Market overview: Economists take it back, BoE to stop QE in November
Thu 25 Oct 2012
LONDON (SHARECAST) - 1630:Close The FTSE closed flat on Thursday, despite the latest reading for GDP showing its strongest print since late 2007 and the fact this means that the economy has officially come out of its double dip-recession. GDP rose by 1.0 per cent in the three months to the end of September, far ahead of the 0.6 per cent gain forecast by the consensus. Economists from at least three brokers, Citi, Barclays and Investec today cancelled their calls for a further round of quantitative easing by the Bank of England (BoE) come November. Capital Economics, RBS and Credit Agricole still see a possibility however. As an aside, the Financial Times argued today in an op-ed piece that the BoE ought perhaps to consider other forms of non-standard monetary policy. Company wise, ARM was in retreat following two days as the top riser, while WPP took a hit after it admitted its third-quarter growth was slower than that seen in the second quarter. The worst performer however was Evraz, on the back of the negative news-flow today surrounding the automotive sector. On the other side of the ledger, Carnival and IAG were among the day's best performers. Cruise operator Carnival was buoyed by news that its US rival Royal Caribbean has raised its full-year forecast. Fresnillo rose after Citi upgraded its view on shares of the precious metals miner to hold from sell. The FTSE closed flat at 5,805.
1610: A tell for the wider market? Evraz is now leading falls on the top share index despite the lack of any direct news -apparently- that might justify the drop in its shares. Negative news out from the likes of Daimler and Ford are surely playing a role however.
1515: Ford has admitted that it now expects European losses for 2012 to reach upwards of 1.5bn dollars. The company has also announced more closures, this time spelling bad news for the UK with the shut-down of operations at its Southampton-based van plant and another in Dagenham, where stamping and tooling production takes place. FTSE is up 19 points at 5,824.
1505: US pending home sales increased by 0.3 per cent month-on-month in September (Consensus: 2.5 per cent). Versus the previous year they increased by 8.5 per cent, instead of the 17.4 per cent foreseen by economists.
1451: Carnival is now the best performer on the FTSE 100 after the second-largest cruise line operator, Royal Caribbean Cruises (Carnival being the first), hiked its full-year earnings forecast after better-than-expected bookings in the third quarter. Shares in the RCC jumped nearly eight per cent after the opening bell on Wall Street after the firm said that 2012 EPS will be 1.85-1.95 dollars, 15 cents ahead of its initial guidance and ahead of consensus forecasts.
1428: Xstrata and Glencore shareholders are to vote on the recommended all-share merger of equals on November 20th, the two companies have announced.
1357: The FTSE 100 is trading 20 points higher at 5,825 as stock futures point to a higher start on Wall Street after durable goods orders and jobless claims came in better than expectations. In London, Shire has joined the risers after its third-quarter results; the company said it was on track for double-digit full-year earnings growth while it announced that its CEO Angus Russell would retire after 13 years with the company.
1332: Initial US weekly unemployment claims have fallen by 23,000 to 369,000 (Consensus: 370,000), while the previous week's data has been revised slightly higher. Durable goods orders for the month of September have come in at a 9.9 per cent month-on-month rate of increase (Consensus: 7.5 per cent). Excluding the transportation sector orders increased at a 2 per cent month-on-month rate (Consensus: 0.9 per cent). Core capital goods orders (excluding revisions) have also come in ahead of forecasts. FTSE 100 up 24 to 5,829.
1206: Investec has changed its call for the Bank of England's next monetary policy meeting. They now see no further quantitative easing (QE). Related to the above, a poll by Reuters last weekend placed the odds of further QE in November at just 60 per cent, a relatively low outcome. On the corporate front, Johnson Matthey is moving higher on positive read across from sector peer BASF. FTSE 100 up 15 to 5,820.
1135: Analysts at Barclays Research have moderated their stance about UK stimulus, expecting QE to be off the table at the next Monetary Policy Committee (MPC) meeting. 'We have changed our policy call and now expect the current round of asset purchases, due to be completed at the end of this month, to be the last (we had previously expected an additional £50bn of QE in November),' they said. 'Our change of view has been prompted by stronger-than-expected Q3 GDP data as well as relatively upbeat comments on underlying economic growth from two pivotal members of the MPC. In light of these developments, as well as recent signs of additional inflation stickiness, we now think it is unlikely that a majority of the MPC will support additional QE in November.' The FTSE 100 is up 15 points at 5,819.
0936: The FTSE 100 index has reacted well to the latest GDP figures that showed that Britain is officially out of recession. The economy expanded by 1.0 percent quarter-on-quarter in the third quarter, compared with the 0.4 per cent decline in the second quarter and well ahead of the 0.6 per cent increase expected. Sterling is now trading 0.42 per cent higher on the day at 1.6106 dollars after the data. The Footsie is trading 34 points higher at 5,839, as banking peers Lloyds and RBS join the miners on the risers list.
0930: As some observers, such as Goldman Sachs's Jim O'Neill, had "warned" in the last few days, UK gross domestic product expanded at a 1.0 per cent quarter-on-quarter growth rate in the three months to the end of September. The index of service sector activity expanded at a 1.0 per cent clip (Consensus: 0.3 per cent) in August.
0855: This is what economists at Barclays are telling clients this morning ahead of today's GDP data: "We expect [the data] to show the UK economy to have exited recession, with growth of 0.4 per cent on quarter, consistent with broadly flat output given the unwinding of the weakness in the second quarter caused by the additional Jubilee-related holiday. Our forecast assumes that the net effect of the London Olympics was more or less zero (...) There is likely to be a greater-than-usual degree of uncertainty around this release, as any boost to – or drag on – activity from the Olympics will primarily affect services output for August, and the August index of services, which is released concurrently, represents the main source of new information in the preliminary GDP estimate." FTSE 100 up 28 to 5,833.
0830: UK stocks are now rising slightly, following yesterday's largely in-line US Federal Reserve FOMC statement. The US central bank reiterated that it will continue its purchases of MBS, and that it might undertake additional asset purchases if the outlook for the labour market does not improve substantially. All of that ahead of an avalanche of economic figures expected out today Stateside. Here in the UK all eyes will be on this morning's third quarter GDP statistics (Consensus: 0.6 per cent quarter-on-quarter). WPP is down after lowering its sales growth forecasts on the back of lower client spend in Europe and North America. Unilever is rising after providing its shareholders with a positive surprise on top-line growth, thanks to operations in Brazil. FTSE 100 up 11 to 5,816.