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HB Markets Breakfast Today including: Bellway, Ted Baker, Spectris
The markets
Market opening: Renewed worries about the Eurozone crisis could cause markets to open lower today: FTSE futures were trading 12 points lower at 7.00 am UK time.
New York: The S&P 500 retreated 0.5% on Friday after JPMorgan's quarterly earnings failed to meet expectations and S&P's European downgrade renewed worries about the Eurozone.
Asia: S&P's downgrade brought the Eurozone crisis to the forefront again, clouding investor sentiment. The Nikkei closed 1.4% lower, while the Hang Seng was trading at -1.0% at 7.00 am UK time.
Continental Europe: Investors adopted a wait-and-watch approach as Italy's auction failed to match Spain's success. The German DAX dipped 0.6% and French CAC 40 closed 0.1% lower on Friday.
UK small caps: The FTSE AIM All-Share index closed 0.2% higher on Friday.
Today's news
S&P acts on December's downgrade warning
The Eurozone suffered two separate blows over the weekend. Standard & Poor’s downgraded the credit rating of nine of the 17 Eurozone nations, including France and Austria. Separately, Greece’s talks with private creditors hit a roadblock. S&P added that Eurozone’s bailout fund, the European Financial Stability Fund (EFSF), and commercial banks may be next in line for a rating cut. The downgrade of the EFSF will compel the European Central Bank (ECB) and the International Monetary Fund (IMF) to take a more central role in fighting the crisis. The loss of the AAA rating for France and Austria pales in comparison to the prospects of a Greek default. Greece’s deal with private creditors is a pre-condition for drawing on the €130bn rescue package. The probable Greek default and S&P actions will pressurise Euro leaders to bolster the region’s defences by implementing a fiscal agreement more quickly and setting up the region’s permanent rescue fund.
Company News:
Spectris (LON:SXS)
Spectris, a developer of productivity-enhancing instrumentation and controls, released a trading update for its full year ended 31st December. Sales are expected to increase by about 23% y-o-y (2010: £909.1m). Organic sales increased by approximately 15% y-o-y. Adjusted operating profits are expected to increase to £200m from £142.1m in 2010, implying an improvement in gross margins to 18% from 15.8% in 2010. Geographically, growth in the Asia-Pacific region was approximately 17%, North America and Europe grew some 14% and 13% respectively. Management acknowledged the uncertainty clouding the global economic environment, but said Spectris is well placed to grow in the year ahead in growing markets, with the help of recent acquisitions.
Our view: The demand for the company's productivity-enhancing products is expected to increase as the manufacturing sector cuts down on capacity expansion and focuses on margin enhancement. We see Spectris as a counter-cyclical stock and recommend a BUY.
Ted Baker (LON:TED)
Clothing retailer Ted Baker, released a trading update for the eight-week period to 7th January 2011. Retail sales increased 15.7% y-o-y with a 7.3% increase in average retail space. Not participating in any price war has helped protect gross margins. Gross margin and pre-tax profits were in line with expectations. Management said that despite the uncertainty surrounding the global economic environment, the company's plan for 2012 includes entering the Japanese and Chinese markets with stores in Tokyo and Beijing, and expanding in the US with a store on Fifth Avenue, New York.
Homebuilder, Bellway aims to sell more homes in 2012 and increase the average selling price through an improved product mix, Chairman Howard Dawe said during the company's Annual General Meeting on Friday.
Economic News:
UK producer price index
Producer prices fell 0.2% m-o-m and rose 4.8% y-o-y in December, the Office of National Statistics reported on Friday. Input prices also eased 0.6% m-o-m. Retreating oil prices helped annual input prices drop substantially to 8.7% in December from 13.6% in November.
Our view: This is the first fall in factory prices in 18 months and provides some credibility to the Bank of England (BoE)'s estimate that inflation will recede in 2012. The fall in producer prices takes some time to affect consumer prices; however the trend is expected to encourage the BoE to restart the asset purchase programme in February.
Eurozone trade balance
The Eurozone trade surplus widened to €6.9bn in November from a downwardly revised €1.0bn (€1.1bn previously) in October, the Eurostat reported on Friday. The Eurozone had a €2.3bn trade deficit in November 2010. Exports increased 10.2% y-o-y and imports increased 3.6% y-o-y. Trade deficit in the broader European Union (EU27) comprising 27 members narrowed to €7.2bn in November from €11.2bn in October 2011 as exports rose 2.8% m-o-m and imports fell 0.6% m-o-m.
Our view: The widening trade surplus is a rare positive indicator out of the Eurozone and indicates buoyant demand for European goods in the US and emerging markets. The depreciation of the Euro in the recent months could have made European goods more attractive.
US trade balance
The US trade deficit widened 10.4% m-o-m to US$47.8bn in November, the US Department of Commerce said on Friday. Exports declined 0.9% m-o-m and imports increased 1.3% m-o-m.
Our view: A sharp fall in exports, especially to Europe, widened the trade deficit. This is the first sign that a slowdown in the Europe is affecting demand for American goods and could prolong the already slow recovery in the US economy.
US University of Michigan consumer confidence index
The Thomson Reuters/University of Michigan consumer confidence index's preliminary reading in January rose to 74.0 from 69.9 in December. The sub-index of current situations improved to 82.6 from 79.6 in December and the index of expectations increased to 68.4 from 63.6.
Our view: The improving labour market has helped in lifting consumer sentiment in the US. However, the effect of upbeat consumer morale characterised by increased consumer spending is not yet seen in the US economy; retail sales rose a disappointing 0.1% in the peak holiday season despite a healthy increase in consumer credit (in November).
