14th Jul 2014 16:23
LONDON (Alliance News) - UK stocks closed higher Monday, enjoying a strong rebound from what some considered the overselling of global equities last week, as well as an extra boost from a strong start by Wall Street after Citigroup got the US banking sector's second-quarter reporting season off with a bang by beating earnings expectations.
The FTSE 100 made a ten-week low last week, while European majors also plunged, amid fears of another eurozone banking crisis as shares in Portugal's largest bank, Espirito Santo, were suspended from trading as its parent company had issues with a bond payment. However, by Monday shares of the Portuguese bank were trading as normal, and investors were convinced that the issue is contained, allowing stocks to enjoy something of a rebound.
The FTSE 100 has closed up 0.8% at 6,746.14, the FTSE 250 has closed up 0.8% at 15,577.71, and the AIM All-Share has closed up 0.7% at 775.29.
Major European markets saw the same bounce, with the French CAC 40 gaining 0.8% and the German gaining 1.2%.
"It's hardly surprising that, just five years on from the worst global banking crisis in recent memory, the market has the scope to overreact to banking contagion fears," said Spreadex trader David White.
The price of gold Monday also highlighted last week's market jitters over potential problems in the eurozone and the overreaction to the news from Portugal. Gold has fallen more than USD40 from a near-four-month high of USD1,345.28 per ounce made on Thursday, as news broke about the debt problem, to a low Monday of USD1,302.39 per ounce.
"Gold has been battered today and as result some precious metal miners are underperforming in an otherwise bullish day for stocks," said Fawad Razaqzada, technical analyst at Forex.com.
Indeed, amongst the heaviest FTSE 100 fallers, on a day when most stocks recorded gains, were Fresnillo and Randgold Resources, down 0.9% and 0.7%, respectively.
US equity markets suffered less than their European counterparts as a result of last week's debt concerns, but have still enjoyed a rebound after suffering the worst weekly performance for some time. However, it was stronger-than-expected earnings from Citigroup, the country's third-biggest bank, that has sent the Dow Jones back above 17,000 to a new all-time high Monday.
After the European market close, the DJIA continues to trade up 0.8%, the S&P 500 is up 0.5%, and the Nasdaq Composite is up 0.7%.
Earnings expectations amongst the big US banks have been set fairly low, given a reticence to lend, cuts to investment banking, and various investigations and fines that have weighed on the sector. Nevertheless, Citigroup got the US banking sector off to a good start Monday by announced earnings per share of USD1.24, beating the consensus estimate of USD1.02 per share.
US corporate earnings are likely to be the major global focus of the week, as despite Alcoa kicking-off the second-quarter reporting season last week, the more influential companies start to report this week. Citi's banking peers JP Morgan and Goldman Sachs are due to report on Tuesday, along with technology bellwether Yahoo! and pharmaceutical group Johnson & Johnson.
Earlier in the session, the release of European industrial production data had caused the equity market rally to stall, before it was rejuvenated by the better start in the US. The data confirmed that industrial production in the eurozone shrank by 1.1% month-on-month in May, reversing the 0.7% gain recorded in April, while on an annual basis production grew at 0.5%, having slowed from 1.4% in April.
While a poor number had been expected given the disappointing production data from across the eurozone, as well as the UK, last week, the 1.1% fall is the largest drop since September 2012 and far from positive in the climate of concern over the weak eurozone economic recovery.
Within the individual UK equity movers, Sports Direct International was the stand-out gainer, ending up 3.6% at the top of the FTSE 100 on the news that it intends to break into the sports retail markets of Australia and New Zealand. Sports Direct will form an online partnership with ozsale.com.au, part of the Mysale Group, the newly AIM-listed retailer in which Sports Direct bought a 4.8% stake last month. The partnership will give Sports Direct access to ozsale.com.au's 12 million customers in the Asia Pacific region and beyond.
Pharmaceutical firm Shire was back in focus, with its shares reaching new highs and closing up 1.9%, after the Dublin-based company said it is now "willing to recommend" the the latest offer from US rival AbbVie to shareholders. The pharmaceutical sector has seen a flurry of merger and acquisition speculation and activity on recent months, and Shire has the been the centre of attention since AbbVie made an initial approach back in May. Having been rejected four times, AbbVie's fifth proposal of GBP52.20 per share seems to have the attention of Shire's management.
"The price seems fair; it's just a shame it needed five bids to get to this stage," said Gordon Hamilton, head of Healthcare M&A at Cavendish Corporate Finance. "Good outcome for both companies, and it's less controversial than Pfizer's abortive bid for AstraZeneca, as Shire does not have the large UK workforce and research and distribution.”
There have been a number of market-moving headlines from the airlines and related companies as the annual Farnborough Airshow has gotten underway. Rolls-Royce ended the day up 1.3% following the announcement that it has won the contract to supply aircraft maker Airbus with its new Trent 7000 engines for Airbus's new A330neo aircraft.
The airlines themselves have performed less well, with easyJet ending as the biggest faller on the FTSE 100, down 1.7%, and International Consolidated Airlines Group closing just fractionally lower.
EasyJet announced it has appointed CFM International as its engine supplier. Under the terms of the deal, CFM, a 50/50 joint venture between France's Safran SA and the US's General Electric Co, will provide 270 engines to power its firm order of 35 Airbus current generation A320 aircraft and 100 Airbus new generation A320neo aircraft.
Separately from that announcement, easyJet suffered another broker price target downgrade as analysts readjust their forecasts following recent profit warnings in the airline industry that have undermined shares across the sector. The latest downgrade is from HSBC, which now targets 1,250 pence per share for easyJet instead of 1,600p. The shares closed Monday at 1,244.00p.
Meanwhile British Airways parent IAG said it has converted 20 of the 100 Airbus 320neo options it announced in August 2013 into firm orders. News from the air show, which is on all this week, may well keep the aerospace stocks in focus in the coming trading sessions.
Possibly the main event of the day is still to come Monday, when European Central Bank President Mario Draghi faces questions over his current monetary policy decisions from the European Parliament at 1800 BST. As usual, any unexpected deviation from previous rhetoric could shift investor sentiment and provide the early direction for European markets on Tuesday.
"Draghi may be questioned heavily on the selection of stimulus measures that the ECB opted for, given that they have come in for quite a lot of criticism by market participants," said Alpari market analyst Craig Erlam.
On Tuesday, the Bank of England Governor Mark Carney will face the Treasury Select Committee and their questions over the central bank's latest financial stability report, with the hearing due to begin at 1000 BST.
Then turning to the US central bank, Federal Reserve Chair Janet Yellen will provide the major market focus on Tuesday, when she delivers her semi-annual testimony to Congress at 1500 BST.
As well as the markets having comments from the troika of central bankers to digest, along with the big US companies reporting Tuesday, it also is a busy day in the economic calendar. UK consumer price inflation and retail sales data are due at 0930 BST, the German ZEW economic surveys are scheduled for 1000 BST, and US retail sales are due at 1330 BST.
In the UK corporate calendar Tuesday, trading updates are due from Bwin.party Digital Entertainment, City of London Investment Group, Carrs Milling Industries, Dairy Crest Group, ITE Group, and Michael Page International.
By Jon Darby; [email protected]; @jondarby100
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