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HB Markets Breakfast Today including: Bellway
The markets
Market opening: UK markets is set to open flat, despite Asian markets’ optimistic tone and positive news of fiscal integration in the EU.
New York: Positive economic data and progress at Friday's EU Summit lifted the S&P 500 1.7% on Friday.
Asia: Steps towards greater fiscal integration by the EU cheered Asian markets. The Nikkei closed 1.4% higher, while the Hang Seng was trading at +0.9% at 7.00 am UK time.
Continental Europe: Germany's DAX rose 1.9% and the French CAC-40 gained 2.5% on Friday as investors applauded EU leaders' actions at the EU summit.
UK small caps: The FTSE AIM All-share index closed 0.3% higher at 700.4 points on Friday.
Today's news
EU moving towards closer fiscal integration
EU members, except Britain, agreed to amend the treaty to promote greater fiscal integration by including new fiscal norms in members' national constitutions during Friday's historic summit. The EU decided to make €200bn available to the International Monetary Fund (IMF) to aid debt-ridden member nations. It also advanced the launch of the permanent bailout fund, European Stability Mechanism, by a year to mid-2012. These measures will help the region avert a future financial crisis; however, they do little to elevate investors' short-term concerns. The Italian and Spanish bond auctions this week would be the litmus test.
OECD countries to face increasing refinancing risks next year
Organisation for Economic Co-operation & Development (OECD)'s report due next month is likely to say that OECD governments will face a daunting task of refinancing their debt next year as uncertainty about the Eurozone and the global economy continues affecting the stability of governments and economies, the Financial Times reported.
Company News:
Bellway released an interim statement for the four months ended 30th November 2011 on Friday. The company's order book increased 4.1% y-o-y to £458m representing about 73% of its annual target. Despite the downturn in UK's housing market, increased visitors resulted in a 14% growth in reservations. The average selling prices increased 7% following revisions to the company's sales mix. The management expects home sales to increase by 5% in H1 2012. The company acquired 1,400 plots for £71 million during the period. Bellway plans to have 215 properties under construction by early 2012. The operating margins will be about 10%, similar to the margins in H2 2011. The company renewed a £150m credit facility extending the accessibility to funds up to £300m.
Our view: The homebuilder's change in the sales mix has enabled it to increase the average selling price of homes sold despite weak pricing in the wider market. The renewed credit facility will enable the company to seize the opportunity to buy land when prices are sliding, improving long term profitability. In an increasingly gloomy market, we believe the company's offering and execution will give it an edge over its peers and thus issue a BUY recommendation.
Economic News:
UK Producer price index
Factory gate prices in the UK increased 0.2% m-o-m and 5.4% y-o-y in November, the Office for National Statistics reported on Friday. Core output prices, which excludes food, beverages, tobacco and petroleum, remained flat m-o-m and increased by 3.2% y-o-y in November. Input prices rose by 13.4% y-o-y compared to a 14.3% y-o-y rise in October.
UK Trade balance
UK's goods trade deficit narrowed to £7.6bn in October from £10.2bn in September, the Office of National Statistics reported on Friday. Trade deficit with non-EU countries contracted to £4.5bn in October from £5.7bn in September. Exports increased by 9% m-o-m to £26.5bn, while imports fell to £34.1bn from £34.6bn in September. Exports to the European Union (EU) increased by £0.8bn to £13.9bn and exports to non-EU countries increased £1.3bn to £12.6bn.
Our view: Though the increase in exports, especially to non-EU markets, provides a glimmer of hope to Britain's deteriorating economy, it is not likely to subdue expectations of a stimulus program by the Bank of England to spur the economy.
Germany Trade balance
German trade surplus shrunk to €12.6bn in October from €15.1bn in September, Destatis reported Friday. Current account surplus also narrowed to €10.3bn from €16.0bn in September. Exports declined 3.6% to €88.1bn and imports eased 1.0% to €75.5bn.
Our view: Both imports and exports declined indicating deteriorating trading conditions for Euro's largest economy. Exports witnessed the sharpest fall since April, a worrying sign that the Eurozone's crisis could cause the German economy to shrink.
US University of Michigan consumer confidence
The Thomson Reuters/University of Michigan consumer confidence index rose to 67.7 in November from 64.1 in October, a six-month high. The index has climbed for six consecutive months now. The sub-index measuring consumer expectations six months from now, a lead indicator of consumer spending, improved to 61.1 in November from 55.4 the previous month. The index of current conditions, which measures Americans' perception of their current condition to make big tickets purchases, increased to 77.9 in November from 77.6 in October. The increase in the index is more than the 65.8 economists expected, and increases hopes that consumer spending will supplement the US economy's growth momentum set by the manufacturing sector.
US Trade balance
The US trade deficit improved 1.6% m-o-m to US$43.5bn in October from US$44.2bn in September, the US Department of Commerce reported on Friday. Exports decreased to US$ 179.2bn in October from US$180.6bn in September. Imports decreased to US$222.6bn from US$224.8bn
Our view: Receding prices and easing demand for crude oil dented the import bill. However, the narrowing of the trade deficit gap is not expected to last as companies re-stock inventories that unexpectedly declined in Q3 2011, boosting imports even as exports to the Eurozone decline.
