Market buzz: US imposes new metals tariffs, Euro inflation perks up
1528: Basque nationalist PNV party has reportedly said it will back no-confidence vote against Spanish PM.
But scant reaction thus far in longer-term Spanish bond yields, although they are off their intraday lows.
The Ibex 35 meantine is down by 0.8%, which is not excessive given the real possibility that snap elections might be called or the PM step down.
1501: UK Steel reacts to the US Section 232 steel tariffs, with director Gareth Stace saying: "President Trump had already loaded the gun and today, we now know that the US Administration has unfortunately fired it and potentially started a damaging trade war.
“Since President Trump stated his plans to impose blanket tariffs on steel imports almost three months ago, the UK steel sector had hoped for the best, but still feared the worst. With the expiration of the EU exemption now confirmed to take effect tomorrow [Friday, 1 June], unfortunately our pessimism was justified and we will now see damage not only to the UK steel sector, but also the US economy."
He said US steel consumers are already reporting price increases and supply chain disruption and with the UK exporting some half billion dollars of steel to the US last year, producers are going to be hit hard.
“This is a bad day for the steel sector, for international relations and for free trade.”
1449: Thar she blows: As expected, Washington will levy steel and aluminium tariffs on metals imports from the European Union, Canada and Mexico from midnight, Commerce Secretary Wilbur Ross confirmed.
"We look forward to continued negotiations, both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved," Ross said.
The EU is expected to retaliate.
1415: The US is now "poised" to impose metal import tariffs on EU, Canada and Mexico, reports are saying. President Trump's plan is "99.9%" done and poised to be announced soon, according to CNBC, following Commerce Secretary Wilbur Ross statement overnight that tariffs will be announced before markets open or after markets close today.
1300: Deutsche Bank: "The most delicious irony about the last 48 hours is that a day after Italy drove German yields back down towards rock bottom levels, along comes a way above consensus German inflation print. German yields are totally detached from German economic fundamentals."
1241: "The half-life of market memes appears to last minutes rather than days, as Italy has drifted to the back-burner," note currency analysts TD Securities, seeing perky eurozone inflation numbers having helped to "probably" put a floor in EURUSD. "There is little new news to chew on but policymakers are still trying to cobble a coalition together."
The focus is likely to pivot back to the US over the next two days, the analysts reckon. "We are reaching the crescendo of the US data calendar and we think the USD needs a beat on PCE and wages over the next two days or looks set for a deeper correction. We remain sellers of the DXY near 94 and like short USDJPY in cash and EURUSD topside in options.
"CAD is back on the radar screen following the signal that the BoC looks set to hike in July. We think the market was leaning the other way, offering CAD some room to consolidate but little support beyond a squeeze. For USDCAD, today's GDP report offers a low bar to push lower but we think 1.2750 is a good entry level for fresh longs."
1204: Contrast that with Jefferies positive view on Go-Ahead, even though many customers of its Govia Thameslink franchise are still gnashing their teeth over the horrendous and ongoing timetable rejig.
Autumn's Southeastern franchise award should be a key event for GOG's share price, Jeff reckons, with a sum-of-the-parts valuation pointing to a share price of £23-plus if the company wins, or £20-plus if not - "so upside either way".
Jeff forecasts assume no such win and with FY19/20 capex dialing down, analysts nonetheless see free cash flow at £78m/£98m across those years, meaning plenty to sustain the dividend yields close to 6%. "Further out, delivering International targets should broaden GOG's base."
1202: After FirstGroup morning saw a swing to losses and the resulting departure of the CEO, RBC Capital Markets said: "Companies just out of a bid situation tend to pull-out all the stops to deliver a big EPS beat – so the 12.3p EPS vs. BBG cons 12.1p (RBCe 11.9p) was just a 2% beat. We think the lurking risk of a forced break-up (if profits don’t perform and the share price slips back again) means historical precedent suggests a beat should be delivered after Apollo’s rejected approach."
But some corporate action ambition emerges, analysts noted: "Welcome news (to us) today are proposals to; (1) An onerous contract provision for TPE losses (£106m, which will also remove minority effects from EPS); (2) A write down of Greyhound assets by £277m and a deeper review under way, and (3) A restructuring of the company management."
With no new potential industrial or financial bidders having emerged, proof of delivery "is the key here, in our view".
1124: UK consumers are beginning to enjoy the fruits of lower inflation and slightly firmer wage growth, reckons Oxford Economics.
The forecasting firm calculates the average consumer has seen their resources rise by 0.3%, or £74, over the past year. In the year to April 2017, spending power had fallen by £119.
"But this could be as good as it gets for now. Higher oil prices are set to stall the downward trend in inflation, the momentum behind wage growth is weak and the benefits freeze will continue to weigh. We expect spending power to flatline over the coming year, implying a weak outlook for consumer spending."
1118: On CRH, management's new targets are "well ahead" of current consensus estimates, say analysts at Societe General.
"All else equal, we estimate the new guidance could add 10% to the current 2020 Bloomberg consensus EPS and 9% to our current estimates. On top of this, we expect the market to welcome the focus on portfolio management. A strategic review of the underperforming distribution business is timely and has potential to improve return ratios, in our view," says SocGen, viewing a FCFE yield pre M&A and dividends of 6.0% for 2018 and 7.0% for 2019 as "attractive".
Broker Davy calculates that CRH's expected generation of unutilised financial capacity of €7bn over the next four years is "un-paralleled in the sector and provides the company with significant value creation potential".
"Assuming all of this cash is used for acquisition would create at least €12 per share (40%) in incremental value. In the unlikely event that all of the cash is returned to shareholders, this could add c.30% to the share price. The company’s ability to generate strong and sustained cashflow has long been underappreciated."
1054: After EU CPI reached an eight-month high, core inflation looks set to rise further, says Capital Economics. "Moreover, recent increases in oil prices will push headline inflation above 2% next month. While the recent drama in Italy creates a headache for the ECB, we doubt that it will prevent the Bank from ending QE this year."
1044: This was a punchy set of CPI data, says Claus Vistesen at Pantheon Macroeconomics, "but we suspect that the market was prepared for it in light of the strong advance country data...In any case, investors probably are still looking closely at bond yields in Italy rather than the economic data."
Vistesen said fuel is likely to help lift EZ headline inflation to above 2% in coming months, while core CPI data he thinks will increase further in coming months, but the falling trend in goods inflation is a concern.
"Services inflation probably will dip slightly in June, and if goods inflation doesn’t rebound the core rate will fall back to 1.0%. We are sticking to our view that core inflation will reach 1.3%-to-1.4% at the end of the year, but we are now on notice with respect to the trend in goods inflation. For now though, the sharp increase in the headline should be enough to help the ECB over the line with respect to ending QE later this year."
1029: Balraj Sroya, sales trader at Foenix Partners, on the eurozone CPI print: "The ECB’s accommodative monetary policy faces further scrutiny as Inflation finally finds momentum touching 14-month highs of 1.9%. Today's figures should pave the way for a more hawkish ECB next month however, the Bloc currency failed to see any uplift from today's release due to uncertainty surrounding Italy’s current political turmoil, which could potentially see an already cautious ECB become even more so when discussing winding down QE and what the future holds for the bloc."
1015: Inflation in the eurozone jumped to 1.9% in May from 1.2% in April, higher than the consensus forecast of 1.6%. Core CPI, excluding fuel and food, rose to 1.1% from 0.7% in April, also higher than the 1.0% the market expected. Unemployment in the Eurozone dipped to 8.5% in April, from an upwardly-revised 8.6% in March, but not quite as low as the consensus forecast of 8.4%.
1001: Consumer lending in the UK held up better-than-expected last month, but some analysts cautioned that households' real incomes were still on a downwards trend.
Total lending to individuals increased by 0.4% month-on-month or £5.7bn in April to reach £1.584bn, split between a £1.8bn increase (consensus: £1.3bn) in net consumer credit to £210.6bn and a rise of £3.9bn in that secured on dwellings to £1.373bn, according to the Bank of England.
0921: One of the big FTSE risers is CRH after the building materials group said it has begun a shake-up of its business, as it looks to merge European and US divisions and boost profits and target an EBITDA margin improvement of 300 basis points by 2021.
Broker Canaccord says the organisational and business improvement initiatives aimed at streamlining the group to support higher margins and returns are not expected to have any significant impact in 2018 nor significantly change consensus estimates for 2018-19 at this stage. Talk of creating value by using significant cash generation, probably means acquisitions. The organisational moves "suggest a further increased focus on its materials businesses".
"The market is likely to react well to an energized focus on improving group EBITDA margins and returns over the medium term as well as being reminded of the potential for significant acquisitions over the next four years. The shares continue to look relatively un-stretched on valuation to us."
0909: The Financial Conduct Authority has fired a warning shot over the way banks charge for overdrafts, announcing measures intended to save consumers up to £140m a year and calling for fundamental reform of the sector.
Following an 18-month review of high-cost consumer credit, the FCA is proposing introducing mobile alerts to warn of potential overdraft charges, stopping the inclusion of overdrafts in the term “available funds” and making it clearer that overdrafts are credit, among other measures.
0908: The White House is moving forward with plans to hit the European Union with trade tariffs on steel and aluminum, according to reports, meaning the bloc will be dropped from an exemption to global tariffs of 25% on imported steel, and 10% on aluminium.
President Donald Trump is planning to make good on his tariff threat after being unable to win concessions from the EU, the Wall Street Journal is reporting, citing the usual people familiar with the matter. An announcement from the White House or Trump's Twitter account could some later today.
The EU has threatened to retaliate with its own tariffs on such American products.