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Market Movers

Last Week in the City

Garry White rounds up the major market-moving events of the last week - including ratings changes by major brokers.

by
Garry White

in Market Movers

11.07.2014

After falling for four consecutive days, the FTSE 100 snapped its losing streak on Friday. Airlines and insurers had a difficult week, with trading broadly negative after worries over the Eurozone banking system came to the fore once again.

The UK blue-chip index had slipped almost 3% this week by mid-session on Friday. There was bad news for manufacturers, as output in the UK recorded a surprise fall of 1.3% in May, the biggest decline since January 2013. However, analysts expect that this will be a blip.

US second-quarter reporting season kicked off with a positive note this week as aluminium giant Alcoa posted strong results.

Financials

Fears about the Eurozone banking system emerged again on Thursday, after shares in Portugal’s Banco Espírito Santo were suspended because of issues at its holding company. Trading resumed on Friday. But short-selling in the shares was banned. Reassurances were given on Friday that the bank would not run short of capital.

Shares in the London Stock Exchange fell after the Qatar Investment Authority sold down a third of its 15% stake. It is expected to use the proceeds to fund its participation in the bourse’s $1.6bn rights issue to fund the purchase of Russell Investments. The sovereign wealth fund said it planned to hold on to its remaining 10% holding.

Britain’s high-street banks are braced for the publication of a preliminary investigation into competition in the industry, which they fear could result in a full-blown inquiry into current accounts and small business lending, press reports suggested.

Mining

Miners have had a strong week after the gold price jumped to a three-and-a-half month high. The metal was boosted by weakness in the US dollar after the latest set of minutes from the Federal Reserve’s rate-setting meeting indicated the central bank was in no rush to increase rates.

Barclays also upgraded its view on the European mining sector from to “positive from “negative” earlier in the week. The sector, however, was hit by profit taking on Friday.

Airlines

A profit warning from Air France-KLM earlier this week sent the airline sector into a tailspin, with British Airways owner International Consolidated Airlines Group falling 4% on Tuesday. However, shares in companies such as easyJet recovered some of these losses as the week progressed.

Insurance

Wednesday was a bad day for insurers, after Admiral lowered its margin guidance as total car insurance sales in the first half of the year on weak premiums. Aviva also unveiled the next stage of its turnaround plan, which had sensible strategic measures but the City found underwhelming.

Retailers

Morgan Stanley warned that the prospect of an interest rate rise in the next year would continue to hit the valuations of consumer-sensitive sectors such as retail and house builders. The US broker said: “The average rate-sensitive sector underperforms [the market] for 51 weeks around first rate hikes. This year, the current underperformance has lasted 15 weeks so far – 28% of the historical norm.”

Marks & Spencer issued a downbeat statement on Tuesday, with sales of general merchandise falling for its twelfth consecutive quarter. Its food division fared much better, with same-store sales growth of 1.7%. There was more bad news for the retailer later in the week after it was announced that Tesco had poached Alan Stewart, Marks & Spencer’s finance chief.

Mid-cap clothing company SuperGroup said sales had risen by 20% as it continued to open new stores, although profits fell after exceptional costs involved in opening a new retail distribution centre.

Luxury Goods

Fashion House Burberry said sales had accelerated more than City analysts had expected, but it became the latest in a line of companies to warn that that the strong pound would impact its results. Investors, however, focused on the positive. Burberry’s board is expected to get a hard time at the company’s AGM later on Friday as shareholders prepare to revolt over pay after it proposed a £20m pay deal for new chief executive Christopher Bailey.

Tobacco

The City got excited about M&A activity on Friday after Imperial Tobacco said it was in talks to buy cigarette brands from Reynolds and Lorillard if the two US tobacco companies completed a planned $56bn merger.

Pharmaceuticals

AbbVie, the US pharmaceutical company, retracted comments by its chief executive about shareholder support for its bid for Shire, which broke UK takeover rules. The company raised its cash-and-shares offer to £51.15 earlier in the week.

Ratings changes

The most significant rating changes from brokers this week:

Barclays upgraded its rating on BP shares to "neutral" from "underweight".

Deutsche Bank downgraded its rating on BP shares to "hold" from "buy".

Deutsche Bank upgraded its rating on Royal Dutch Shell shares to "buy" from "hold".

SocGen downgraded its rating on Compass Group shares to “hold” from “buy”.

Goldman Sachs upgraded its rating on Coca-Cola HBC shares to “buy” from “neutral” but cut its target price to £15.50 from £16.70.

UBS downgraded its rating on Croda International shares to “sell” from “neutral” and cut its target price to £20 from £23.20.

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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