Stocks hold on to gains despite poor start on Wall Street
UK
stock markets managed to hold on to gains on Friday as
better-than-expected data from China lifted sentiment, though the
Footsie did finish below its intraday high after some mixed
fourth-quarter earnings from Wall Street heavyweights this afternoon.
China’s economic growth
seems to have accelerated for the first time in two years towards the
end of 2012 thanks in part to the stimulus measures implemented by the
government. Chinese gross domestic product grew 7.9% year-on-year in the
last three months of 2012, ahead of the 7.8% expected by the consensus.
"Following last night’s five-year closing high in the
S&P, equity bulls found more support in the form of impressive
Chinese GDP and Industrial Production numbers that will go some way to
allaying analyst fears of slowing growth," said Matt Basi, a senior
sales trader at CMC Markets UK.
"The momentum in equity
indices is clearly positive, but with the major European markets perched
at their recent highs there has been a drop-off in volume as fear of
paying the top starts to come into play," he said.
Nevertheless, traders were shrugging off the news that UK retail sales
grew at the second-slowest rate since 1998 last month. Sales volumes
were down 0.1% month-on-month, missing the consensus forecasting a 0.2%
increase.
Wall Street indices started today's session firmly
in the red after some mixed results for economic bellwethers Stateside.
Both General Electric and Morgan Stanley jumped after the opening bell after beating consensus expectations in the fourth quarter, while Intel and Capital One Financial disappointed.
Also weighing on US markets was the University of Michigan's consumer
confidence index for January which fell from 72.9 to 71.3, missing the
estimate of a rise to 75.
FTSE 100: EVRAZ makes strong gains
EVRAZ
was making gains even though it said that steel production fell 6.0%
from the third quarter to the fourth, as a result of scheduled
maintenance at its ZSMK steel mill in the Siberia region.
The
stock was being given a lift this morning by comments from Credit Suisse
about the steel sector. The broker said: "The cycle is now recovering.
Confidence appears to be returning as the recovery in the financial
equities suggested to us could be the case. Anecdotes we hear suggest
that the demand outlook (non-res in the US, general demand in EU) could
be better than the market believes."
Aberdeen Asset Management
was given a boost after UBS upped its target from 370p to 440p,
maintaining a 'buy' rating, one day after the company reported a 3.0%
rise in assets under management in its first quarter. JP Morgan and
Numis also raised their target on the stock today.
Energy services giant Wood Group
continued to rise one day after announcing that it has won a contract
with Nexen Petroleum UK at the Golden Eagle Area Development (GEAD)
project in the North Sea.
Meanwhile, home improvement retail company Kingfisher
was lower after saying that its Chief Operating Officer, Euan
Sutherland, will step down from the board at the end of January.
Meanwhile, UBS cut its target for the shares from 290p to 280p, keeping a
'neutral' rating, on the back of negative read-across from results
elsewhere in the sector this week.
Morrison, the
supermarket chain, fell after Deutsche Bank reduced its target on the
stock from 258p to 235p and left its 'hold' recommendation unchanged.
Cruise operator Carnival
was extending gains from yesterday after it boosted its share buy-back
programme and declared a quarterly dividend of 25 cents per share.
Meanwhile, airline IAG was down after both Heathrow and Gatwick airports were forced to cancel or delay numerous flights due to snow across the UK.
FTSE 250: Spectris and Kentz surge after updates
Instrumentation and controls firm Spectris
surged after saying that LFL sales growth accelerated from 2.0% to 4.0%
from the third to the fourth quarter of 2012, "helping deliver a robust
full year performance despite a challenging trading environment".
Meanwhile, engineering and construction group Kentz was also up after announcing a backlog of $2.75bn at the end of December, up 7.0% year-on-year.
Oil and gas group Ophir
was on the rise after receiving a double upgrade from Nomura, from
'reduce' to 'buy'. The broker said that highly-geared E&A drilling
in 2013 could be a "company maker". Analysts added that in a ‘blue-sky’
success scenario, 2013 drilling could be worth 500% of the current share
price.
In contrast, fund manager Ashmore was being
weighed down by a ratings cut by UBS from 'buy' to 'neutral'. "We
downgrade Ashmore […] on valuation grounds and because we believe that
competitive pressures will persist," the broker said.
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European Markets Finished Mixed On Economic Data
The European markets
ended Friday's session with mixed results. The markets received a boost
in early trade from the strong fourth quarter GDP data released by
China. Investors were also encouraged by some positive earnings releases
out of the United States, but the mood was soured by the sharp drop in
U.S. consumer sentiment in the afternoon.
The Bank of Italy slashed
its economic forecast for this year on Friday to project a worst
contraction than expected earlier, citing the deteriorating external
environment and the continuing weakness in domestic activity.
The bank now
expects the Italian economy to shrink 1 percent this year, which is
much worse than the earlier projection of 0.2 percent contraction. Gross
domestic product likely declined just over 2 percent in 2012, the bank
said in its latest economic bulletin.
International Monetary Fund (IMF) Managing Director Christine Lagarde urged nations to focus on real economy and on growth that can deliver jobs.
The Euro Stoxx 50 index of eurozone bluechip stocks declined by 0.33 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.09 percent.
The DAX of Germany dropped by 0.43 percent and the CAC 40 of France fell by 0.07 percent. The SMI of Switzerland decreased by 0.82 percent, but the FTSE 100 of the U.K. gained 0.51 percent.
In Frankfurt, Metro declined by 1.36 percent. The stock was
downgraded to ''Underperform'' from ''Neutral'' at Credit Suisse.
Commerzbank finished up by 1.93 percent, while Deutsche Bank lost 0.20
percent.
In Paris, Renault increased by 4.36 percent after
announcing sales figures for 2012. BNP Paribas gained 1.12 percent,
while Societe Generale added 1.37 percent and Credit Agricole rose by 0.27 percent. Loreal decreased by 0.05 percent. The stock was upgraded to ''Overweight'' from ''Neutral'' at HSBC.
In London, mining stocks
were positive in early trade, following the Chinese GDP report. Rio
Tinto increased by 1.85 percent, recovering from yesterday's weakness.
The company's CEO stepped down on Thursday. Meggitt advanced by 1.46
percent. Barclays upgraded its rating on the stock to "Overweight" from
"Equalweight."
J Sainsbury fell by 0.58 percent, after
Goldman Sachs added the stock to its "Conviction Sell" list. Spectris
surged by 8.26 percent. The company reported higher like-for-like sales
in its fourth quarter and fiscal 2012, despite a challenging trading
environment.
The gross domestic product grew 7.9 percent
year-on-year in the fourth quarter, snapping seven successive quarters
of slowdown. Economists had expected a 7.8 percent gain. In the third
quarter, GDP expanded 7.4 percent, the weakest pace in three years.
U.K. retail sales
declined unexpectedly during Christmas season amid weak consumer
demand, intensifying concerns about an economic contraction in the final
quarter of 2012.
Retail sales including automotive fuel
dropped 0.1 percent month-on-month in December, after staying flat in
November, the Office for National Statistics showed Friday. It was in
contrast to a 0.2 percent rise forecast by economists.
Confidence among British households about
prices of their homes weakened for the thirty-first successive month in
January, though at the slowest pace since July 2010, data from a survey
by Markit Economics and Knight Frank showed Friday. The house price sentiment index came in at 47.6 in January, up from December's reading of 47.1.
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| US Market Report |
Stocks Mostly Lower Amid Modest Selling Pressure
While selling pressure
has remained relatively subdued, stocks have moved mostly lower during
trading on Friday. A negative reaction to quarterly results from Intel
(INTC) is weighing on the markets along with a disappointing reading on
consumer sentiment.
The major averages have seen some further downside in recent trading, hitting new lows for the session. The Dow is down 17.84 points or 0.1 percent at 13,578.18, the Nasdaq is down 15.46 points or 0.5 percent at 3,120.54 and the S&P 500 is down 4.31 points or 0.3 percent at 1,476.63.
The weakness on Wall Street is partly due to a sharp drop by shares of Intel, with the semiconductor giant tumbling by 6.6 percent after ending the previous session at a three-month closing high.
After the close of trading on Thursday, Intel released its closely watched fourth quarter results, reporting earnings and revenues that fell year-over-year.
Intel's
quarterly earnings exceeded analyst estimates, but the revenues came in
below expectations and the company also gave downbeat revenue guidance
for the first quarter.
Shares of Capital One Financial
(COF) have also come under pressure after the lender reported fourth
quarter earnings that rose sharply year-over-year but came in below
estimates. The company also provided disappointing guidance. Capital One is currently down by 8.5 percent.
Negative
sentiment was also generated by the release of a report from Thomson
Reuters and the University of Michigan showing that U.S. consumer
sentiment has unexpectedly deteriorated in the month of January.
The
report showed that the preliminary reading on the consumer sentiment
index for January came in at 71.3 compared to the final December reading
of 72.9. The drop by the consumer sentiment index came as a surprise to
economists, who had expected the index to climb to a reading of 75.0.
With the unexpected decrease, the index fell for the second consecutive month, hitting its lowest level since December of 2011.
Meanwhile, a positive reaction to quarterly results from Morgan Stanley (MS)
has helped to limit the downside for the markets, with the financial
giant up by 7.5 percent after reporting a better than expected fourth
quarter profit compared to a year-ago loss.
General Electric (GE)
is also posting a notable gain after the industrial conglomerate
reported fourth quarter earnings that exceeded analyst estimates on
revenues that increased by more than anticipated. Shares of GE are
currently up by 3 percent.
In overseas trading, stock markets
across the Asia-Pacific region moved mostly higher during trading on
Friday. Japan's Nikkei 225 Index surged up by 2.9 percent, while Hong
Kong's Hang Seng Index advanced by 1.1 percent.
In the bond market, treasuries have
moved back to the upside after coming under pressure in the previous
session. Subsequently, the yield on the benchmark ten-year note, which
moves opposite of its price, is down by 2.6 basis points at 1.849
percent.
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| Broker tips |
Rio Tinto, Meggitt, Ophir Energy
Credit Suisse has reiterated its 'outperform' rating and 4,000p target for mining giant Rio Tinto, following yesterday's announcement of a CEO change and non-cash impairment charge 14bn dollars.
"After the market digests this news we think the focus should remain on
iron ore prices, project delivery and the larger macro picture, all
which remains unchanged following [the] announcement especially given
current head of iron ore (80% of earnings/65% NPV) takes over as CEO, share price pressure should be seen as buying opportunity."
Aerospace components engineer Meggitt was a high riser on the FTSE 100 on Friday morning after Barclays Capital upgraded its rating for the stock from 'equal weight' to 'overweight' and raised its target from 450p to 520p.
BarCap said that the shares' 20% valuation discount to peers "will close
as investors in the aerospace cycle look away from the more expensive
pure-play names with original equipment or aftermarket exposure, and
seek sector laggards like Meggitt."
Nomura has upgraded its rating for oil and gas group Ophir Energy
by two notches, from 'reduce' to 'buy', saying that highly-geared
exploration and appraisal (E&A) drilling in 2013 could be a 'company
maker'.
The broker said that Ophir has a leading exposure to pure exploration. "In a ‘blue-sky’ success scenario, 2013 drilling could be worth $17bn or c.500% of the current share price, the highest in our coverage universe."
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