Date: Tuesday 11 Sep 2012
- Markets await German ruling on ESM, FOMC meeting
- Burberry sinks after full-year guidance
- Miners provide a drag
London's FTSE 100 index was at its lowest levels of the day by Tuesday lunchtime as Burberry and the miners suffered from a steep sell-off; meanwhile, investors continued to show caution ahead of two key 'risk events' this week.
The German Constitutional Court said this morning that it will definitely provide its ruling on the European Stability Mechanism (ESM) and Fiscal Compact tomorrow. This follows fears that the decision could have been delayed due to German protests about the European Central Bank's Outright Market Transactions announced last week.
"There are fears in Germany that too many powers are being passed over to Brussels, thereby reducing the authority of parliament. However, given the fact that the same court approved the EFSF law within German law, it seems very unlikely the ESM will be rejected. As for the Fiscal Compact, this was originally drawn up in Germany, so again it would be very surprising if there were any issues here," said analyst Craig Erlam from Alpari.
Meanwhile, the two-day monetary policy meeting in the US begins tomorrow at which many are expecting the Federal Open Market Committee to announce some sort of easing measures on the back of the disappointing payrolls data on Friday.
Market strategist Ishaq Siddiqi from ETX Capital said: "Although market expectations are for a ruling in favour of the ESM by the German court and more stimulus by the Fed, investors are still uncertain of both outcomes given the mixed messages from Germany and its Bundesbank and worries that the Fed may again delay a response at Thursday’s meeting given that we have the US elections in November."
In other news, the UK trade deficit was £1.5bn in July, much lower than the £4.3bn the month before. There was a deficit of £7.1bn on goods, partly offset by an estimated surplus of £5.6bn on services.
Elsewhere, during his appointment hearing before the House of Commons, new Bank of England Monetary Policy Committee MPC) member Ian Mr McCafferty sounded a dovish tone [as far as the possible implications of his speech for further QE3 are concerned], according to analysts at Barclays Research.
More specifically, he said he thought low productivity was likely to be cyclical rather than structural. He believed firms had adopted employment policies that “smoothed” their demand for workers through the cycle because they worried about their ability to find the appropriate skills and experience once the recovery was underway. The implication is that productivity will improve alongside aggregate demand, in which case low productivity should not be an impediment to further monetary loosening as the inflationary consequences of stronger demand should be minimal (it should perhaps be noted that some observers seem somewhat more wary).
Spanish Prime Minister Mariano Rajoy has yet to decide if he will request assistance from the European Central Bank (ECB) in what would effectively be considered a 'bailout' of the southern European country. “I haven’t decided yet if I’m going to request the ECB’s help. I have to think about it," he said.
British fashion house Burberry plummeted in the opening hour after warning that trading conditions were becoming more challenging with like-for-like sales flat in the second quarter. The firm said that ahead of the key retail trading period in the second half, it expected pre-tax profits for the year to March 31st 2013 to be at the lower end of market expectations.
Nomura and Seymour Pierce both downgraded their ratings on the stock this morning. "This news will obviously hit sentiment towards Burberry and the luxury sector and the shares are likely to underperform until there is better news on demand," said Seymour analyst Kate Calvert.
Meanwhile, miners were firmly out of favour as risk appetite waned: Vedanta, Anglo American, Fresnillo, Antofagasta and Kazakhmys all fell sharply this morning.
Vedanta was the worst performer after saying that subsidiary Sesa Goa has suspended all mining operations today after Indian state Goa temporarily stopped all iron ore mining activities after a scam was uncovered.
Fund manager Ashmore fell after full-year pre-tax profits and assets under management took a small dip in the year to June 30th.
Spread betting firm IG Group rose strongly after first-quarter revenues came in line with expectations, though they were still 18% down year-on-year due to a tough comparative.
Internet gambling group Betfair was in the red in spite of revenues gaining 13% in the three months to the end of July, helped by betting on Euro 2012 and Wimbledon.
FTSE 100 - Risers
British American Tobacco (BATS) 3,164.00p +1.26%
GlaxoSmithKline (GSK) 1,429.00p +0.95%
Royal Bank of Scotland Group (RBS) 254.90p +0.75%
ARM Holdings (ARM) 553.00p +0.73%
International Consolidated Airlines Group SA (CDI) (IAG) 150.90p +0.67%
Unilever (ULVR) 2,257.00p +0.53%
Hargreaves Lansdown (HL.) 656.50p +0.46%
Imperial Tobacco Group (IMT) 2,260.00p +0.44%
InterContinental Hotels Group (IHG) 1,616.00p +0.44%
RSA Insurance Group (RSA) 116.20p +0.43%
FTSE 100 - Fallers
Burberry Group (BRBY) 1,116.00p -18.84%
Anglo American (AAL) 1,915.00p -4.32%
Vedanta Resources (VED) 962.00p -4.09%
Antofagasta (ANTO) 1,210.00p -3.12%
ITV (ITV) 86.10p -2.93%
Kazakhmys (KAZ) 668.00p -2.69%
Kingfisher (KGF) 274.90p -2.41%
Fresnillo (FRES) 1,715.00p -2.33%
Eurasian Natural Resources Corp. (ENRC) 334.70p -2.25%
Randgold Resources Ltd. (RRS) 6,875.00p -2.14%
FTSE 250 - Risers
IG Group Holdings (IGG) 452.90p +4.50%
Dechra Pharmaceuticals (DPH) 572.00p +2.42%
Diploma (DPLM) 455.40p +1.56%
Stobart Group Ltd. (STOB) 116.70p +1.48%
Hiscox Ltd. (HSX) 484.90p +1.19%
BH Macro Ltd. USD Shares (BHMU) 18.82 +1.07%
Dialight (DIA) 1,199.00p +0.93%
Daejan Holdings (DJAN) 2,910.00p +0.87%
Bankers Inv Trust (BNKR) 420.60p +0.86%
Electra Private Equity (ELTA) 1,685.00p +0.84%
FTSE 250 - Fallers
Ruspetro (RPO) 104.00p -9.33%
Oxford Instruments (OXIG) 1,270.00p -6.96%
Hays (HAS) 76.95p -5.29%
Taylor Wimpey (TW.) 55.40p -4.48%
Ferrexpo (FXPO) 188.00p -4.33%
Chemring Group (CHG) 316.90p -4.14%
Lonmin (LMI) 596.00p -3.72%
Petropavlovsk (POG) 380.70p -3.38%
Premier Oil (PMO) 364.60p -3.26%
Homeserve (HSV) 230.60p -3.11%
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