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Stimulus-seeking stock markets slip lower

MARKET BLOG: Aegis shares leap as Japanese buyer Dentsu swoops. G4S suffers amid Olympic staff shortage woes.

 
Stimulus-seeking stock markets slip lower

15.25: Mr Market, you’re behaving like a ‘spoiled two year old’ – that’s what John Hardy of Saxo Bank says, in an a spot-on analysis on the odd market movements we’ve been seeing recently, particularly today’s US jobs numbers (see post below) – which were positive on face value:   

‘The reaction to the weekly US jobless claims said a great deal about how this market is positioned these days.

‘The number should theoretically be considered a positive sign for the US economy – but this market doesn’t believe in growth or the economy anymore – it is more like a spoiled, two-year old child that is looking for constant indulgence from the world’s central banks, and any obstruction (like a positive weekly claims print like the one we saw today, for example) to the prospect of immediate and large injections of QE gravy mean it will throw a tantrum like the one we are seeing today.

‘It will be interesting to see if today’s tantrum continues for a while longer. Something tells me this sell-off is of a different quality than the vicious one-day sell-offs that came on ad-hoc EU-related news over the last several weeks that failed to lead to a larger directional move.’

Sharp drop in US jobless claims attributed to distortions

15:01: The number of people claiming first-time unemployment benefits in the US dropped 26,000 in the week ending 7 July, which at face value looks like a boon for the economy, but the figure was subject to distortions.

The drop to 350,000 – in a week that included the Independence Day holiday – confounded economists’ expectations. But it is being partly put down to automakers keeping more plants open than normal for the time of year; a factor that economists say can have a significant effect on the overall number.

Bricklin Dwyer of BNP Paribas (which produced the chart below) commented: ‘The trend in jobless claims suggests that we will likely see another weak employment print in July while the underlying pace of employment growth remains soft.’

US markets have opened lower, while the FTSE 100 is down over 1% at 5,598.

Aegis shares leap as Japanese buyer Dentsu swoops

11.39: Shares in Aegis (AEGS.L) are flying at the top of the FTSE 250 this morning after the advertising agency agreed to a £3.2 billion cash deal with a Japanese agency group.

Dentsu – which has snapped up 30% of Aegis shares and interests in Aegis Shares – offered 240p a share in cash to buy the company in a deal that will create the second biggest marketing communications group in Europe.

Aegis recommended the deal to shareholders.

Analysts at Liberum described it as a ‘fantastic price’ for shareholders, who saw their holdings shoot up by 45% this morning, matching the premium to the average closing price over the past three months that the deal represents.

Liberum’s Ian Whittaker noted that the news will be positive for all the other agency groups, particularly Havas.

Eurozone manufacturing boost fails to lift weary markets

10.11: Companies in the struggling euro area managed to boost industrial production in May, according to figures just published that have done little to boost weary markets.

Production rose by 0.6%, beating economists’ expectations of flat growth. However, the rise comes after April’s 1.1% decline and 'does little to change the view of a contraction in the overall economy in the second quarter,' Martin van Vliet of ING noted.

EU and eurozone industrial production: Click to enlarge

The release from Eurostat is one of few handles for investors today, who are still selling shares after last night’s minutes from the US Federal Reserve’s FOMC policy committee provided few signs that QE3 would be imminent.

A sale of Italian government bonds – a closely watched gauge of the market's perception of a country's economic health – provided another pleasant surprise, with yields demanded at auction lower than expected.

Equity markets are down, with the FTSE 100 0.75% lower to 5,622. The euro is lower, down 0.1% against the dollar to $1.222, shifting little after this morning's data.

Next up is a barrage of economic data from China, due to be published overnight.

G4S shares drop on Olympic staffing delays

09.23: Shares in G4S, the world's biggest security company, are suffering today on the news that it will not be able to supply the full quota of security guards it promised for the Olympics.

Analysts are divided on the impact for the shares, which today are down 7p to 282p.

See full story here

Scandal-struck banks fall on weak FTSE

08.01: Bank shares are down this morning, dropping more steeply than the FTSE 100's 0.7% decline.

HSBC (HSBA.L) shares are 1.7% lower, the worst performing financial company in early trade, after the news that it could be the next UK bank to be hit with a massive fine, having admitted to failure in its anti-money laundering controls.

The lender is expected to apologise for its failures in a US Senate hearing scheduled for next week.

‘Between 2004 and 2010, our anti-money laundering controls should have been stronger and more effective and we failed to spot and deal with unacceptable behaviour,’ HSBC chief executive Stuart Gulliver is reported to have told staff.

According to the Financial Times, analysts believe any fine HSBC receives could run beyond $1 billion. HSBC had previously warned in its 2011 annual report and accounts that fines relating to this issue could be ‘significant’.

Meanwhile, Barclays (BARC.L) (shares off 1.4% to 162p) is preparing to approach the Financial Services Authority (FSA) to get clearance to appoint Michael Rake as its new chairman, according to reports.

Rake, is currently deputy chairman of Barclays and would replace outgoing chairman Marcus Agius (pictured), who's reputation - like that of former chief executive Bob Diamond - has become tarnished by the Libor manipulation scandal.

There has been recent pressure from major shareholders for Barclays to appoint external candidates when replacing top jobs in the wake of the Libor rigging revelations.

Rake also sits on the board of BT and Easyjet, and according to the Daily Telegraph, has told investors he will quit these boards to focus on the job at Barclays.

Fed inaction disappoints investors

07.56: European investors start on the back foot this morning, following declines on Asian and US stock markets after a lack of hoped-for guidance from the minutes of the US Federal Reserve’s FOMC policy committee.

Economists described the FOMC’s closely-watched minutes as ‘QE-friendly’, but indicating that the central bank wants to keep a careful eye on developments before taking any further action.

In Asia, the Bank of Korea became the latest central bank to respond to the weak global conditions and cut its interest rates – the first time it has done so since February 2009.

The Bank of Japan meanwhile only tweaked its asset purchase programme, but held its benchmark rate unchanged.

For more detail on overnight US and Asian markets click here

To read our round-up of today's newspaper headlines click here.

2 comments so far. Why not have your say?

mikeran

Jul 12, 2012 at 19:24

John Hardy of Saxo Bank is correct-- the Market now behaves like a spoilt child, continually throwing a tantrum.The Market does not believe in growth or the economy anymore. It is geared to press the button on its HFT trading systems , and offer its own view and interpretation of results. It is suffering from adolescent and total greed symptoms, with little or no wish to understand genuine/company requirements. Frequently its analysts push out the same old jargon, to suit its own in house company agenda.

It will not change however -- Libor is only the tip of todays Manipulation and perhaps the least worrying. Regulators need more understanding of todays market culture and to move away from any form of self regulation.

report this

Franco

Jul 13, 2012 at 00:59

The fine of £290 mln on one bank in UK for LIBOR fixing will be peanuts when the US companies work the damage to them from all the banks involved,, plus punitive damages etc. We have seen nothing yet. .

report this

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