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Unemployment data boosts sentiment
Market Movers
techMARK 2,108.57 -0.22%
FTSE 100 5,910.91 +0.69%
FTSE 250 12,045.88 +0.51%
The Footsie finished
the day firmly in the blue and just short of the day's high after
better-than-expected unemployment figures lifted sentiment.
Miners were also playing their part, boosted by investor confidence
ahead of the third quarter growth data due out from China, which is
expected to increase demand for commodities. Metals futures were higher
for gold, silver, platinum and copper.
Chinese Premier Wen Jiabao was quoted as saying that the Chinese government is confident of achieving 2012 growth targets of 7.5%.
The number of people in the UK out of work fell by 50,000 between June
and August to 2.53m. This put the unemployment rate at 7.9%, down 0.2%
from the March to May figure.
Most analysts had expected the figure from the Office of National Statistics to remain steady at 8.1%.
Dr Howard Archer, chief UK economist at IHS, said the figures marked
"another set of impressively resilient and healthy labour market data
which gives a lift to recovery hopes".
However, he added that
the employment figures were being propped up by ongoing restrained
earnings growth as well as significant increases in part-time jobs and
self-employment.
The day's other big economic news related to the October meeting of the Bank of England’s Monetary Policy Committee (MPC).
“There were some differences of view between members about the outlook
and the likelihood that further easing in policy would be required,” the
minutes of the meeting, released this morning, revealed.
Some
members of the MPC felt that there was still considerable scope for
asset purchases to provide further stimulus. Other members, while
acknowledging that asset purchases had the scope to lower long-term
yields further, questioned the magnitude of the impact that lower
long-term yields on corporate debt and equity would have on the broader
economy at the present juncture.
Most economists remain
convinced that the central bank will go ahead in any case with a widely
expected increase in the size of its asset repurchase programme by
£50bn.
BP bounces
BP rose on reports that the company and its Russian billionaire partners are in talks to sell their TNK- BP venture to OAO Rosneft. The billionaires, represented by the AAR group, are seeking to sell their 50% holding to Rosneft for $28 billion, according to news agency reports.
BP is also negotiating to sell at least some of its shares, an unnamed source told the news service.
Guinness brewer Diageo
saw organic net sales growth of 5% in the July to September, while
volumes were up 2%. Europe remains a problem area for the drinks brands
giant, but the US market is resilient and it is achieving fast growth in
emerging markets.
The firm is in talks to buy a stake of
about 20% in Vijay Mallya’s in a deal that would give it management
control of the Indian distiller, according to news agency reports.
Diageo would buy new shares in United Spirits and also purchase part of
Mallya’s 28% stake, said the news agencies sources. Diageo would get
the right to appoint United Spirits’s Chief Executive Officer and other
key managers, while Mallya is expected to remain Chairman, they said.
The Royal Bank of Scotland
is set to leave the government insurance scheme that was set up at the
height of the financial crisis to protect the company from collapse.
Analysts said this could pave the way for RBS to be sold back into the
private sector. It is currently 82%-owned by the UK taxpayer after
receiving a £45bn bailout in 2008.
The banking sector rose despite comments from Paul Tucker, the Deputy Governor of the Bank of England, who warned that the worst could be yet to come for the sector.
There was a flood of mining companies providing third quarter production updates this morning. Anglo-Australian mining giant BHP Billiton
saw iron ore output rise year-on-year in the third quarter, but fall
from the previous quarter's production levels as a result of the planned
shut-down associated with the Inner Harbour expansion project in
Western Australia. Iron ore production was up 1% year-on-year but down
3% quarter-on-quarter to 39.8m tonnes.
Xstrata, the Switzerland-based miner which looks set to merge with commodities trader Glencore,
said volumes of thermal coal, zinc and lead in concentrate and zinc
metal in the third quarter increased year-on-year. Volumes of copper and
nickel declined, however.
The third quarter of 2012 was a strong one for mining firm Polymetal International, prompting the company to revise up its 2012 production guidance.
Quarterly gold equivalent production hit a new high of 317,000 ounces,
and was up 48% on the corresponding quarter of 2011 and up 7% on the
previous quarter of 2012.
Beowulf, the Sweden-focused
mineral exploration company, jumped after it said latest assay results
from its completed drill programme at its Kallak North mine were "most
encouraging". The results included indications of further high grade
iron mineralisation on the southerly extension of the deposit, the
company said. It has also received approval from the County
Administrative Board of Norrbotten for test mining at the site.
Shares in Shanta Gold
dropped like a stone after it went back to equity markets to raise
another 30 million dollars "to address short-term financing
requirements". The firm also said initial production had been lower than
anticipated at its flagship New Luika Gold Mine in Tanzania.
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Bumi row rumbles on
Financier
Nat Rothschild is "completely, 100 per cent wrong" about the
controversial deal with the Bakrie Group that could end the feud at
Indonesian mining firm Bumi, according to the firm's Deputy Chairman.
Rothschild resigned from the board of Bumi on Monday, saying he had
lost confidence in the management's ability to stand up for investors.
In his resignation letter he accused the company's Chairman of being
"complicit" in oppressing minority shareholders.
The company
was also in the news today after announcing that it has appointed the
Rothschild Group to evaluate the proposed deal.
Cable & Wireless Communications,
already in talks with the Bahrain Telecommunications Company (Batelco)
about a possible sale of its Monaco & Islands business unit, has
confirmed that it is also in talks regarding a potential sale of its
business in Macau. Responding to recent press speculation, the
international mobile communications networks operator confirmed it is in
discussions with CITIC Telecom International Holdings Limited regarding
a potential sale of its 51% shareholding in Companhia de
Telecomunicações de Macau (CTM). CITIC is a 20% shareholder in CTM.
Online gaming firm 888 has raised full year earnings guidance after a strong third quarter and a good start to the fourth.
"The final quarter has started positively with average daily revenues
more than 7% ahead of the strong Q4 2011. A disciplined approach to our
costs, and our analytics driven marketing spend proving highly
efficient, means we now expect our EBITDA [earnings before interest,
tax, depreciation and amortisation] for the full year to be
significantly ahead of current market expectations," revealed Brian
Mattingley, 888's Chief Executive Officer.
Also motoring higher after a well-received trading update was car dealer Vertu Motors,
which served notice to analyst to bump up their full year earnings
forecasts after a solid first half of the financial year. Pre-tax profit
was up 26.8% to £5.2m (2011 H1: £4.1m). Underlying profit before tax
rose 16.3% to £5.0m from £4.3m the year before.
Other markets
Brent crude for November delivery fell a dollar to $113 a barrel on the InterContinental Exchange (ICE).
FTSE 100 - Risers
Eurasian Natural Resources Corp. (ENRC) 352.20p +7.25%
Kazakhmys (KAZ) 760.00p +7.19%
Anglo American (AAL) 1,905.50p +5.33%
Vedanta Resources (VED) 1,147.00p +4.37%
Rio Tinto (RIO) 3,184.00p +4.02%
Evraz (EVR) 252.60p +3.65%
BHP Billiton (BLT) 2,014.00p +3.33%
Xstrata (XTA) 993.60p +3.07%
Tullow Oil (TLW) 1,468.00p +3.02%
BP (BP.) 448.35p +2.99%
FTSE 100 - Fallers
BAE Systems (BA.) 321.30p -2.37%
Pearson (PSON) 1,217.00p -2.09%
Bunzl (BNZL) 1,099.00p -1.61%
Compass Group (CPG) 684.00p -1.51%
Lloyds Banking Group (LLOY) 42.14p -1.45%
Centrica (CNA) 332.00p -1.34%
Serco Group (SRP) 571.00p -1.13%
Admiral Group (ADM) 1,162.00p -1.11%
United Utilities Group (UU.) 724.00p -0.96%
Experian (EXPN) 1,071.00p -0.93%
FTSE 250 - Risers
Ferrexpo (FXPO) 206.50p +6.17%
Lonmin (LMI) 520.50p +6.01%
Inchcape (INCH) 377.40p +5.83%
New World Resources A Shares (NWR) 272.70p +5.45%
Home Retail Group (HOME) 108.90p +5.22%
Heritage Oil (HOIL) 202.30p +4.76%
Talvivaara Mining Company (TALV) 139.90p +4.56%
Petropavlovsk (POG) 460.00p +4.55%
Chemring Group (CHG) 353.00p +4.41%
Fidessa Group (FDSA) 1,381.00p +3.76%
FTSE 250 - Fallers
CSR (CSR) 330.90p -2.99%
Interserve (IRV) 368.20p -2.85%
Rightmove (RMV) 1,593.00p -2.51%
BTG (BTG) 359.00p -2.50%
Close Brothers Group (CBG) 842.00p -2.38%
COLT Group SA (COLT) 118.70p -2.38%
Oxford Instruments (OXIG) 1,252.00p -2.34%
Dialight (DIA) 1,163.00p -2.02%
Brown (N.) Group (BWNG) 301.00p -1.92%
Micro Focus International (MCRO) 558.50p -1.85%
FTSE TechMARK - Risers
CML Microsystems (CML) 394.00p +4.37%
Innovation Group (TIG) 23.00p +2.79%
BATM Advanced Communications Ltd. (BVC) 16.25p +2.36%
Corin Group (CRG) 58.00p +1.31%
Phytopharm (PYM) 10.38p +1.22%
Consort Medical (CSRT) 753.00p +0.53%
Sepura (SEPU) 89.00p +0.14%
Kofax (KFX) 300.00p 0.00%
Triad Group (TRD) 6.25p 0.00%
Parity Group (PTY) 19.25p 0.00%
FTSE TechMARK - Fallers
Ricardo (RCDO) 366.00p -3.68%
Vislink (VLK) 27.75p -3.06%
Phoenix IT Group (PNX) 170.38p -2.78%
DRS Data & Research Services (DRS) 17.75p -2.74%
RM (RM.) 82.25p -2.23%
Timeweave (TMW) 22.12p -2.21%
Optos (OPTS) 205.00p -1.56%
Torotrak (TRK) 33.00p -1.49%
Emblaze Ltd. (BLZ) 46.50p -1.06%
NCC Group (NCC) 980.00p -1.01%
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European Markets Climbed On Spanish Optimism Again Wednesday
The European markets
finished in positive territory again on Wednesday, after Moody's
Investors Service left its Spanish sovereign rating unchanged. The
Spanish government is also reportedly close to making an official
bailout request. The markets also received a boost from the unexpected
drop in the British unemployment rate and the strong increase in U.S.
housing starts.
The possibility of Spain requesting financial aid
through a precautionary credit line from the EUR 500 billion rescue
fund, the European Stability Mechanism, is currently under discussion,
the Financial Times reported Wednesday.
This money could then be
used to purchase Spanish bonds at auction in an emergency, the newspaper
said citing senior officials. Because the aid would only be a credit
line rather than a bailout, the scheme is expected to face less
political opposition in northern creditor countries, it said.
Offering
some respite to the Spanish government that is under pressure to
officially request a European bailout, Moody's Investors Service on
Tuesday left its Spanish sovereign rating unchanged at investment grade,
but with a 'negative' outlook.
For today's rating decision, the
rating agency cited a number of positive developments since June,
including the European Central Bank's announcement of the bond-purchase
program and evidence of the Spanish government's continued commitment to
implement the fiscal and structural reform measures.
Moody's has
a Baa3 rating on Spanish government bonds. The ratings agency found
that the risk of the Spanish sovereign losing market access has been
materially reduced by the willingness of the ECB to undertake outright
purchases of Spanish government bonds to contain their price volatility.
The German government on Wednesday lowered its 2013 economic growth forecast to 1 percent from 1.6 percent.
Economy
Minister Philipp Roesler, however, said gross domestic product will
grow 0.8 percent this year, marginally higher than the earlier
projection of 0.7 percent. The economy expanded 3 percent in 2011.
Bank of England policymakers
unanimously decided to leave the current size of asset purchases
unchanged in early October, but they split over whether to add more
stimuli over the next month. According to the minutes of the Monetary
Policy Committee meeting, the nine-member panel unanimously voted to
maintain quantitative easing at GBP 375 billion and the interest rate
unchanged at 0.50 percent.
There was an agreement among
policymakers that there was little to be gained at this meeting in
changing the current quantitative easing programme, the minutes showed
Wednesday. The meeting was held on October 3 and 4.
Some members
said there was still considerable scope for asset purchases to provide
further stimulus, while other members questioned the magnitude of the
impact that lower long-term yields on corporate debt and equity would
have on the broader economy at the present juncture.
The Euro Stoxx 50 index of Eurozone bluechip stocks increased by 0.89 percent and the Stoxx Europe 50 index, which includes some major U.K. companies, added 0.55 percent.
The DAX of Germany climbed by 0.25 percent and the CAC 40 of France advanced by 0.76 percent. The FTSE 100 of the U.K. gained 0.69 percent and the SMI of Switzerland rose by 0.17 percent.
In Frankfurt, Lanxess gained 2.92 percent, after some positive comments from Nomura.
In Paris, Credit Agricole
declined by 3.08 percent. The lender signed a contract to sell the
entire share capital of its Greek unit Emporiki to Alpha Bank SA for a
token price of one euro.
Danone fell by 2.87 percent,
after the company announced that its third quarter sales have been
negatively impacted by the situation in Europe.
In London, Diageo finished lower by 0.70 percent. The company reported an increased in quarterly sales, but cautioned of softness in Asia.
BP gained 3.22 percent, following reports that the company is close to a deal to sell its interest in TNK-BP to OAO Rosneft.
Royal Bank of Scotland
climbed by 2.07 percent. The company has reached an agreement with the
Treasury to exit its Asset Protection Scheme on the 18th of this month.
Zurich Insurance Group
dropped by 2.74 percent in Zurich. The company said it would write-off
about $550 million following a review of its General Insurance business
in Germany.
Eurozone construction output grew for the
second straight month in August, Eurostat reported Wednesday. In
construction sector, output climbed at a faster pace of 0.7 percent from
a month ago, when it gained 0.1 percent.
Jobless rate in
the U.K. declined unexpectedly in the three months through August, to
the lowest level in more than a year as the labor market absorbed record
number of workers during the Olympics, data from the Office for
National Statistics revealed Wednesday.
The unemployment rate,
under the definition of the International labor Organization, declined
to 7.9 percent in the June-August period from 8.1 percent during
March-May.
Investor confidence in Switzerland improved in
October amid less pessimistic view of the economy's prospects in the
coming six months, a survey by the Center for European Economic Research
(ZEW) showed Wednesday. The ZEW-Credit Suisse Indicator of Economic
Sentiment improved by 6 points to -28.9 in October.
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Stocks Mostly Higher But Dow Remains In The Red
While
stocks have moved mostly higher over the course of the trading day on
Wednesday, the major averages continue to turn in a mixed performance in
mid-day trading. Notable losses by Intel (INTC) and IBM (IBM) have
helped to keep the Dow in the red.
The Dow has climbed
well off its worst levels of the day but currently remains down by 7.42
points or 0.1 percent at 13,544.36. Meanwhile, the Nasdaq is up 8.91
points or 0.3 percent at 3,110.08 and the S&P 500 is up 5.51 points
or 0.4 percent at 1,460.43.
The markets have benefited from a
positive reaction to a report from the Commerce Department showing a
substantial increase in housing starts in the month of September.
The report said housing starts
jumped 15 percent to an annual rate of 872,000 in September from the
revised August estimate of 758,000. Economists had expected starts to
climb to 765,000 from the 750,000 originally reported for the previous
month.
With the much stronger than expected monthly growth, the
annual rate of housing starts reached its highest level since July of
2008.
Building permits, an indicator of future housing
demand, also surged up by 11.6 percent to an annual rate of 894,000 in
September from the revised August rate of 801,000. The increase in
building permits also exceeded expectations.
However, a mixed
batch of earnings news has helped to limit the upside for the markets,
with tech giants Intel and IBM under pressure after reporting their
quarterly results.
While Intel reported better than
expected third quarter results, the semiconductor giant warned of a
difficult environment ahead. Shares of Intel are down by 3 percent on
the news.
IBM is down by 4.8 percent after reporting third
quarter earnings that came in just above analyst estimates on revenues
that fell by more than expected.
Meanwhile, Bank of America
(BAC) is posting a modest gain after the financial giant reported third
quarter earnings that showed a notable decrease year-over-year but
exceeded analyst estimates for a loss. At the same time, the company
reported revenues that fell by more than expected.
Sector News
While
many of the major sectors are showing only modest moves, housing stocks
have moved sharply higher on the heels of the housing starts data. The
Philadelphia Housing Sector Index has surged up by 4.1 percent, reaching
a five-year intraday high.
Hovnanian (HOV) and KB Home (KBH) are turning in two of the housing sector's best performances, jumping by 9.8 percent and 8.8 percent, respectively.
Considerable strength has also emerged among steel stocks, as reflected by the 1.7 percent gain being posted by the NYSE Arca Steel Index. With the gain, the index has risen to its best intraday level in almost a month.
Biotechnology, airline, banking, and oil stocks have
also moved notably higher on the day, while weakness remains visible
among electronic storage, railroad, and software stocks.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday, adding to yesterday's gains. Japan's Nikkei 225 Index surged up by 1.2 percent, while Hong Kong's Hang Seng Index advanced by 1 percent.
The major European markets also moved to the upside on the day. While the German DAX Index edged up by 0.3 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index advanced by 0.7 percent and 0.8 percent, respectively.
In the bond market, treasuries have
come under pressure on the heels of the upbeat housing data. As a
result, the yield on the benchmark ten-year note, which moves opposite
of its price, is up by 6.9 basis points at 1.789 percent.
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Carpetright, Pearson, Ashtead
Analysts at Panmure Gordon have today issued a biting note on Carpetright,
with analyst Philip Dorgan indicating that: 'We are slightly surprised
to see that UK second quarter like-for-like sales growth slowed from
quarter one, given kitten soft comparables. However, gross margin
guidance is retained and, despite a marked deterioration in the
Netherlands, we don't expect that consensus forecasts will change. We
remain sellers, because it will be a while before profits catch up with
the valuation (66.2x prospective earnings).'
The broker has placed a target of 400p on the shares of the flooring retailer.
Nomura comments this morning on Pearson’s acquisition of Embanet for
$650m dollars (£406m), or five times sales, calling attention to the
similarities between Embanet and the Deltak business acquired recently
by John Wiley for $220m (4x sales). Furthermore, its analysts highlight
how –in their opinion: “the business provides more scale to Pearson’s
existing college solutions business (e.g., Arizona State and Calstate),
and allows the company to capture more of the college’s value chain
without the significant working capital in books.”
Nomura adds
that: “There will be some accretion in fiscal year 2013 but limited by
integration charges. We estimate a 0.5% boost to organic growth. To
reach targets, we estimate the revenue growth will have to be over 50%
in fiscal year 2013 and circa 25% in fiscal year 2014, which poses some
execution challenges. Post-acquisition valuation remains high and
free-cash flow (FCF) around 7-8%.”
Following on from the above, Nomura has raised its price target to 1,250p from 1,200p, while maintaining its reduce rating.
Analyst Kevin Lapwood at Seymour Pierce believes that US construction
confidence reaching its highest level since 2006, coupled with the
announcement by one of Ashtead’s main US competitors, United Rentals
(URI), of top of the range results for its third quarter results, bodes
well for Ashtead’s US business.
Lapwood writes that: "URI’s
results showed the robustness of the equipment hire industry with the
shift from ownership to rental showing no signs of abating. Ashtead’s
shares are trading on a prospective price earnings ratio of 13.1 times,
which we believe is undemanding for a company expecting to deliver
double digit earnings growth over the next three years. We reiterate our
BUY recommendation and raise our target to 400p (previously 350p),
equivalent to a prospective PE of 14.8 times."
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