that a decision on the project may come after the EU finance
ministers' November meeting.
Nine states are needed to push
forward the initiative of "enhanced co-operation," and so far, 11 EU
members have agreed to support it. UK Prime Minister David Cameron on
Wednesday said the deficit reduction plan is not an alternative to a
growth plan and the economic recovery is taking longer than expected.
In his keynote address at the Conservative party conference, Cameron said the weaker-than expected activity in Eurozone is hurting U.K. trade, and in turn making it harder to pay off debts.
Italy's
borrowing costs increased at its treasury bill auction on Wednesday as
investor confidence underpinned by European Central Bank's promise to
buy bonds weakened gradually in the face of new uncertainty about
Spain's bailout request.
The yield on 3-month bill rose to 0.765
percent from 0.7 percent at the prior auction in September. Likewise, it
sold 12-month bills at 1.941 percent, higher than the 1.692 percent
yield on September 12.
The Euro Stoxx 50 index of eurozone bluechip stocks declined by 0.48 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.37 percent.
The DAX of Germany fell by 0.40 percent and the CAC 40 of France decreased by 0.50 percent. The FTSE 100 of the U.K. dropped by 0.38 percent and the SMI of Switzerland finished down by 0.30 percent.
In Frankfurt, SAP declined by 1.90 percent. Barclays downgraded its rating on the stock to ''Equalweight'' from ''Overweight.'' Linde fell by 0.61 percent, after Berenberg initiated the stock with a ''Buy'' rating. Citigroup upgraded Volkswagen to "Buy" from "Neutral." The stock finished down by 1.12 percent. Deutsche Bank upgraded Man to "Buy" from "Hold." The stock increased by 1.88 percent.
In Paris, Saint-Gobain dropped by 2.00 percent. UBS downgraded
its rating on the stock to "Neutral" from "Buy." Berenberg initiated
Air Liquide with a "Hold'' rating. The stock closed down by 1.29
percent.
Peugeot fell by 1.76 percent. Moody's Investors
Service downgraded the carmaker to Ba3 from Ba2, and the outlook is
negative. The ratings agency attributed the action to the challenges
facing Peugeot in restructuring its automotive business and reducing the
cash burn.
EADS finished up by 5.17 percent, as the deadline approaches for the proposed deal with BAE Systems. BAE fell by 0.92 percent in London.
In London, Avanti Communications plunged by 18.64 percent. The satellite operator reported a wider loss for fiscal 2012, despite significant growth in revenues.
ARM Holdings fell by 2.69 percent, after Credit Suisse initiated coverage on the stock with a "Neutral" rating. Smith & Nephew dropped by 2.44 percent, after Societe Generale initiated coverage with a "Sell" rating.
Barclays increased by 0.32 percent, Royal Bank of Scotland gained 2.10 percent and Lloyds Banking Group added 3.99 percent.
Germany's
wholesale price inflation increased in September at the fastest pace
since November 2011, data from Destatis revealed Wednesday. Wholesale prices
rose at a more than expected pace of 4.2 percent year-on-year in
September after climbing 3.1 percent in August. The annual rate was
forecast to reach 3.3 percent.
On a monthly basis, wholesale prices
were up 1.3 percent, again faster than the 1.1 percent growth logged in
August. Economists had forecast just 0.5 percent monthly increase.
France's
industrial production growth accelerated in August, increasing hopes
that the second largest Eurozone economy could escape a recession in the
third quarter.
Data released by statistical office Insee
Wednesday showed that industrial production rose by 1.5 percent
month-over-month in August, faster than the 0.6 percent gain seen in
July. Economists were looking for a 0.3 percent decline.
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| US Market Report |
Stocks Mostly Lower After Disappointing Outlook From Alcoa
Stocks
have moved mostly lower over the course of the trading day on
Wednesday, extending a recent downward move. Concerns about the outlook
for the global economy continue to weigh on the markets, although
selling pressure is relatively subdued.
The major averages have edged up off their lows for the session in recent trading but remain firmly in negative territory. The Dow is down 71.88 points or 0.5 percent at 13,401.65, the Nasdaq is down 7.22 points or 0.2 percent at 3,057.80 and the S&P 500 is down 4.99 points or 0.4 percent at 1,436.49.
The
weakness on Wall Street is partly due to a negative reaction to
quarterly results from aluminum giant Alcoa (AA), which kicked off the
earnings season after the close of trading on Tuesday.
While Alcoa reported
third quarter results that exceeded analyst estimates, the company also
lowered its forecast for global aluminum demand growth in 2012 to 6
percent from 7 percent. Shares of Alcoa have tumbled by 4.4 percent on
the news.
The release of results from Alcoa is seen as the start
of earnings season, and the lower guidance has led to worries about the
possibility of disappointing forecasts from other companies.
Adding to the negative sentiment, oil giant Chevron
(CVX) said it expects its third quarter earnings to be substantially
lower than in the second quarter. Shares of Chevron are down by 4
percent.
Chevron said it expects upstream earnings to be
hurt by foreign exchange losses and lower liftings and realizations,
while timing effects, lower realized margin and the negative effects of
several smaller unrelated items are expected to drag downstream earnings
lower.
Meanwhile, traders have largely shrugged off a
report from the Commerce Department showing that wholesale inventories
rose by slightly more than expected in the month of August.
The Commerce Department
said wholesale inventories increased by 0.5 percent in August following
a downwardly revised 0.6 percent increase in July. Economists had
expected inventories to rise by 0.4 percent compared to the 0.7 percent
growth originally reported for the previous month.
The report also showed that wholesale sales rose by 0.9 percent in August after edging down by a revised 0.2 percent in the previous month.
Later
in the day, the Federal Reserve is due to release its Beige Book
report, a compilation of anecdotal evidence on economic conditions from
each of the twelve Fed districts.
Sector News
Electronic storage stocks
are seeing substantial weakness on the day, resulting in a 3.6 percent
drop by the NYSE Arca Disk Drive Index. With the loss, the index has
fallen to its lowest intraday level in well over two months.
NetApp (NTAP), SanDisk (SNDK), and Western Digital (WDC) are turning in some of the storage sector's worst performances.
Significant weakness is also visible among airline stocks, as reflected by the 1.5 percent loss being posted by the NYSE Arca Airline Index. SkyWest (SKYW) is leading the airline sector lower, tumbling by 9.5 percent.
Steel, oil, and semiconductor stocks are also seeing considerable weakness in mid-day trading, while modest strength has emerged among retail and housing stocks.
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| Broker tips |
Gold equities, SuperGroup, N Brown
Nomura
has retained its 'bullish' rating for the European gold sector, saying
that there's potential for further outperformance in spite of the strong
showing as of late.
Nomura has highlighted Petropavlovsk, Centamin and Polymetal
as its sector 'likes' going into the third-quarter results. All three
are marked as 'buys'. The broker has increased its target for Centamin
to 145p from 130p, Polymetal to 1,425p from 1,340p, and Petropavlovsk to
760p from 735p.
As for Randgold Resources, the broker
has raised its target to 7,400p to from 6,815p but maintained its
'reduce' rating, saying that the stock is "fully priced (for now)".
Seymour Pierce continues to think that fashion retailer SuperGroup is oversold, maintaining its 'buy' rating and 750p target for the stock on Wednesday morning.
"The new management has ‘steadied the ship’. With confidence returning,
we believe the stock is oversold at 12.9 times FY13 earnings,
considering the operational gearing in the earnings and possible step up
in the growth rate," the broker said.
Panmure Gordon has downgraded its rating for internet and catalogue home shopping firm N Brown from 'buy' to 'hold', saying that shares are likely to hold ground in the near-term.
"We move to a 'hold' rating from 'buy', following sector outperformance
and consequent multiple expansion towards our target multiple on the
back of the July trading statement.
"We think that the shares
are now likely to tread water until strategic decisions such as the
identification of a new CEO are taken," the broker said.
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