Market overview: BoE expected to look through inflation
Tue 16 Oct 2012
LONDON (SHARECAST) - 1630:Close Cyclicals such as steel miner Evraz and banks led gains today on the top share index. That after two high-ranking German politicians said the country is open to Spain seeking a precautionary credit line from the euro area’s rescue-fund. Lloyds also benefitted from a report that the FSA will allow it to move forward on an asset swap with its Scottish Widows life insurance arm. On the negative side of the ledger, GKN led falls after warning of the probable impact which a slowing economy in Europe may have on the company’s results. IAG dropped following a downgrade out of analysts at Liberum. Pennon Group also moved lower, as sentiment towards its shares took a knock from similarly downbeat comments from Credit Suisse. Meantime, and on the macroeconomic front, consumer prices “fell” to a 2.2% year-on-year rate of advance in September, near a three year low, ONS data revealed. Prices are expected to reaccelerate. However, economists at both Investec and Barclays Research are together in forecasting that the Bank of England will ‘see through’ the one-off factors behind that rise when it meets in November. FTSE 100 up 65 to 5,871.
1624: This is a tid-bit of what analysts at Credit Suisse were saying following their Waste Round Table, which took place yesterday: "A challenging economic climate has put pressure on the waste industry, affecting pricing and volumes. All UK companies emphasised confidence in their underlying strategy, and medium-term bullishness on PFI contracts and Energy-from-Waste investment. This contrasts starkly with Northern Europe (...) We remain negative on Pennon (Underperform, TP 690p), as we believe the stock has yet to price in medium-term uncertainty in both water and waste." FTSE 100 up 66 to 5,872.
1551: Despite expectations that consumer prices will re-accelerate some in coming months economists at both Barclays and Investec agree that the Bank of England will look through any rise in inflation and carry-out a further increase in its quantitative easing program come November. In Barclays's own words: "The MPC has previously shown a readiness to ‘look through’ increases in inflation that can be attributed to one-off factors or external shocks. (…) As a result, we expect the MPC to undertake additional stimulus in November (...) Nevertheless, some MPC members appear to be becoming more wary of undertaking further stimulus. Among their concerns is the worry that above-target inflation could become embedded in inflation expectations."
1536: A meeting between troika officials and their peers at the Greek labour Ministry is said to have ended abruptly after the two sides reached a deadlock for a second time today.
1430: Global markets are awash with optimism today as investors jumped in on the back of strong US corporate results. Goldman Sachs's third quarter results showed earnings of $1.46bn, a massive improvement compared to the $428m loss last year. Shavaz Dhalla, a trader from SpreadEx, highlighted Thomson Reuters Starmine data showing over two-thirds of US companies have now reported third quarter results which have been above or met expectations, as well as earnings which have even been 5.9 per cent higher than forecast. FTSE100 up 57 at 5,862.
1339: US consumer prices have come in at 2 per cent year-on-year for September, one tenth of a percentage point ahead of forecasts. At the core level however they have come in just as expected, also with a 2 per cent gain.
1330: Citigroup Chief Executive Vikram Pandit has just announced his resignation.
1322: Quarterly results out this afternoon Stateside from Johnson&Johnson, Goldman Sachs and United Health have all come in ahead of forecasts, but not so those of Coca Cola or State Street. In any case, some market commentary is pointing out that according to Thomson Reuters data 94 S&P 500 companies have already warned about their third-quarter earnings, while 23 companies have upgraded their profit forecasts, the weakest ratio since the third quarter of 2001. Paradoxically, there are those who are musing that this may indicate that investors's expectations have been lowered [and will thus be easier to beat]."
1302: Some reports hold that Germany is open to the possibility of giving Spain a precautionary credit line. FTSE 100 up 52 to 5,857.
1242: As regards today's CPI data Investec's Victoria Geoghan is telling clients that: "CPI inflation may have got within touching distance of the 2% target, but this is where the good news probably stops. (…) Finally, note that there looks to be further upward pressure from food prices in the pipeline, with the summer droughts in the US having ignited grain prices since pre-summer months. Taken overall, these pressures could see inflation heading back into the mid-3% range by the middle of next year. Depending on how these upside pressure evolve, there still looks to be a chance that Sir Mervyn King could have one final letter to write to the Chancellor next summer, before he steps down, explaining why CPI inflation has run in excess of 1% above the 2% target (for three months)."
1230: N Brown is leading gainer on the FTSE 350 following solid interims. House broker Jeffries has a "buy" rating with a price target of 280p.
1121: This is Jefferies' take on GKN's inerims today: "(...) the combination of Automotive and Aerospace has brought much greater resilience to earnings. We sense, however, that the market’s perception of GKN is still coloured by what happened in 2H 2008 and 1H 2009. The only GTI parallel we would draw is that GKN’s rating could improve quickly and significantly once it becomes apparent that the downside risk to FY13 earnings is limited or negligible. We believe such realization may not be far off."
1112: Antofagasta is being cited as saying that while Chinese demand is seen as volatile in the short-term in the longer term it is expected to be strong.
0956: Initial reports indicate that the Spanish Treasury has sold 4.86bn euros in 12 and 18 month bills this morning, more than the 4.5bn which had been expected and at lower rates than the last time around. FTSE 100 uo 29 to 5,834.
0954: More on this morning's report in the Financial Times. In their own words: "The Spanish government is prepared to make a rescue request that would allow the European Central Bank to begin buying its debt, but the issue is being delayed by the needs of other countries in the single currency." More specifically, the FT indicates that Germany believes that a rescue package should only be used as a very last option. As well, there is said to be some worry that Italy could come under pressure following any request.
0930: The UK consumer price index for the month of September has come in at 2.2% year-on-year, as expected.
0830: Stocks have opened with a clear upward bias, tracking gains on Wall Street. Of interest, some market commentary is suggesting that a good deal of the bad news on the corporate front –in the US- may already be out. Meantime, and in Europe, the focus will be on Spain today, as markets speculate on when the Government will finally ask for a bail-out. Significantly, according to an article in the Financial Times last night Spain is preparing to do just that. Bloomberg is also casting a spotlight on Spain today, but reporting that Spain's PM believes that holding out for longer will win the country better terms. All of the above ahead of an auction of Spanish short-term debt scheduled for later this morning. As an aside, The Telegraph describes French business leaders as in almost in a state of panic over the severity of the crisis. In the UK, ONS releases September inflation data at 09:30 (consensus: 2.2% year-on-year, last: 2.5% year-on-year). The September producer price indices will also be released at 09:30 (consensus: 0.2% month-on-month, last: 2.0% month-on-month).
LONDON (SHARECAST) - 1630:Close Cyclicals such as steel miner Evraz and banks led gains today on the top share index. That after two high-ranking German politicians said the country is open to Spain seeking a precautionary credit line from the euro area’s rescue-fund. Lloyds also benefitted from a report that the FSA will allow it to move forward on an asset swap with its Scottish Widows life insurance arm. On the negative side of the ledger, GKN led falls after warning of the probable impact which a slowing economy in Europe may have on the company’s results. IAG dropped following a downgrade out of analysts at Liberum. Pennon Group also moved lower, as sentiment towards its shares took a knock from similarly downbeat comments from Credit Suisse. Meantime, and on the macroeconomic front, consumer prices “fell” to a 2.2% year-on-year rate of advance in September, near a three year low, ONS data revealed. Prices are expected to reaccelerate. However, economists at both Investec and Barclays Research are together in forecasting that the Bank of England will ‘see through’ the one-off factors behind that rise when it meets in November. FTSE 100 up 65 to 5,871.
