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Markets fall as investors await central bank decisions
MARKET BLOG: Oil major BP drags the FTSE 100 slightly lower.
14.45: Shares remain in the doldrums, in low-volume trading, following a divergent clutch of US data and as the guessing game continues ahead of key central bank decisions.
Investors are waiting on the results of meetings to be held by the policy-setting committees of the US Federal Reserve, European Central Bank and Bank of England.
Markets took a knock from a report that the German finance ministry was not considering granting a banking licence for the permanent ESM eurozone bailout fund – a necessary move to allow the fund to borrow from the European Central Bank.
In economic news, US house prices rose more strongly than expected in May, according to the Case-Shiller 20-City index. Teunis Brosens of ING Bank said prices would probably edge up slightly in the remainder of the year. ‘That may not sound like much, but it actually is good news: after five years of price declines, Americans may finally rediscover that house prices need not always go down.’
A separate report on the US economy was more downbeat. Personal spending was weaker than expected with no change in June after a 0.1% decline in May. ‘The post-Japan surge in auto spending is behind us and consumers are returning to a cautious stance as they face uncertainties about job and income security as well as fiscal policy and future tax liabilities,’ noted Julia Coronado of BNP Paribas.
Most European markets are lower, including Britain’s FTSE 100, which is down 0.3% at 5,675, still weighed down by BP (see earlier posts). In the US, the Dow index has opened down 0.1%.
Chi-Med boost for fund managers14.19: Fund manager favourite Hutchison China MediTech (HCM.L), the London AIM-listed but China-based healthcare company, today pleased investors with a bullish statement and 25% rise in revenues.
The company, also known as Chi-Med, announced a 97% increase in operating profits to $7.2 million in the first half of 2012, on revenues of $102 million. ‘The prospects for each of our businesses are strong,’ said chief executive Christian Hogg, boasting of China’s ‘enormous’ consumer market in a results announcement that sent shares up 7.8% to 380p.
When Citywire interviewed Anthony Bolton (pictured) in June – at which time Chi-Med shares made up 1.2% of his Fidelity China Special Situations Fund – Bolton said: 'The valuation of the shares can be justified by the latter two businesses alone while the drug discovery business, which could be very valuable if it finds a winner, is thrown in effectively for free’.
Shares have performed strongly since the company was listed on AIM in 2006, rising from 250p to 380p today. But they are below a 2010 peak of 567p.
Devro helped by developing world sausage tastes
11.20 Sausage-skin maker Devro (DVO.L) continues to benefit from increased meat consumption in fast-growing emerging markets.
The firm announced an increase in revenues for the first half of 2012 rose to £115.4 million, from £107.1 million.
Cost inflation and currency movements did, however, weigh against the company’s profits, which (pre-tax) were unchanged at £19.6 million from £19.6 million in 2011.
Steve Hannam, Devro’s chairman, said the company was ‘on track to meet the Board's expectations for the full year’.
Analyst Nicola Mallard of Investec Bank was upbeat on the numbers, increasing her target price slightly to 355p from 345p. Investec has a ‘buy’ rating on the shares, which today are down 0.6% at 298p.
Devro is a Citywire Top Stock, held by Derek Stuart in his Artemis UK Special Situations fund . As one of two market leaders it has been able to grow its margins through a series of steady price increases.
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Shareholders reject Lighthouse Group AIM delisting
10.52: Shares in IFA network Lighthouse Group (LGHT.L) are soaring after shareholders voted against plans to de-list from the AIM market.
At the firm's general annual meeting today, 53.17% of shareholders voted against the plan to de-list, with just 46.83% voting in favour. Seventy five percent of shareholders would have had to accept the motion to de-list for it to be passed.
Lighthouse first proposed to de-list from the AIM market in early July, citing regulatory burdens and a wave of mis-selling claims in the IFA sector as reasons for a drop in appetite for shares in advisory businesses. The proposal, which saw shares slump from 5.7p, was opposed by many shareholders though.
Today shares are up 22% at 3.7p.
Chinese stimulus hopes raised
10.30: Xinhua, the Chinese state run news mouthpiece, has comments from leaders Hu Jintao and Wen Jiabao that the country is to step up its fine-tuning efforts in the second half of the year.
This means that the People’s Bank is preparing to take more measures to support the economy, moves that will be welcomed by world markets.
This from Xinhua, via Reuters:
CHINA'S PRESIDENT HU SAYS TO INCREASE FISCAL AND MONETARY POLICY SUPPORT TO THE ECONOMY IN H2
CHINA'S HU SAYS TO DIVERSIFY EXPORT MARKETS, IMPROVE INVESTMENT ENVIRONMENT
CHINA'S PREMIER WEN SEES SIGNS OF ECONOMIC STABILISATION, BUT CANNOT UNDERESTIMATE CHALLENGES AND RISKS
CHINA'S WEN SAYS TO STEP-UP POLICY FINE-TUNING IN H2
CHINA'S WEN SAYS TO STICK TO PROPERTY TIGHTENING MEASURES TO PREVENT PRICE REBOUND
Meanwhile, Britain's FTSE 100 remains slightly down, at 5685, even as other European markets make small gains.
Consumer morale remains weak
09.18: ‘Consumer confidence remains as stagnant as the economy’ according to research firm GfK Nop, which has recorded a -29 consumer confidence score for the UK in July, unchanged for a third month.
The weak reading, part of a report commissioned by the European Commission, comes after the Office for National Statistics reported a 0.7% contraction in UK GDP in the second quarter of the year.
The consumer morale figures are the first of a string of economic figures published today.
Separate numbers showed Italy’s unemployment rate jumped to 10.8% in June, worse than expected.
Germany’s unemployment rate remained at 6.8% as expected.
Weir shares drop as chief executive warns on outlook
08.39: Weir (WEIR.L), the pump and valves maker whose shares have slumped this year, has reported a 27% rise in pre-tax profits for the first half of the year to £226 million.
Shares in the Citywire Top Stock declined though, down 3.4% to £16.46, having made strong gains yesterday on the back of takeover speculation and Goldman Sachs’ reiteration that the shares are a ‘conviction buy’.
Chief executive Keith Cochrane warned about the outlook for the second half of the year. He expects a ‘strong performance’ from the minerals and power and industrial divisions and ‘some improvement’ in oil and gas upstream pressure pumping aftermarket demand relative to the second quarter, ‘although the timing of any improvement remains uncertain’.
Cochrane forecast full-year profit of between £440 million and £460 million ‘with the low end of the range reflecting no improvement on Q2 in upstream oil and gas’.
This morning Investec raised Weir Group’s target price to £18.50 from £17.70, with a ‘buy’ rating.
BP profit slump weighs on FTSE 100
08.03: The FTSE 100 has opened slightly lower, at 5,689, with index heavyweight BP (BP.L) among the big fallers after announcing a sharp fall in second-quarter profits.
BP reported second-quarter replacement cost profits of $238 million, down from $5.4 billion in the same period last year, as it suffered from lower gas and oil prices.
Bob Dudley, BP group chief executive, said: 'We recognise this was a weak earnings quarter, driven by a combination of factors affecting both the sector and BP specifically.'
Investors will today be watching European unemployment figures, and anticipation ahead of this week’s string of major monetary policy decisions starting tomorrow with the US Federal Reserve should keep markets in check.
Overnight in the US the Dow Jones industrial average dipped three points, or 0.02%, to 13,073 at the close. The Standard & Poor's 500 Index closed flat at 1,385. The Nasdaq Composite Index fell 12 points, or 0.41%, to end at 2,946. In Asia, Japan’s Nikkei 225 rose 0.6% while Hong Kong’s Hang Seng index was up 0.7%.
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