"The US non-farm payroll report for January showed hiring increased briskly to a seasonally adjusted 227,000, the best gain since September according to the Labor Department. Economists polled by The Wall Street Journal had predicted a gain of just 174,000. That said, it was not all good news, given that the unemployment rate ticked up to 4.8% from 4.7% a month earlier, and wages rose only modestly after signs of a pickup at the end of 2016. Altogether, this suggests rather more slack in the labour market than expected, which may be one reason the Fed has to date not been too aggressive in raising rates. Financials were among the best performers after Friday's Wall Street Journal reported that President Donald Trump plans to sign an executive action to scale back 2010's Dodd-Frank financial reform, that was originally designed to tighten banking oversight in the aftermath of the global financial crisis law. Markets appeared similarly unconcerned about rising diplomatic tensions, with US equities ignoring notice from the White House that it was putting Iran "on notice" for ballistic missile tests while the Vice President went further on Sunday to suggested the US could lift sections on Russia in coming month, allowing the Dow Jones to put in its biggest one-day gain in around eight weeks. With all three principal US indices closing firmly in the positive on Friday, the scene was set for a good start to the week's Asian trading. The Shanghai Composite gained despite the Caixin Services PMI edging back from the 17-month high achieved in December while the Hang Seng and Nikkei also held onto similar rises, leaving just the ASX slightly in the red as it nursed further modest profit taking amongst its commodity plays. Today's light economic calendar means no reports of significance are expected from the UK, although car registration figures and BDO Business Trends are due for release, while the EU contributes just its Sentix Investor Confidence index for February and later the US provides January Labour Market Conditions. Investors will, however, be keen to hear ECB President, Mario Draghi, in today's regular testimony for any hints regarding prospective QE tapering, while this afternoon FOMC member Patrick Harker may also provide some interpretation of Friday's jobs data with respect to prospective Fed moves. Little is expected from UK corporates in terms of earning or trading updates this morning, although Ryanair (RYA.L) is due to provide 3Q results and easyjet (EZJ.L) will release monthly traffic statistics. With little else to excite markets ahead of the European opening, London is expected to have a quiet start to the new session with the FTSE-100 seen 5 points either side of unchanged in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.67% higher at 7,188.30, whilst the FTSE AIM All-Share index closed 0.40% better-off at 893.63. In continental Europe, the CAC-40 finished up 0.65% at 4,825.42 whilst the DAX was 0.20% higher at 11,651.49.
Wall Street
In New York on Friday night, the Dow Jones rose 0.94% to 20,071.46, the S&P-500 firmed 0.73% to 2,297.42 and the Nasdaq gained 0.54% to 5,666.77.
Asia
In Asian markets this morning, the Nikkei 225 had gained 0.25% to 18,965.07, while the Hang Seng firmed 0.56% to 23,258.21..
Oil
In early trade today, WTI crude was up 0.35% to $54.02/bbl and Brent was up 0.3% to $56.98/bbl.
Headlines
Volkswagen faces new front on emissions legal action
Volkswagen faces its first legal action in Germany from a big corporate client over the diesel emissions scandal. Deutsche See, which leases 500 vehicles from VW, said it had been unable to reach an out-of-court settlement, Reuters news agency reported. VW is involved in numerous lawsuits from individual owners, regulators, states and dealers, many of them class-action cases in the US. Deutsche See is one of Germany's major fish and seafood producers. The business promotes itself as environmentally friendly, and in 2010 won an award for being Germany's "most sustainable company". "Deutsche See only went into partnership with VW because VW promised the most environmentally friendly, sustainable mobility concept," said a statement from the company. German media reported that Deutsche See filed its complaint for "malicious deception" at the regional court in Braunschweig, near Volkswagen's Wolfsburg headquarters. VW on Sunday declined to comment on the reports. Volkswagen admitted in September 2015 that it had used software to cheat diesel-emissions tests in the US. The company is now embroiled in investigations across the world, and will have to spend a huge amount of money to settle claims and put the engines right. The cost of settlements and fines in the US alone are approaching $20bn.
Company news
Savannah Resources (LON:SAV, 5.88p) - Speculative Buy
Savannah Resources announced today metalurgical test results from its Mahab 4 copper project in Oman. Initial results indicate that chalcopyrite is the sole copper bearing mineral, which is likely to lead to a simple and relatively low processing costs. Initial rougher flotation test work indicated potential recoveries of around 95%. Savannah owns a 65% shareholding in Al Fairuz Mining, the owner of the Block 5 licence and is earning a 65% shareholding in Al Thuraya LLC, the owner of Block 4 licence, both are highly prospective for copper and gold.
Our view: Initial metallurgical tests are very encouraging given the simple mineralogy which suggests that production of copper concentrate should be relatively easy and straightforward. We also note the the potential for both gold and silver credits and the possibility of an additional zinc product. We look forward to additonal test results and updates as Savannah continues to develop the Mahab 4 and Maqail South deppsits. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Savannah Resources Plc
Solo Oil (LON:SOLO, 0.44p) - Buy
Solo has announced excellent initial results from the Ntorya 2 well which the company states "move us a significant step forward in the commercialisation of the Ntorya discovery". The well has been drilled to 2750m and encountered a 51m gas and oil bearing sandstone reservoir of which 15-30m is net pay. Other good results include significant gas influxes and higher than expected pressures. The next step is to drill to 2780m, perform wireline logging, put a liner in, and then carry out a flow test. This should happen this month and news flow will culminate with the all important flow test.
Our view: This is great news from Solo and Aminex and improves significantly the NT-2 well's probability of success. The well is 1.5km up dip from NT-1 so if the flow test is successful we can expect a large increase to the resource base. We will wait for the flow test before upgrading our target price but reiterate our Buy recommendation.
Beaufort Securities acts as corporate broker to Solo Oil PLC
Ryanair Holdings (LON:RYA, EUR14.77) - Buy
Ryanair, a low-cost European short-haul airline company, on Friday provided a traffic update for January 2017. During the month, passenger traffic increased by +17% y-o-y to 8.77 million customers, while the load factor improved +2% y-o-y to 90%. The rolling annual traffic to January rose +15% to 118.3 million customers. Passenger traffic represents the number of earned seats flown, while load factor represents the number of passengers as a proportion of the number of seats available for passengers.
Our view: Ryanair reported strong passenger traffic and load factor data for January, driven by lower fares and the continuing success of its 'Always Getting Better' customer experience programme. These strong statistics follow last month's +20% increase in passenger traffic and +3% improvement in load factor. According to Bloomberg, Ryanair's CFO, Neil Sorahan suggested at the 2017 Global Airline Conference (17-19 January 2017) that the Group could withdraw its UK domestic route flight services once the exit from the EU had completed. This is due to Ryanair, as an Irish company, potentially being required to obtain an Air Operating Certificate ('AOC') in order to continue its services post Brexit. As its domestic UK flights currently account for just c.2% of Ryanair's entire network activity, it is assessing if it might be better-off by ending these routes rather than taking steps to comply with new regulation. Ryanair's rival company, easyJet, on the other hand, reported on 24 January 2017 noting that as a UK based company, it plans to establish an AOC in another EU member state with an expected one-off cost of around £10m over 2 years. Ryanair noted in its H1 FY2017 results announced on 2 November 2016, that it remained comfortable with its full year net profit guidance of €1.30bn-€1.35bn, while the Board also approved a further share buyback of up to €550m from November 2016 to February 2017. Ryanair said it expects passenger traffic of just over 119 million customers for FY2017 (FY2016: 106 million customers) and raised its long-term traffic forecast from 180 million to over 200 million customers per year by March 2024. We believe Ryanair has continuing good momentum and remains well-positioned for growth with only limited impact to the Group even if it decided to cease UK domestic flights. Beaufort therefore retains its Buy rating on Ryanair.