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HB Markets Breakfast Today including: Pearson and Mothercare
The markets
Market opening: FTSE futures point to a flat open of equity markets despite worries of and EU rating downgrade.
New York: Failure of EU member nations to finalise measures to tackle high government debt and avert a recession in the region dampened hopes and caused the S&P 500 to close 1.5% lower on Monday.
Asia: Fears that rating agencies may downgrade several EU nations in the aftermath of the EU summit weighed on markets. The Nikkei closed 1.2% lower, while the Hang Seng was trading at -1.0% at 7.00 am UK time.
Continental Europe: European markets slumped as the EU summit failed to live up to expectations. Germany's DAX closed 3.4% lower and the French CAC-40 dropped 2.6% on Monday.
UK small caps: The FTSE AIM All-share index closed 1.1% lower at 692.5 points on Monday.
Today's news
EU fiscal pact fails to calm markets
The long-term fiscal pact adopted by the EU to avoid a future debt crisis does little to resolve the crisis on hand. Investor confidence took a hit, as reflected in the increased borrowing cost for Italy and Spain yesterday. Moody's and Fitch joined investors in denouncing the measures. Moody's said it is likely to review the credit rating of all 27 EU members in Q1 2012, while Fitch opined that the summit fell short on providing a "comprehensive" solution to the current crisis, increasing pressure on the short-term credit ratings of EU countries. Investors are looking for both fiscal and monetary policy changes to contain the crisis, Standard & Poor's chief European economist, Jean-Michel Six opined.
Q1 2012 job market weak - Manpower survey
After a quarterly survey, Manpower Group forecasted a bleak hiring outlook saying the pace of hiring would decelerate in Q1 2012 for 30 of 41 countries, including China and nearly every European country. The European debt crisis has increased uncertainty among employers. Britons could face the gloomiest job market in three years next quarter, with no net increase in jobs. The labour market in the US, however, is looking up.
Company News:
Pearson, owner of the Financial Times, sold its 50% stake in the FTSE to the London Stock Exchange (LSE) for £450m in cash. The move is in-line with Pearson's bid to restructure its business away from the financial market data provider and concentrate on business news, analysis and intelligence mainly through an online subscription model. FTSE's revenue for 2010 was £98.5m with an EBITDA £40m. Total gross assets amounted to £100.8m. LSE plans to pay for the deal with existing resources, although it has commitments from several banks for a £350m debt. With FTSE under its wings, the LSE will be able to expand its product offerings in the derivatives, indices and market data related products and services. The transaction is expected to close in Q1 2012.
Mothercare's shares rose by 4.6% yesterday after reports of a possible £150m take-over bid by Cinven appeared in the press. Cinven is contemplating breaking up Mothercare's business by selling off the UK arm and focussing on the more profitable businesses abroad. Mothercare's UK operations recorded net losses of £18.5m in H1 2012 ended 8th October, reversing the £18.4m in underlying profits at its international operations. Other private equity investors, such as Montagu Private Equity and CVC, are also said to have expressed interest in buying the company. The retail sector is becoming increasingly attractive for private equity due to lower valuations and restructuring opportunities. A takeover of Mothercare could mark the return of private equity to the sector, which is viewed as a high risk sector in times of declining consumer spending and climbing unemployment rates.
Economic News:
US Monthly budget statement
The US government's deficit narrowed 9% y-o-y to US$137.3bn in November, the Treasury Department reported on Monday as the government curtailed spending and tax receipts registered a modest increase. For the FY 2012, which began on 1st October 2011, total government deficit touched US$235.8bn, about US$55bn lesser than that reported in the first two months of FY 2011.
Our view: The government deficit was lesser than the US$145bn consensus estimate. Though the increase in government's revenue is an encouraging sign, the US economy will have to grow at a faster pace to reduce the budgetary gap. Meanwhile, the US$1tr plus government deficit has become a heated topic as the country enters an election year. In November, a "super committee" of Republicans and Democrats failed to concur on deficit-reducing measures, triggering automatic government spending cuts totalling US$1.2 trillion starting 2013.
