Market buzz: US stocks slide as UST yields hit 3.0%, FTSE holds on
By Oliver Haill
Date: Tuesday 24 Apr 2018
(WebFG News) - 1639: London's blue chips remains in the black at 7,425.40 on Tuesday, avoiding a late lurch lower as US markets open in the red amid the rise in Treasury note yields.
In a none too common occurrence, especially on days when the pound trades higher, likely as traders take position ahead of key data releases later in the week on both sides of the Pond (UK and US GDP), the Footsie and the second-tier index parted ways.
Dragging on the latter were reports the Treasury was ready to back a reduction in the maximum stake on gambling machines.
Higher gilt yields also weighed on stocks, although BP lent its weight to the upside amid the increased attention being paid in markets to rising crude oil prices, with the oil major's shares finishing within a whisker of their 52-week highs.
Elsewhere, the focus was very much on the recent climb higher in US Treasury yields and analyst chatter regarding whether or not they had already been factored into share prices.
FTSE 100 up 26,53 points at 7,425.40.
1616: The FTSE 100's gains have ebbed away as yields rise and pound climbs out of the gutter with what could be its first positive day in a week against the dollar.
"Caterpillar has helped boost the global economic picture today," says market analyst Joshua Mahony at IG, looking at the US heavy machinery producer's strong Q1 result sending the stock chugging to the top of the Dow leader board.
"With Caterpillar typically seen as a bellwether for worldwide economic development, there is no surprise that today's figures has provided a welcome boost to market sentiment. Outperformance across Q1 earnings and revenue, coupled with a significant improvement to the 2018 profit guidance goes a long way to driving optimism for a firm that stands to gain from any infrastructure project Donald Trump chooses to impose."
Mahony also notes that the cryptocurrency sector appears to be back on the front foot this week, with Bitcoin rising sharply to reach the highest level in over a month against the dollar after the US federal tax declaration date passing a week ago. Bitcoin is up 16%, Ripple 88%, Bitcoin cash 93% and Ethereum 34% versus the dollar over the week.
1537: WTI up 0.81% at $69.20 per barrel and Brent above $75 ahead of API inventory stats. 12 May deadline on Iran nukes deal also in focus. Earlier futures had dipped, apparently on the heels of comments out of Tehran that it might not back an extension on crude output curbs now in place if prices continued to rise.
1505: The Secretary of State for Business, Energy and Industrial Strategy earlier confirmed that Melrose has entered into deeds of undertaking in respect of the GKN businesses, including in relation to national security.
Christopher Miller, the company's chairman, said: "We are pleased to sign these legally binding commitments. We have been in discussions for many weeks with government as to how best to cement our long standing and clear undertakings and are grateful for their guidance. We look forward to continuing to work with the government as we return GKN to be a manufacturing and engineering powerhouse."
Melrose shares are in the red after it said this morning that it was making the tackling of an "unacceptable" performance from GKN's aerospace division a priority as it revealed profit and cash generation across its new acquisition had been below market expectations in the three months leading up to the completion of the £8bn takeover last week.
1500: Vectura is under the cosh after Japan's Sosei Group responds to press speculation and confirms it does not plan to make an offer for the inhaler drugs maker.
1449: US 10-year yield at ... 3.0%. Bund at 0.654% up 2bp, UK Gilts at 1.559% up by 2bp as well. And euro and pound higher.
1443: On the back of the results of their most recent in-house banking survey, UBS reiterates its 'overweight' stance on the shares of US lenders, pointing out how their RoE has risen from 10.1% as 2018 kicked-off to 11.9%, they are 'neutral' on banks in other jurisdictions, save in Australia, where they are at 'underweight'.
"As we look to 2Q 2018, our global banks preference list comprises: Banco do Brasil, China Construction Bank, DBS, First Horizon, ING, JPMorgan, Lloyds, Northern Trust, SMFG and Unicredit," the Swiss broker says.
Analysts at Citi on the other hand are out with a note today in which they have Barclays and Lloyds at 'sell' and say they are 'neutral' on Challenger banks.
Regarding Barclays, Citi adds: "We are most cautious, relative to consensus, on Barclays, due to weaker FICC revenues and heavier US credit card losses."
1436: All is not lost, says Macquarie on recent 'market chatter' re: climbing Treasury bond yields in the States. Indeed, they see some positives in recent economic data and bond market action.
"While the degree to which global growth slows down remains uncertain, we remain of the view that the long tail of the crisis is finally beginning to pass," the Australian broker says.
"[...] we think it is only a matter of time before US long yields break higher - we expect the 10 year to finish the year at 3.3%, and to be near 3.75% by end 2019. However, we also feel that the 3.0-3.1% level will continue to take some time to crack, as a yield above 3.1% would in effect signal the end of the 38 year bond bull market."
Stockmarket valuations in the US (even in the US) are now back at levels seen over much of the past couple of years, they add, despite which volatility is likely to remain 'the name of the game' as investors try and take stock of the impact of higher yields on shares.
1430: Yield on benchmark 10-year US Treasury note adds two basis points to 2.99%, its intra-session higher - just below end-2013 high of 3.0%.
1400: FHFA home price index up by 0.6% on the month for February (consensus: 0.5%) and prior month's print revised up by a tenth of a percentage point to 0.9% month-on-month.
In parallel, S&P Core Logic Case-Shiller 20-city house price index up by 0.8% for the same month (consensus: 0.6%), prior month revised a tad higher as well.
1328: 3M posts Q1 EPS of $2.50 (consensus: $2.50-2.51); sales: $8.3bn (consensus: $8.2bn), shares down 4%.
Freeport McMoRan posts Q1 sales of $4.86bn (FactSet: $4.947), shares down 1%.
Biogen posts Q1 EPS of $6.05 (FactSet: $5.93), sales: $3.13bn (consensus: $3.15bn), shares down 3%.
Caterpillar posts Q1 EPS of $2.82 (FactSet: $2.12); sales: $12.86bn (consensus: $11.98bn), shares up 4%.
Jet Blue Airways posts Q1 sales of $1.754bn (FactSet: $1.759bn), shares up 1%.
Lockheed Martin posts Q1 EPS of $4.02 (FactSet: $3.39); sales of $11.6bn (FactSet: $11.2bn), shares up 1.27%.
Verizon Comm. posts Q1 EPS of $1.17 (FactSet: $1.11); sales of $31.772bn (FactSet: $31.245bn), shares higher by 4%.
Coca Cola posts Q1 EPS of $0.47 (FactSet: $0.45, sales of $7.6bn (FactSet: $7.3bn), shares up 2%.
Alphabet down 0.47% pre-market.
1257: Shire has put out a statement saying it has today received a revised takeover proposal from Japan's Takeda Pharmaceutical, which the board said it was considering.
1210: The London midday market report finds stocks holding on to gains as investors digested the news that the UK had its first budget surplus since 2002, with Shire pacing the advance as it was said to be nearing a preliminary agreement with Japan's Takeda.
The FTSE 100 was up 0.3% to 7,422.64, while the pound was flat versus the dollar and the euro at 1.3942 and 1.1416, respectively, having briefly ticked a little higher on news that the UK had its first budget surplus since 2002.
Earlier, the ONS revealed that government borrowing was £2.6bn lower than the official forecast in the last financial year as the total fell to the lowest since before the financial crisis.
1158: Shares in Shire are up 5.6% on reports that Japan's Takeda Pharmaceutical is nearing a agreement to take over the FTSE 100 drug company.
Shire has been in talks with Takeda since the Japanese drugmaker sweetened its bid to $60bn on Friday and could, a report from Bloomberg says, announce the deal as soon as today.
1114: Manufacturing growth slowed over the three months to April, but remained well above average, according to the latest CBI industrial trends survey. The headline balance of total orders remained at +4, while the market had expected an increase to +6.
"Although manufacturing growth has slowed again this month, manufacturers continue to enjoy the fruits of stronger growth in Europe and the lower pound," says Rain Newton-Smith, the CBI's chief economist. "For manufacturing to continue its resurgence in the years ahead, it will be critical for trade to remain as frictionless as possible with the EU - our closest and biggest trading partner."
1058: The Financial Conduct Authority is warning the public to beware of scammers charging fees for non-existent loans after annual losses from the fraud exceeded £3.5m. The FCA said complaints about the fraud to its consumer helpline increased 44% in 2017 to more than 4,700. Loan fraud has overtaken investment fraud as the most common scam reported to the FCA yet 72% of the public are unaware of the practice.
1042: Ahead of Smith & Nephew reporting Q1 2018 sales on Thursday 3 May, Berenberg put out a note to clients. Yesterday the shares were up on the back of results from Dutch giant Philips and M&A speculation. Analyst Tom Jones sees "another lacklustre quarter" of 5.2% revenue growth, driven by 1.1% underlying growth and a circa-4% FX tailwind, but don't think it has much bearing on the outlook for the shares.
"The key factor, in the short term at least, is the intention of the newly appointed CEO, and the Q1 2018 sales figures should provide the first insights into his strategy.
"We do not expect a radical change in strategy, but we do expect an increased focus on operational execution or, in simple terms, more detail on how he intends to sell more of the products the company already markets."
Fellow analyst Ali Campbell (do all Berenberg analysts have the same names as musicians?) took a look at AstraZeneca after this morning's announcement on the failure of the ARCTIC trial, testing Imfinzi plus tremelimumab in late stage non-small cell lung cancer.
"When viewed alongside the impressive lung cancer datasets we have seen from competitors recently, AstraZeneca's position as a major immuno-oncology (IO) player appears to be weakening," Campbell said, but it does not impact his positive investment thesis, which centres around a "robust return to sales growth" driven by growth in seven key drugs of $12.5bn for 2017-2023, of which $1.9bn comes from Imfinzi.
Campbell remained confident that the vast majority of Imfinzi sales can come from the stage III unresectable lung cancer setting where it already has a "highly successful" phase III result (the PACIFIC trial), so he will not be changing his Imfinzi forecasts, or our model, on this news.
0924: Rising yields are the result of notably higher oil prices and the impact this was having on market sentiment as regards the return of sustainable inflationary pressure and, says Rabobank, upward pressure is likely to remain for a while.
Brent crude oil futures are trading at a four year high above US$75 per barrel on supply concerns, while the recent broader rise in commodity prices such as aluminium and copper have combined to fuel rising inflation expectations. Monday saw these inflation concerns pushing 10-year US Treasury yields 2bp higher to trade at the very cusp of a "psychologically important" level of 3.0%, Rabo noted, also dragging German Bund yields north with the 10y note ending the session at 0.63%, though it opened 2bp lower this morning at 0.61%.
"This upward pressure is likely to remain in place so long as oil prices continue to distort the picture seen in terms of inflation expectations versus the reality of an inflation backdrop which has failed to gain sustainable, fundamental traction," Rabobank said, with acceleration in inflation expectations seen to be the cost-push variety as opposed to the demand-pull variety that will more likely result in a sustainable shift in inflation.
"We have also maintained the view that the decade's long bull run market for bonds is not in fact over but instead, is being tested by misplaced higher inflation expectations thanks to higher commodity prices. Though a break through the 3.0% level for 10 y UST would prove a notable psychological test for the market and may indeed spur further UST selling pressure, we do not anticipate that this move would prove sustained."
0901: William Hill is the big faller in the FTSE 350, with fellow bookies Paddy Power Betfair and Ladbrokes-Coral owner GVC also lower after reports about fixed-odds betting machines and possible new gambling levies.
Chancellor Philip Hammond is understood to have accepted expert recommendations that stakes for fixed-odd betting terminals should be reduced from £100 to £2, The Times reported.
0858: Defence technology group QinetiQ is the top riser in the FTSE 350 after agreeing to buy German airborne training services provider EIS Aircraft Operations for €70m.
0842: London stocks are moving higher in early trade, helped along by a lacklustre pound and rising oil prices.
At 0840 BST, the FTSE 100 was up 0.4% to 7,431.18, while the pound was down 0.1% against the dollar to 1.3929 and flat versus the euro at 1.1415 ahead of the release of public sector net borrowing figures at 0930 BST and the CBI industrial trends survey at 1100 BST.
0838: "You have to spend money to make money," is the message analyst Naeem Aslam at ThinkMarkets takes from Google parent Alphabet's results overnight.
The firm surprised Wall Street with its capital expenditure figure, spending $7.6bn, topping the analyst estimate of $3.5bn.
"The number looks bananas if you compare it to the last year's figure for the same period ($2.409bn), but the increase in the spending was needed to fuel the growth."
Alphabet satisfied investors with revenues that came ahead of expectations at $31.5bn versus the forecast $30.29bn.
"The after bell performance for the stock was very much mixed as the initial reaction was more cheerful but when investors started to pay attention to the soaring cost of traffic acquisition, the enthusiasm waned. We do believe this would be the focus today during the European market session," says Aslam.
"The banking sector last week failed to pump the US equity markets and this despite the fact that we have seen mostly positive numbers from the investment banks - the giants of Wall Street. If the same trend continues in the tech sector, given that this is the biggest week for the tech sector in terms of earnings, we could surely say that the current corrective move could easily turn into a major correction or even a bear market. This is despite the fact that most of the companies which have reported their earnings have topped the street estimate."
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