Date: Thursday 31 May 2012
- US GDP, payrolls, jobless claims, Chicago PMI disappoints
- Spain continues to dampen sentiment
- M and A boosts IHG and Logica
Despite a strong start early on, London’s blue-chip index dropped into the red in afternoon trade as a raft of disappointing data from the US compounded fears over the global economy.
Several economic indicators Stateside came in below expectations today, causing US benchmarks to drop after the opening bell on Wall Street; first-quarter gross domestic product growth was revised lower; initial jobless claims rose by 10,000 to a five-week high while analysts were expecting a slight fall; the Chicago PMI fell sharply in May, despite analysts calling for a moderate rise; while private-sector payrolls increased by less than expected in May.
Turning to Spain, while 10-year bond yields were falling today they still remained elevated, at 6.56% by the close in London. MQS Asset Management Chief Executive Bob Gelfond said that yields above 6.5% create an unsustainable situation for Spain.
The European Commission (EC) said yesterday that it may give the country an extra year to cut its deficit to 3%, easing the pressure on Prime Minister Mariano Rajoy. The EC has also said that the country needs to provide Europe with details on its plans for its fourth largest lender Bankia.
Alpari analyst Craig Erlam said: “We’re currently seeing a tug of war between the Spanish government and the ECB. The Spanish are claiming Mario Draghi should be doing more and likewise the ECB is calling on Madrid to sort out its own mess. The problem is it doesn’t matter which one is right. The longer they fight it out, the more damage that is being done, especially to Spain’s borrowing costs.
Stocks earlier on in the week were helped by opinion polls in Greece which showed that the pro-bailout New Democracy party was in the lead, ahead of the radical left Syriza party which has vowed to renegotiate the terms of the ‘Troika’s’ bailout. However polls this week have told a different story, suggesting that “[last week’s] polls have lost all credibility”, according to one analyst.
Holiday Inn and Crowne Plaza owner InterContinental Hotels Group (IHG) was in demand on the back of M&A speculation, with analyst at Numis earlier this week speculating about a possible tie-up with sector peer Marriott. More fuel was added to the rumours today after activist investor Nelson Peltz declared a 4.27% stake in IHG held through Trian Fund Management; Peltz is known to build interests in companies to push through change (he is said to have been instrumental in the Cadbury-Schweppes demerger).
Heading the other way was insurance group Admiral after the Office of Fair Trading said it would refer the private motor insurance market to the Competition Commission, "after it found evidence that insurers compete in a dysfunctional way that may push up premiums for drivers by £225m a year."
Sector peer Prudential rose after announcing that it is to get its hands on Reassure American Life Insurance Company (REALIC) through the acquisition of its US holding company from Swiss Re for £398m in cash.
Meanwhile, the miners were among the worst performers on the back of concerns over the global economy. Also dampening sentiment in the sector was US peer Joy Global which cut its full-year forecasts for earnings and sales, citing numerous concerns including slowing growth in China. Heavyweight mining stocks Evraz, ENRC, Kazkahmys and Polymetal suffered heavy losses.
Merger partners Glencore and Xstrata finished firmly lower after publishing the documents related to their potential tie-up, first announced in February. Shareholder meetings at each first will take place in mid-July. “The combined group will be optimally positioned to succeed in a changing industry landscape, unlocking value along the entire value and distribution chain from operation to customer, while offering globally diverse customers a reliable, tailored and efficient supply of commodities,” said Xstrata Chairman John Bond.
Business consultancy Logica rocketed 64% early on after news of an agreed bid from Canada's CGI Group. Information technology and business process services provider CGI is offering 105p cash per Logica share, valuing the company at around £1.7bn.
Heading the other way was car and bike parts retailer Halfords after it reported a 20% drop in full-year pre-tax profit, warning that retail sales in the 2013 fiscal year have so far been very disappointing.
FTSE 100 - Risers
InterContinental Hotels Group (IHG) 1,526.00p +6.12%
Croda International (CRDA) 2,236.00p +3.86%
Fresnillo (FRES) 1,348.00p +3.14%
Sage Group (SGE) 256.50p +2.35%
Ashmore Group (ASHM) 339.30p +2.35%
United Utilities Group (UU.) 657.00p +2.34%
Aberdeen Asset Management (ADN) 243.00p +2.32%
Kingfisher (KGF) 282.00p +2.06%
GlaxoSmithKline (GSK) 1,438.00p +2.06%
British American Tobacco (BATS) 3,058.50p +1.87%
FTSE 100 - Fallers
Admiral Group (ADM) 1,039.00p -7.15%
ITV (ITV) 72.90p -5.69%
Evraz (EVR) 295.30p -3.05%
Burberry Group (BRBY) 1,367.00p -2.98%
Weir Group (WEIR) 1,544.00p -2.89%
Eurasian Natural Resources Corp. (ENRC) 422.50p -2.78%
Polymetal International (POLY) 771.50p -2.59%
Kazakhmys (KAZ) 665.00p -2.21%
Resolution Ltd. (RSL) 192.90p -1.83%
Xstrata (XTA) 922.50p -1.80%
FTSE 250 - Risers
Logica (LOG) 110.90p +68.80%
Euromoney Institutional Investor (ERM) 801.00p +4.98%
Northgate (NTG) 174.80p +4.05%
Berkeley Group Holdings (The) (BKG) 1,248.00p +3.83%
Henderson Group (HGG) 99.00p +3.72%
RPC Group (RPC) 386.70p +3.70%
Yule Catto & Co (YULC) 201.50p +3.60%
Moneysupermarket.com Group (MONY) 115.90p +3.48%
PZ Cussons (PZC) 322.70p +3.40%
Rathbone Brothers (RAT) 1,246.00p +3.40%
FTSE 250 - Fallers
Halfords Group (HFD) 241.90p -12.32%
Talvivaara Mining Company (TALV) 131.30p -5.27%
Aquarius Platinum Ltd. (AQP) 73.35p -4.68%
New World Resources A Shares (NWR) 277.20p -4.38%
Ferrexpo (FXPO) 197.20p -4.09%
Essar Energy (ESSR) 136.20p -3.95%
Fenner (FENR) 377.10p -3.92%
Homeserve (HSV) 138.80p -3.88%
WH Smith (SMWH) 481.30p -3.39%
Bodycote (BOY) 379.10p -3.34%
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