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HB Markets Breakfast Today including: Easyjet, Anglo American and Robert Walters
The Markets:
Market opening: The FTSE-100 should open lower, starting a week that sees German, Spanish and Italian bond auctions. Futures at 7:00am suggest an opening for the FTSE-100 down thirteen points.
New York: Worries about Europe's festering debt crisis outweighed the positive jobs data. The S&P 500 closed 0.3% lower on Friday, slightly lowering weekly gains to 1.6%.
Asia: Positive US jobs data did little to lift the sentiment soured by the decline in Eurozone retail sales and economic sentiment and Hungary's rating downgrade by Fitch. The Hang Seng was trading at -0.6% at 7.00 am UK time. Japan is closed today.
Continental Europe: The German DAX and French CAC 40 closed 0.6% and 0.2% lower on Friday, little affected by the widely anticipated upturn in the US labour market.
UK small caps: The FTSE AIM All-Share closed 0.8% higher on Friday.
Today's news
China policy easing seen as loan offtake increases
New loans by Chinese banks increased 14% in November and broad M2 money supply expanded 13.6% y-o-y in December (+12.7% y-o-y in November), indicating that the Chinese central bank is easing policy measures to reduce the impact of a global slowdown on China's economy.
Merkel-Sarkozy meet today
German Chancellor Angela Merkel and French President Nicolas Sarkozy meet today to discuss the imposition of the financial transaction tax, the "Tobin tax". British Prime Minister David Cameron is vehemently opposing such a tax unless implemented on a global scale. The German and French leaders will also discuss employment and growth-boosting measures that will help Eurozone countries recover from the debt crisis.
Company news
EasyJet (LON:EZJ)
Passengers carried by EasyJet increased 13% y-o-y in December, the company said on Friday. The annual increment in the number of passengers carried was 11.6%. The load factor, a gauge of seat utilisation, decreased slightly to 85.6% in December 2011 against 85.8% in December 2010. For 2011 as a whole, the load factor improved to 87.5% from 87.2% in 2010. Management said that December 2010 numbers were severely impacted by bad weather. After adjusting for this extraordinary disruption, passenger numbers increased 4% in December 2011 and load factor increased by 1%.
Our view: The aviation sector is facing headwinds from an impending increase in the UK Air Passenger Duty (APD) and the slow pace of development of the government's aviation policy. This adds to the pressure of high fuel costs and tight consumer budgets. Considering the factors currently plaguing the sector we are being very selective about investing in this sector and issue a Hold recommendation.
Shareholders have almost unanimously (99.9%) approved Anglo American's US$5.1bn stake increase in De Beers. The company will acquire the shares of South Africa's Oppenheimer family and increase its share to 85% from the current 45%. The smooth transfer of De Beers is in sharp contrast to the escalating legal battle the company may have to fight with Codelco, Chile's national mining company, over disputed options that gives the Chilean miner a right to buy a 49% stake in Anglo American Sur.
Our view: Despite the legal battle with Codelco, we are bullish about the company's prospects due to Anglo American's high-quality mining assets across diverse minerals and the expected surge in demand in commodities after positive manufacturing data from in US, UK and China. We issue a BUY recommendation.
Management of Robert Walters, the recruitment firm, adopted a cautious tone in its trading update for the period ended 31st December. It alluded to erosion of confidence among employers and candidates due to current economic conditions. Net fee income, the group's measure of gross profit, increased by 14.3% y-o-y to £46.6m in the quarter. For the full year, it was up 18% at £183.6m. Some 70% of the business came from outside the UK, and the group opened its first offices in Taiwan. Despite the uncertainty due to the euro debt crisis, business in France and Germany increased, while the company reported that conditions in the UK remained challenging.
Economic news:
Eurozone consumer and business sentiment
The European Commission reported Friday that consumer confidence in the Eurozone fell 0.7 points in November. The overall indicator of economic sentiment decreased to 93.3 points, sliding 0.5 points in the month. This is the lowest reading since November 2009. However, the business climate indicator improved to -0.31 points in December, up from the -0.42 recorded in November. This is the first improvement in the index in ten months, and was attributed to an increase in future production plans and export orders.
Our view: Further evidence of the likelihood of recession in the Eurozone is provided by the worsening consumer and economic sentiment for the pre-Christmas period. The improvement in the business climate indicator may give some credence to the counter-view that any recession could be relatively mild and short-lived.
Eurozone retail trade
Retail sales in the Eurozone fell 0.8% m-o-m and 2.5% y-o-y in November, the European Union's statistic office Eurostat reported Friday. Portugal, which received a bailout in April, saw sales decline 2.6% m-o-m and 9.2% y-o-y. Stronger Eurozone economies of Germany and France also witnessed retail sales declines of 0.9% m-o-m and 0.4% m-o-m respectively. In the broader 27-member European Union, retail sales declined 0.6% from October and 1.3% y-o-y.
Our view: Depressing consumer confidence and rising unemployment levels due to the various packages of austerity measures to combat the euro debt crisis are continuing to affect retail sales in the Eurozone.
German factory orders
Factory orders in Germany shrank 4.8% m-o-m in November, following a downwardly revised 5.0% increase in October (5.2% previously). November witnessed an all-round drop in orders, with Eurozone orders falling 4.1% m-o-m, demand from outside the single currency zone slipping 10.3%, and domestic orders decreasing 1.1%. Orders for investment goods and consumer goods slumped 6.5% and 2.0% respectively.
Our view: Waning demand from Germany's European trading partners is expected to cause a slowdown in the German economy. However, fears that the Eurozone recession will breach German borders are probably unfounded, given healthy German consumer spending backed by historically high employment rates and upbeat business confidence.
US non-farm payrolls
US non-farm payrolls increased by 200,000 in December, causing the unemployment rate to fall to 8.5%, the Bureau of Labor Statistics said on Friday. November's non-farm payrolls were revised downwards to 100,000 from the 120,000 previously reported, changing the unemployment rate to 8.7% from 8.6%.
Our view: The increase in non-farm payrolls exceeded market expectations of 155,000 job additions for December. The sharp increase in ADP's employment statistics had already pointed towards a healthy increase in US jobs. This bodes well for a recovery in the US economy. Nonetheless, at least one investment bank has indicated that the December numbers overstate the improvement in the labour market, citing a 'seasonal quirk' which has a positive influence on December job data that has historically been reversed in January.
