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Last Week in the City

Garry White, Chief Investment Commentator, looks at the market moving events that have shaped the UK equity markets this week (December 15th to 19th 2014).

by
Garry White

in Features

19.12.2014

The FTSE 100 broke its recent losing streak, rallying by 5% over the week by mid-session on Friday. The bull run was sparked by soothing words form the US Federal Reserve following its lasts rate-setting meeting.

Economics

The US Federal Reserve sent a strong signal that it expects to tighten monetary policy in mid-2015 by dropping its forecast that it would keep interest rates low for a “considerable time”. The rate-setting Federal Open Market Committee instead said it would be “patient”. UK retail sales surged in November, growing at an annual rate of 6.4%. This was the fastest pace in a decade as consumers took advantage of “Black Friday” discounts. Fitch Ratings cut France's Long-term foreign and local currency Issuer Default Ratings to AA from AA+. A Chinese factory output gauge fell to a seven- month low in December even after efforts by the central bank to ease monetary conditions, suggesting more stimulus will be needed to halt the slowdown. The preliminary Purchasing Managers’ Index from HSBC and Markit Economics fell to 49.5, missing the median estimate of 49.8. The Bank of Japan maintained unprecedented stimulus, as Governor Haruhiko Kuroda’s bid to stoke inflation faces increasing challenges from the tumble in oil prices.

Geopolitics

A defiant Vladimir Putin said Russia should brace itself for two years of recession, as he blamed economic woes on a western plot to defang the Russian bear. The rouble leapt 12% on Wednesday as the Russian government and central bank revealed measures to support the currency and shore up confidence in the country’s financial system. Shinzo Abe’s Liberal Democratic Party has cruised to another election victory in Japan, despite a record-low turnout.

Energy

Opec's most influential producers are willing to allow oil prices to fall to $40 per barrel before discussing whether the cartel should hold an emergency meeting to discuss cutting output, according to Suhail al-Mazrouei, energy minister of the United Arab Emirates. The UK's oil industry is in "crisis" as prices drop, according to Robin Allan, chairman of the independent explorers' association Brindex. He said the North Sea oil industry was "close to collapse". Speculation mounted that BP may need to write down the value of its stake in Rosneft due to plummeting oil prices and a crumbling rouble. The share price of oil companies was volatile over the week, but Royal Dutch Shell shares added about 8% and Tullow Oil rose 16%. Oil services company Weir Group rose more than 12%.

Financials

The Bank of England released the results of its bank stress tests. Co-op Bank failed to pass, as expected, but all other banks made the grade. However, Royal Bank of Scotland and Lloyds Banking Group would be at risk in the event of a severe economic crisis, but are taking measures to reinforce their balance sheets. Both banks would need to ask the central bank if the board wished to restart dividends. The government unveiled plans to sell up to £3bn of its stake in Lloyds over next six months. The £500m Barclays has ring fenced to settle its fines for rigging foreign exchange markets will not be enough, chief executive Antony Jenkins said. Royal Bank of Scotland chief executive Ross McEwan said it will take up to a decade for the bank to repay the £46bn injected by the government, weekend press reports said. The London Stock Exchange said it had seen good year-on-year increases in activity across all its main businesses.

Telecoms/Media

Mobile phone operators have struck a deal with the government to fill in partial gaps in mobile coverage in a move intended to give 90% geographical cover from the four big networks by 2017. BT Group is preparing a financing package including a £2bn rights issue to help fund its planned £12.5bn takeover of EE, reports suggested. The share placing will help to keep the telecom giant's level of debt at a manageable level as it faces big bills next year from an anticipated increase in pension fund top-up payments and a jump in Premier League rights costs, reports noted. Under the deal to buy EE, Germany's Deutsche Telekom and France's Orange would take a 12% and 4% stake in BT respectively. British broadcasters including the BBC and ITV could be allowed to charge cable and satellite pay-TV companies such as Sky for carrying their channels, Ofcom said. Tenders were invited for the latest round of English Premier League rights, with more games on sale. Following BT group’s launch of sports channel, the price of these rights is expected to rise.

Pharmaceuticals

Shire is reportedly considering an offer for US-based drug developer NPS Pharmaceuticals. AstraZeneca has secured approval for its Lynparza cancer drug from the European Commission.

Supermarkets

The black hole in Tesco’s accounts may be larger than feared, according to research from JPMorgan Cazenove.

Other retail

Dixons Carphone posted its first results as a merged company, with interim like-for-like revenues up 5% and second quarter like-for-like sales rising 9%. Management said it had made market share gains across electrical and mobile businesses in the UK & Ireland, Nordics and Greece.

Industrials

Taxpayers lost out on receiving a lower sum from the privatisation of Royal Mail than the £1bn suggested by MPs earlier this year. A report by Lord Myners suggested the figure was £180m.

Mining

Rio Tinto and rival BHP Billiton are amassing vast copper holdings in an attempt to grab a larger share of the $140bn world market, in an apparent aim to squeeze out high-cost producers just as they did in the global iron ore business, according to Australian consultancy MineLife.

Airlines

British Airways owner International Consolidated Airlines Group said that the Irish carrier Aer Lingus has rejected a takeover offer. Air France-KLM Group will push back delivery of some aircraft in the next two years to contain costs following its third profit warning this year.

Charles Stanley Research

Top stock pics for 2015: Ashtead; Barclays; BT Group; Direct Line; Experian; G4S; Imperial Tobacco; Johnson Matthey; Land Securities; WPP.

Other research: Friends Life (upgrade to hold form reduce); Drax (downgrade to hold from accumulate); InterContinental Hotels (accumulate); BT Group (accumulate).

Other broker changes

Goldman Sachs cut its rating on Intertek shares to “neutral” from “buy”.

Citigroup cut its rating on exhibition group Informa shares to “sell” form “neutral”.

Deutsche Bank downgraded its rating on Standard Life shares to “hold” from “buy”.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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