| 'Obama-rally' squashed by euro concerns
Market Movers
techMARK 2,088.20 -1.12%
FTSE 100 5,791.63 -1.58%
FTSE 250 11,961.32 -1.00% The ‘Obama-rally’ proved only temporary on Wednesday as concerns about the Eurozone crisis offset any optimism regarding the re-election of the incumbent US President.
The UK stock market started strongly this morning after Barack Obama comfortably beat challenger Mitt Romney in the US presidential elections, sparking speculation that an easy-money policy would continue under his leadership. The news pressured the dollar lower and, in turn, resulted in firmer prices in greenback-denominated commodities, pushing mining equities higher before noon.
The FTSE 100 reached an eight-month high of 5,921 in mid-morning trade, its highest level since March 19th when it hit 5,961.
However, stocks swung dramatically into the red at midday after the European Commission cut its forecasts for gross domestic product (GDP) growth in the Eurozone this year to 0.1% from 1% before.
To make matters worse, German industrial production contracted at a faster rate than predicted in September, according to figures released today. Output was down 1.8% month-on-month, instead of 0.7% fall expected.
Caution ahead of tonight’s parliamentary vote on austerity in Greece was also weighing on sentiment today, as the government decides whether to go ahead with another harsh round of spending cuts and tax hikes worth €13.5bn.
Meanwhile, US stock opened with heavy losses on Wall Street as worries about the impending ‘fiscal cliff’ - when over $600bn in spending cuts and tax increases are scheduled to come into effect in January - shattered sentiment.
Market strategist Ishaq Siddiqi from ETX Capital said this afternoon: “with the elections out of the way, pressing issues such as the unresolved fiscal cliff are unnerving markets with fears that Obama will unable to forge strong partisan ties with lawmakers against his policies in order to come to an agreement over the fiscal cliff.
“As we know, neglecting the fiscal cliff issue could shave a considerable amount of US GDP, sending the country back into a recession and force credit agencies to strip the US off its prized ‘triple-A’ rating,” he said. FTSE 100: Randgold, Burberry and CRH provide a drag Randgold Resources was the worst Footsie performer after a disappointing third-quarter result. The gold miner reported the production fell back from the preceding quarter's record levels as the company suffered grid power supply problems at its Tongon mine and processed lower grades at Gounkoto.
After a strong rise early on, luxury brand Burberry fell despite reporting a higher-than-expected profit in the first half and said it is looking optimistic about its new fragrance and beauty division which is to start operating next year.
Building products group CRH was under the weather this afternoon, possibly on concerns about stalling growth in the Eurozone eating into demand for its services.
International services giant Serco fell after a downgrade by Investec to 'sell'. The firm announced today that it is buying out its 15-year joint venture partner in Australian defence and marine services business DMS Maritime Pty Ltd for £68m.
Mining giant Vedanta was dropped despite all of its key numbers heading in the right direction in the first half. Profit before tax in the six months to the end of September rose to $1,059.4m from $916.2m the year before, on revenue that rose 14% to $7,451.9m from $6,552.6m.
Insurer Old Mutual was unwanted despite reporting a slight rise in funds under management in the third quarter. FTSE 250: Chemring sinks as Carlyle walks away US asset management firm, The Carlyle Group, has called off its long, drawn-out discussions with Chemring about a potential takeover of the defence contractor, causing shares to sink. The offer deadline had been pushed back on two separate occasions; the company said it would give a further update in its pre-close trading update on November 27th.
Engineering group Spirax Sarco jumped after saying that organic sales increased six per cent in the four months to the end of October, ahead of the rate of growth reported in the first half.
Online gaming software company Playtech was in demand after delivering impressive revenue growth in the third quarter while saying that this trend has continued into the fourth quarter.
Industrial conveyor belt maker Fenner was higher after reporting a stellar increase in profit and revenue for the year and lifted its dividend payment by 31%.
Kenmare Resources shares fell after Canaccord Genuity downgraded the stock from ‘buy’ to ‘hold’, and cut its target from 54p to 44p.
Natural resources, land and property consultancy RPS dropped despite saying it was on track to hit full-year targets. The firm noted that trading conditions in its Built and Natural Environment division were mixed, causing Panmure Gordon to pare it price target for the shares this morning.
Transport company FirstGroup took a hit after it said that underlying pre-tax profit declined 42.4% to £48.7m in the six months to September 30th.
| AIM/Small Cap Report | | FTSE 100 - Risers
Associated British Foods (ABF) 1,374.00p +0.66%
Polymetal International (POLY) 1,115.00p +0.36%
RSA Insurance Group (RSA) 113.10p +0.35%
InterContinental Hotels Group (IHG) 1,550.00p +0.32%
Hargreaves Lansdown (HL.) 768.50p +0.26%
Imperial Tobacco Group (IMT) 2,431.00p +0.25%
Morrison (Wm) Supermarkets (MRW) 267.50p +0.07%
Babcock International Group (BAB) 955.00p +0.05%
FTSE 100 - Fallers
Randgold Resources Ltd. (RRS) 6,950.00p -6.40%
Burberry Group (BRBY) 1,199.00p -4.23%
CRH (CRH) 1,157.00p -3.90%
BG Group (BG.) 1,054.50p -3.87%
Eurasian Natural Resources Corp. (ENRC) 305.00p -3.76%
Marks & Spencer Group (MKS) 384.50p -3.56%
Evraz (EVR) 247.00p -3.44%
Aviva (AV.) 328.50p -3.27%
International Consolidated Airlines Group SA (CDI) (IAG) 169.50p -3.14%
Old Mutual (OML) 168.80p -2.99%
FTSE 250 - Risers
Spirax-Sarco Engineering (SPX) 2,140.00p +8.03%
Moneysupermarket.com Group (MONY) 148.80p +4.79%
NMC Health (NMC) 190.00p +3.49%
Rank Group (RNK) 154.30p +3.42%
Playtech Ltd. (PTEC) 425.00p +3.41%
New World Resources A Shares (NWR) 272.30p +2.95%
Menzies(John) (MNZS) 617.00p +2.83%
Fenner (FENR) 359.50p +2.71%
Phoenix Group Holdings (DI) (PHNX) 509.00p +2.21%
Salamander Energy (SMDR) 197.90p +2.12%
FTSE 250 - Fallers
RPS Group (RPS) 222.70p -6.51%
Kenmare Resources (KMR) 36.71p -5.92%
FirstGroup (FGP) 194.90p -5.07%
Chemring Group (CHG) 258.00p -4.76%
Anite (AIE) 142.80p -4.74%
Lonmin (LMI) 470.00p -4.72%
JD Sports Fashion (JD.) 738.00p -4.71%
Inmarsat (ISAT) 546.00p -4.63%
Ocado Group (OCDO) 59.80p -4.55%
Cable & Wireless Communications (CWC) 35.93p -4.06% |
| Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | | European Markets Weakened Due To Concerns Over Germany
The European markets began Wednesday's session in positive territory, following the announcement that Barack Obama had won a second U.S. presidential term. The markets later reversed after European Central Bank President Mario Draghi stated that the debt crisis in the Eurozone is beginning to have an impact on the German economy. Concerns over the situation in Greece also weighed on investors, as they await the results of a vote in the Greek Parliament.
The Greek Parliament is voting today on a new round of austerity measures. If the parliament votes to approve the measures, then the country will be able to receive the next round of bailout funds. Meanwhile, Greek unions are participating in the second day of a 48-hour strike.
The European Commission expects the euro area economy to come to a standstill next year as domestic demand is likely to remain weak amid high unemployment. In its Autumn Forecast released on Wednesday, the commission slashed its 2013 growth forecast for the 17-nation economy to just 0.1 percent from the 1 percent projected earlier this year.
The economy is expected to shrink 0.4 percent this year, slightly worse than the 0.3 percent contraction forecast earlier. The economy grew 1.4 percent in 2011. Eurozone growth is expected to recover gradually to 1.4 percent in 2014.
The commission also downgraded its growth outlook for the biggest economy in the single-currency bloc. Next year, Germany is expected to grow just 0.8 percent, which is far weaker than the 1.7 percent forecast earlier. The economy is expected to expand 0.8 percent this year.
Germany's independent council of economic advisers were less optimistic than the government on the economy's outlook, according to the council's latest forecasts, handed over to Chancellor Angela Merkel on Wednesday.
The council of the so-called 'wise men' predicts the gross domestic product to grow 0.8 percent in 2012 and 2013, while the government forecasts the economy to grow 1 percent next year, following a 0.8 percent expansion this year.
The Euro Stoxx 50 index of eurozone bluechip stocks declined by 2.23 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 1.48 percent.
The DAX of Germany fell by 1.96 percent and the CAC 40 of France decreased by 1.99 percent. The FTSE 100 of the U.K. dropped by 1.58 percent and the SMI of Switzerland finished lower by 0.71 percent.
In Frankfurt, Munich Re finished unchanged. The insurer reported a significant rise in third-quarter profit and lifted its full year view.
Commerzbank fell by 3.28 percent and Deutsche Bank lost 4.53 percent. Hochtief rose by 3.30 percent, after the company reported quarterly results.
Kuka, which also reported financial results, gained 0.58 percent. Pfeiffer Vacuum declined by 3.92 percent, after HSBC upgraded the stock to "Neutral" from "Underweight."
In Paris, Veolia Environnement, which reported financial results, increased by 4.91 percent. The company also affirmed its outlook for the full year.
Alstom gained 1.38 percent, after the speed-train maker reported increased profit for the first half of the year.
BNP Paribas, which reported a surge in third-quarter profit, rose by 1.07 percent. Societe Generale and Credit Agricole fell by 2.92 percent and 2.11 percent, respectively.
In London, Pearson dipped by 0.24 percent. The publisher is said to be mulling the sale of Financial Times newspaper so that it can focus better on its education business.
Randgold Resources declined by 6.40 percent, after the company reported a lower third-quarter profit. Marks & Spencer, which posted decreased profit for the first half of the year, dropped by 3.56 percent.
Barclays dropped by 2.76 percent and Royal Bank of Scotland fell by 2.39 percent. Lloyds Banking Group declined by 0.95 percent and HSBC lost 2.24 percent.
Retail sales in the euro area decreased at a slightly faster rate than economists expected in September, after recording a modest increase in the previous month, data released by statistical office Eurostat showed Wednesday.
Retail sales volume decreased 0.2 percent month-on-month in September, reversing the previous month's 0.2 percent rise. Economists had forecast a more modest decrease by 0.1 percent for September.
Germany's industrial production declined 1.8 percent in September from a month ago, the Federal Ministry of Economics and Technology said Wednesday. It follows a slower 0.4 percent drop in August and exceeded a 0.7 percent decline forecast by economists.
Industrial production adjusted for working days, slipped unexpectedly by 1.2 percent annually after falling 1.3 percent in August. Economists had forecast output to grow 0.1 percent.
Germany's construction sector contracted at a faster rate in October, driven by a steep decline in civil engineering activity, data from a survey by Markit Economics showed Wednesday.
The seasonally adjusted purchasing managers' index for the construction sector dropped to 44.6 in October from 48.6 in September. The latest reading was the lowest since July.
Shop price inflation in the United Kingdom accelerated in October, as wet summer lifted food prices, a report from the British Retail Consortium (BRC) revealed Wednesday. Shop price inflation accelerated to 1.5 percent in October from 1 percent in September. Food inflation increased to 4 percent from 3.1 percent in September.
The U.K.'s national output grew at a weaker pace in the three months through October, the monthly gross domestic product estimates by the National Institute of Economic and Social Research (NIESR) showed Tuesday.
The estimates suggest that the output grew 0.5 percent in the three months ending in October after a growth of 1 percent in the three months ending in September.
According to the think tank, the economy is likely to remain in "depression" for two more years. The institute interprets the term "recession" as a period when output is falling or receding, while "depression" is a period when output is depressed below its previous peak. |
| US Market Report | | Worries About Looming Fiscal Cliff Drag Stocks Sharply Lower
With the focus on Wall Street quickly shifting to the looming fiscal cliff and the possibility of higher taxes following President Barack Obama's re-election, stocks have moved sharply lower over the course of the trading day on Wednesday.
The major averages have recently climbed off their worst levels of the day but remain firmly in negative territory. The Dow is down 314.87 points or 2.4 percent at 12,930.81, the Nasdaq is down 71.76 points or 2.4 percent at 2,940.17 and the S&P 500 is down 33.54 points or 2.4 percent at 1,394.85.
The sell-off on Wall Street comes on the heels of news that President Obama won re-election, defeating Republican challenger Mitt Romney.
Obama's definitive victory helped to eliminate some uncertainty, but traders continue to worry about the upcoming fiscal cliff, which could inflict higher taxes and significant spending cuts.
Credit ratings agency Fitch Ratings said failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner as well as secure an agreement on credible deficit reduction would likely result in a rating downgrade for the U.S. in 2013.
"The re-election of President Obama removes one uncertainty that has been weighing on the markets over the last few months," Capital Economics said in a note. "But they are none the wiser about if, how and when Congress will deal with the colossal tightening in fiscal policy scheduled to occur early next year."
"And with Congress still split, President Obama will struggle to garner bipartisan support for a more comprehensive agreement that addresses the longer term issue of how to put the nation's finances back on a sustainable path," the firm added.
Lingering concerns about the financial situation in Europe are also weighing on the markets, with European Central Bank President Mario Draghi saying European economic activity is weak and is expected to remain weak in the near term.
In a speech in Frankfurt, Draghi also said the latest data suggest that the problems in the eurozone are now starting to affect the German economy, which had previously been insulated from some of the difficulties.
Sector News
Most of the major sectors have shown notable moves to the downside on the day, reflecting broad based selling pressure on Wall Street.
Banking stocks are posting particularly steep losses in mid-day trading, resulting in a 3.8 percent drop by the KBW Bank Index. The substantial weakness in the sector comes as a Romney victory was expected to be better for the industry.
Significant weakness has also emerged among defense stocks, which were also expected to benefit from a Romney presidency. The Philadelphia Defense Sector Index has tumbled by 3.5 percent after ending the previous session at its best closing level in over a year.
Electronic storage stocks have also come under considerable selling pressure, dragging the NYSE Arca Disk Drive Index down by 5.2 percent. STEC (STEC) has helped to lead the sector lower after providing disappointing fourth quarter guidance.
Brokerage, energy, steel, and semiconductor stocks are also posting steep losses, while some healthcare provider stocks are bucking the downtrend.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Hong Kong's Hang Seng Index and Australia's All Ordinaries Index both advanced by 0.7 percent, while Japan's Nikkei 225 Index bucked the uptrend and closed modestly lower.
In the bond market, treasuries continue to see considerable strength but have pulled back off their best levels of the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 9.6 basis points at 1.646 percent. |
| Broker tips | | Burberry, BT, RPS Seymour Pierce has reiterated its 'buy' rating and 1,500p target for luxury brand Burberry after a better-than-expected first half.
"On our current numbers, the shares are trading [at 16.1 times full-year earnings] which we believe is undemanding for its long term growth prospects. We still consider Burberry a strong long term growth story with significant geographical and product mix opportunities," analyst Kate Calvert said.
Credit Suisse has reiterated its 'outperform' rating and 300p target for telecoms titan BT Group saying that the firm's second-quarter results last week support its positive view on cost-cutting and of rising demand for high-speed broadband.
"In the Q2 results BT again demonstrated its ability to cut costs in its core UK wireline business and compensate for declining EBITDA [earnings before interest, tax, depreciation and amortisation] trends in Global Services [known as GS]," said research analyst Paul Sidney.
Panmure Gordon has reduced its price target for RPS Group from 270p to 242p and retained its 'hold' rating for the stock following a mixed trading update from the natural resources, land and property consultancy.
The broker said: "RPS has delivered a solid Q3 IMS, indicating that it continues to trade in line with expectations. However, we take a more cautious stance on 2013E and 2014E estimates, given the scope for project delays and margin pressure in Australia, which is slowing down." |
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