- Traders take profits after recent surge
- European banks on Basel III developments
- Investors looking ahead to central bank decisions
After registering impressive gains last week, stocks across Europe pulled back on Monday with investor taking profits as fourth-quarter earnings season gets into full swing.
The FTSE 100 finished Friday at 6,090; just one point shy of the February 8th 2011 high of 6,091. Including today's fall, the FTSE 100 has risen by around 3% so far during the first few trading days of 2013.
"With the 'mini fiscal cliff' a couple of months away, focus has switched solely to the first corporate earnings season of the year. The reaction in the markets today would suggest that investors are pessimistic about fourth-quarter earnings, especially with the fiscal cliff saga likely to have a negative impact on revenue," according to market analyst Craig Erlam from Alpari this afternoon.
"A common theme in recent quarters has been low revenues with profits generated from cost-cutting measures. Given the inability of any company to continue this in the long term, we're going to have to see better revenues in order to maintain the rally that has sent stock indices to multi-year highs. Expectations are very low heading into the season which could also benefit stock markets," he said.
Investors will be keeping close eyes on decisions from central banks this week. Neither the Bank of England (BoE) nor the European Central Bank (ECB) are expected to make a move this week.
European banks rise on eased regulation
Benchmark indices across Europe were broadly registering losses today in spite of a decent showing across the continent's banking sector after Basel III implementation was pushed back four years. The committee has decided to provide greater flexibility to build up cash reserves. The new standards are aimed at preventing future banking crises.
"Less strict liquidity rules should reduce pressure on banks, thus helping provide a further boost to confidence and the real economic growth, all else being equal," explained analysts at Barclays Research.
"Also, this should ease the expected impact of the introduction of the Liquidity Coverage Ratio (LCR) on money market functioning, in terms of lower bank participation in the very short-term interbank market," they said.
FTSE 100: Barclays leads banks; BAT up after upgrade
Banking giant Barclays was leading banks higher in London - sector peers Lloyds and RBS were also making gains - after regulators eased rules on cash buffers, giving lenders more time and greater flexibility to comply with Basel III liquid coverage ratio requirements.
British American Tobacco was lighting up after Deutsche Bank upgraded the shares
from 'hold' to 'buy', saying that the current price is a "solid entry point to a high-quality stock". Imperial Tobacco, which remains the broker's top pick across European Tobacco names, was also higher.
ITV was also a big riser following an upgrade from Liberum Capital, which improved its earnings forecast for the year and increased its share price target by 10p to 155p.
After a sharp move higher in early trading, supermarket giant Morrisons was lower by the end of the session after a disappointing Christmas trading update with sales (ex fuel) falling 0.9% in the six months to December 30th. Goldman Sachs, Espirito Santo, Panmure Gordon, Oriel Securities and Shore Capital all reiterated their 'sell' ratings for the stock this morning.
Telecoms giant Vodafone erased earlier gains to finish today's session more or less flat. Analysts at Citigroup said this morning that following the 7% underperformance against the sector over the last six months, the stock has "surrendered its premium trading position versus its European peers and now trades close to the lower quartile on near term multiples". At current levels, the US bank said that "a bid from Verizon no longer seems as unlikely as it once did".
Insurance giant Legal & General gained after saying that it has improved the return on equity (RoE) and profitability of new business within its American subsidiary after completing a further phase of its capital efficiency programme.
The stock was also upgraded this morning to 'hold' by Investec as part of its review of the life insurance sector. As part of this review, the broker cut its recommendation for counterpart RSA to 'sell', causing shares to drop.
FTSE 250: Bumi climbs following confident trading update
Mining group Bumi rose after saying that it continues to target a medium-term production target of 30mt each year and in light of the weak coal price environment, it will focus on lower cost pits and defer some of its expansion plans.
Also flying higher was budget airline easyJet after it managed to increase both its passenger numbers and load factor in last month.
CSR and Imagination Technologies were both proving popular ahead of the annual consumer electronics show, which displays the latest hot-topic gadgets, this year hosted in Las Vegas.
UBS has downgraded its rating for precision tool maker Renishaw from 'buy' to 'neutral', causing shares to slip, with the broker saying that it foresees little upside given the stock's impressive rise in 2012. In contrast, oil explorer Premier Oil was up after Nomura raised its recommendation from 'reduce' to 'buy'.
FTSE 100 - Risers
Barclays (BARC) 287.20p +3.79%
Meggitt (MGGT) 412.80p +1.55%
Eurasian Natural Resources Corp. (ENRC) 309.20p +1.51%
Lloyds Banking Group (LLOY) 50.50p +1.28%
Hargreaves Lansdown (HL.) 728.50p +1.04%
ITV (ITV) 109.60p +1.01%
Kazakhmys (KAZ) 819.50p +0.99%
British American Tobacco (BATS) 3,194.00p +0.61%
Tate & Lyle (TATE) 793.50p +0.51%
Imperial Tobacco Group (IMT) 2,454.00p +0.45%
FTSE 100 - Fallers
National Grid (NG.) 694.00p -2.39%
Centrica (CNA) 333.90p -2.08%
Polymetal International (POLY) 1,151.00p -1.96%
Fresnillo (FRES) 1,775.00p -1.93%
Associated British Foods (ABF) 1,550.00p -1.90%
International Consolidated Airlines Group SA (CDI) (IAG) 191.60p -1.79%
Randgold Resources Ltd. (RRS) 5,875.00p -1.67%
Evraz (EVR) 273.80p -1.58%
Antofagasta (ANTO) 1,322.00p -1.56%
IMI (IMI) 1,124.00p -1.49%
FTSE 250 - Risers
Bumi (BUMI) 288.50p +7.37%
Ted Baker (TED) 1,198.00p +6.02%
Imagination Technologies Group (IMG) 458.00p +4.57%
Dunelm Group (DNLM) 711.00p +4.48%
Raven Russia Ltd (RUS) 65.40p +4.47%
COLT Group SA (COLT) 100.00p +4.17%
CSR (CSR) 363.60p +3.83%
Dechra Pharmaceuticals (DPH) 643.00p +3.63%
Laird (LRD) 230.00p +3.56%
Heritage Oil (HOIL) 206.70p +3.51%
FTSE 250 - Fallers
New World Resources A Shares (NWR) 311.10p -5.96%
Dialight (DIA) 1,016.00p -3.70%
Renishaw (RSW) 1,950.00p -3.56%
ITE Group (ITE) 227.20p -3.40%
Vesuvius (VSVS) 370.60p -2.68%
BTG (BTG) 344.10p -2.66%
Moneysupermarket.com Group (MONY) 158.50p -2.46%
Ferrexpo (FXPO) 268.80p -2.40%
Kenmare Resources (KMR) 33.50p -2.33%
Bodycote (BOY) 469.10p -2.27%