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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 (October 6th to 10th, 2014).

by
Garry White

in Features

10.10.2014

Worries about global growth caused equity markets to slide this week, with the oil price falling to a four-year low on demand fears. Concerns about the spread of the Ebola virus outside West Africa also prompted concerns.

The FTSE 100 index fell by 2.4% over the week by mid-session on Friday.

Economics

The US Federal Reserve released the latest minutes from its recent rate-setting meeting, which were particularly dovish. Officials were concerned about a weakening global outlook and the surprise strength of the US dollar. This prompted a fall in the dollar and rallies in equities and gold. The International Monetary Fund cut its global economic growth forecasts for the third time this year, warning of weaker growth in eurozone countries, Japan and big emerging markets like Brazil. Concerns mounted that Germany was heading into another recession, but Chancellor Angela Merkel side-stepped French President Francois Hollande’s call to use stimulus measures to counter Europe’s faltering recovery, saying investments need to be carefully considered.

Geopolitics

Concerns grew over the potential global economic impact of the Ebola outbreak in West Africa after the World Bank warned that the region faced a $32.6bn economic hit if the disease was not contained. Hong Kong authorities called off talks with leaders of the pro-democracy movement, accusing them of undermining efforts to break the impasse that has paralysed the city’s main commercial hubs for almost two weeks. The US and Turkey were accused of being involved in an exercise of “diplomatic brinkmanship” over Islamist militants in Syria, as the fate of Kobani, a key Syrian border town, hung in the balance. Sergei Pugachev, a former close associate of Vladimir Putin, said Russian businessmen were all now “serfs” who belonged to the president, with none of the country’s companies beyond his reach.

Mining

Rio Tinto confirmed it had an approach from Glencore in August which would have created the world’s largest miner in a $160bn deal but Rio’s board rejected the offer and there has been no further contact since. The iron ore price remained below $80 a tonne as a glut of supply builds. BHP Billiton hosted an analyst trip to its Western Australian iron ore operations at which it announced plans to cut costs by at least 25% and said there was potential to increase capacity there by 65m tonnes per year at a very low capital cost. Precious metals miners Randgold Resources and Fresnillo were boosted by the Federal Reserve minutes, which showed policymakers were concerned about the strength of the dollar. Mid-cap platinum miner Lonmin said it had returned to full production sooner than expected following recent strike disruption. US aluminium giant Alcoa reported underlying earnings for the third quarter well ahead of analysts’ expectations.

Energy

Brent crude prices fell to a four-year low below $89 a barrel on global growth concerns. BG Group said it had received a $350m payment from the Egyptian government, bringing the amount the Egyptians owe the company to $1.2bn.

Supermarkets

Tesco shares bounced as bargain hunters moved in, with the shares up 8.6% by mid-session on Friday. The troubled supermarket beefed up its board with two new non-executive directors. Richard Cousins has been the group chief executive of FTSE 100 caterer Compass since 2006, and Mikael Ohlsson is a former chief executive and president of IKEA. The shares were also boosted by speculation that buy-out firm TPG Capital Management was considering a £2bn bid for its Dunnhumby data analysis unit. J Sainsbury shares fell 1.7% during the week, with Wm Morrison unchanged.

Other retail

Prices in UK shops fell at a faster rate in September, according to the British Retail Consortium. It said this was driven by a steep decline in prices for non-food items. UBS said internet clothes retailer ASOS was "ripe" for a takeover after a tough year, with Amazon the best fit. The broker said a takeout price of £50 a share was possible, sending its shares soaring.

Travel

Concerns about the spread of the Ebola virus hit travel shares hard. By mid-morning on Friday shares in easyJet had lost 6.5% over the week, British Airways and Iberia owner International Consolidated Airlines Group fell 8.8%, cruise operator Carnival lost 9.7% and InterContinental Hotels Group slipped 6%.

Industrials

As the one-year anniversary of the flotation of Royal Mail Group approached, the company revealed it had set aside £18m to cover potential fines in a French competition investigation into the parcels industry. Associated British Foods was hit after German peer Suedzucker issued a profit warning citing deteriorating sugar markets. Shares in midcap transport company FirstGroup fell after it failed to retain the ScotRail franchise.

Financials

A senior banker from a leading British bank became the first person to plead guilty to UK criminal charges related to the alleged rigging of Libor.

Charles Stanley Research

International Consolidated Airlines Group (accumulate); easyJet (hold); Shire (hold); Rio Tinto (accumulate); Glencore (accumulate); and Hammerson (accumulate).

Other broker changes

BofA Merrill Lynch downgraded its rating on engineer GKN’s shares to “underperform” from “buy” and slashed its price target to 290p from 420p.

Nomura downgraded its rating on Vodafone shares to "reduce" from "neutral".

BofA Merrill Lynch downgraded its rating on Schroders shares to "underperform" from "buy" and cuts its target to £24 from £28.

Citigroup slashed its target on Sports Direct shares to £8 from £10 but maintained a “buy” rating.

SocGen cuts its rating on BAE Systems 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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