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FTSE on pause ahead of EU summit

FTSE on pause ahead of EU summit

16.37: To round up today's market action:

  • FTSE 100 (5,446 closing price) and European markets end slightly lower ahead of Thursday's European summit
  • US markets also drop slightly (Dow flat at 12,484; S&P 500 at 1,312)
  • 'Resilient' Croda is boosted by analysts
  • Petrofac reiterates profit growth expectations
  • Japanese sales tax approved in lower house, paving way for monetary easing
  • UK public finances deteriorate further
  • Shire shares rally back after yesterday's selling
  • Ocado shares dive on warning over the disruptive impact of the Jubilee celebrations and Olympics
  • US consumer confidence slumps

    15.00: US stock markets are swaying to the same soporific tune as European indices, with shares flat as investors await news on the eurozone crisis.

    The Dow and S&P 500 indices are both minutely higher at 12,518 and 1,317 respectively.

    European markets remain in positive territory on a calm day in markets. The FTSE 100 and Eurofirst 300 are both 0.3% higher at 5,466 and 989.

    A slab of economic data due this afternoon could energise investors. So far today in the US data has shown single-family home prices picked up for a third month in a row in April.

    (Update) In addition, a measure of US consumer confidence has shown the fourth consecutive monthly decline.

    Shire 'oversold'

    14.04: Shire’s shares are rallying back after a sharp fall yesterday as analysts suggest the stock has been oversold.

    Shares in the pharmaceutical group closed down 10.2% on Monday after the news that US regulators have allowed Watson Pharmaceuticals in the US to launch a generic version of Shire's best-selling hyperactivity drug Adderall.

    James Gordon, analyst at JP Morgan, yesterday cut his target price for in response.

    Today, though, Société Générale reminded investors that the shares may have been oversold after dropping 24% since the start of the year. Upgrading the shares from a ‘hold’ to a ‘buy’, they add that despite added competition for Adderall XR, Shire remains a ‘high growth story and highly cash generative’.

    ‘Prodigious cash generation should provide the group with flexibility for product or company acquisitions, but also flexibility to increase its dividend payout ratio’, wrote Société Générale broker Stephen McGarry.

    Shire is now at the top of the FTSE 100, up 44p or 2.5% at £17.75 – still a long way to go before it catches up with Monday’s 201p share price loss.

    Please visit our full site to view this interactive chart

    Olympic warning from Ocado

    11.13: Ocado (OCDO.L) shares have dived after the company warned of the disruptive impact of the Jubilee celebrations and Olympics on its sales.

    The shares dropped 15.8% to 90.9p, to the bottom of a flat FTSE 250, after chief executive officer Tim Steiner used the online grocery company’s half-year report to warn:

    ‘The grocery market and the general economic picture remain challenging and uncertain.  The third quarter is particularly hard to forecast as we have already seen some disruption from the Jubilee events, and there is uncertainty as to the effect of the forthcoming Olympic Games, but we expect sales growth to increase in H2 2012 overall. 

    ‘More customers of the big supermarket chains are shopping online.  While we remain cautious about the general economic backdrop, we are well placed to attract a significant number of these new online shoppers as we continue to enhance our offer to customers.’

    Steiner said Ocado’s sales growth of 12% to £332.3 million in the 24 weeks ended 13 May 2012 (compared with the first half of 2011) was in line with market expectations.

    The company has come in for almost constant criticism since floating in the summer of 2010. Jonathan Pritchard, analyst at Oriel Securities, recently reiterated his 'sell' recommendation, claiming the business model is fundamentally flawed.

    Please visit our full site to view this interactive chart

    UK government borrowing rises

    09.50: Disappointing UK public finances figures: public borrowing came in at £17.9 billion in May, higher than expected by economists and £2.7 billion more than was borrowed in May 2011.

    The figures from the Office for National Statistics (excluding banking bailout costs) also showed that net debt was £1013.4 billion, equivalent to 65% of GDP.

    Weak figures were expected amid falling tax receipts – down 7.3% year on year – due to the poor economy.

    Spending is also on the rise – see our separate article here.

    Japan tax approval could pave way for policy help

    08.59: Big news from Japan for investors: the country’s lower house of parliament had approved prime minister Yoshihiko Noda’s immensely controversial plans to double the consumption, or sales tax to 10%.

    Posturing over this tax – which could be a big step towards cutting Japan's debt – has been long weighing on investors’ minds as they decide whether Japan’s sold-off and cheap markets (the Sensex recently fell to a 28 year low) are finally worth buying into, or are no more than a ‘value trap’.

    ‘The reason investors should care about this is because, if the Ministry of Finance achieves some fiscal consolidation, this should be met by easing from the Bank of Japan,’ explained Louis-Vincent Gave of Gavekal before the final ruling was made today.

    According to Japanese broadcaster NHK, via BBC News, 57 ruling party lawmakers failed to back the bill and the prospects of Noda – the sixth prime minister in six years – calling an election have been raised.

    Gave explained further:

    ‘Should the tax increase go through and PM Noda remain in power, a major political breakthrough will have occurred. Indeed, since the consumption tax was increased from 3% to 5% in 1996 under the Hashimoto regime despite popular opposition, the inability to reform its tax code has been a staple of Japanese policymaking. The result is complete policy paralysis and ever-expanding debt to GDP ratios.’

    The bill still needs to pass the upper house to become law, but it is expected to be approved - assuming Noda can hold his government together. According to a report on Reuters, Moody's ratings agency welcomed the news, saying it was positive for Japan's credit rating.

    Petrofac reiterates profit growth expectations

    08.31: Oil and gas service provider Petrofac (PFC.L) is the other big winner on the FTSE 100 in early trading this morning, as it reiterated that it expected to achieve profit growth of ‘at least’ 15% this year.

    The shares are jostling with Croda (see report below) for top position, up 42p or 3% to £13.99 after today’s trading update.

    Please visit our full site to view this interactive chart

    'Resilient' Croda is boosted by analysts

    08.11: Shares in speciality chemicals company Croda (CRDA.L) top the FTSE 100 in early trade after brokers at JP Morgan upgraded the stock to an ‘overweight’ from ‘neutral’.

    ‘Croda's notable characteristic through the last downturn was one of resilience, and we see no evidence to suggest that this attraction is likely to wane,’ the analysts said in a note this morning, which helped the shares to an 85p or 4% rise to £22.10.

    ‘The consistent emphasis on new product innovation, and the secular desire to look younger, provide new momentum, and a hedge for investors worried about the broader outlook,’ continued the JP Morgan praise for the Yorkshire-based company.

    JP Morgan predict another ‘robust’ quarter for Q2.

    They raised the price target for Croda shares to £26.00 from £22.20.

    Please visit our full site to view this interactive chart

    Investors anxious ahead of European summit

    European markets edged higher this morning as investors nibble at stocks after Monday's sharp sell-off. 

    The FTSE 100 is up 14 points or 0.2% at 5,465, with the FTSE Eurofirst 300 also up by 0.2%.

    After London markets closed yesterday there was a flurry of news with Spain’s banks downgraded, Cyprus confirming that it will request an EU bailout, and Greece’s new finance minister resigning because of ill health.

    Last night Moody's downgraded 28 Spanish banks by one to four notches, following the rating agency’s cut to the Spanish government’s rating.

    As well as the government’s reduced creditworthiness, Moody’s said it made the cut on the expectation that the banks' exposures to commercial real estate ‘will likely cause higher losses, which might increase the likelihood that these banks will require external support'.

    Also weighing on investors' minds this morning is a report on the front page of the Financial Times claiming that the summit starting on Thursday will include discussions of proposals to allow the EU far-reaching powers to rewrite the national budgets of eurozone countries.

    Overnight US markets followed Europe down. The Dow Jones industrial average dropped 138 points, or 1.09%, to 12,503. The Standard & Poor's 500 Index lost 21 points, or 1.6%, to 1,314. The Nasdaq Composite Index declined 56 points, or 1.95%, to 2,836.

    Click here to read more about the overnight markets.

    Click here to read our roundup of today’s papers.

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