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London midday: Markets await Fed as data turns heat up on MPC

- Taper speculation picks up ahead of Fed decision
– MPC votes unanimously on policy, warns of sterling strength
– UK unemployment falls to four-and-a-half-year low
– Retailers under the weather

techMARK 2,693.27 +0.32%
FTSE 100 6,500.40 +0.22%
FTSE 250 15,391.16 +0.28%

UK markets held on to gains on Wednesday morning after data showed falling unemployment in the UK and a pick-up in German confidence, as markets turned their attention to the upcoming Federal Reserve meeting at which the central bank could begin to scale back quantitative easing.

However, given that a decision is not due out until after UK markets close this evening, gains on the FTSE 100 have been limited as traders scale back risk appetite and position themselves amid the uncertainty.

Toby Morris, Senior Sales Trader at CMC Markets said that Fed Chairman Ben Bernanke is expected to ‘give the markets one last Christmas present or risk a backlash from low-volume equity markets by reducing the dosage’.

Morris said: ‘One thing is for sure, given all the hype and the countless headlines taking many to the point of boredom at times, a dull market reaction would be a huge disappointment. The odds change depending who you’re talking to, but its close enough to 50/50 to have everyone on the end of their seat…..over to you Ben.’

BoE warns of sterling strength, UK unemployment falls

Minutes from this months Bank of England meeting were released this morning, revealing the policymakers voted unanimously to keep its Bank Rate at 0.5% and its asset purchase programme at £375bn.

However, the Monetary Policy Committee (MPC) did warn that further strength in the sterling – currently trading close to a five-year high against other currencies – could hamper economic growth in the UK. ‘Any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery,’ the MPC said at its meeting on December 4-5th.

Markets were also digesting labour-market figures this morning, which showed that the UK unemployment rate unexpectedly fell to 7.4% in the three months to October, its lowest since the three months to April 2009.

‘The very positive labour report has significantly turned the heat up on the BoE’s MPC […] This just highlights the problem with their forward guidance, they have conditioned on a variable that fails to fully capture economic slack, lags output growth and is influenced by demographics, but now they don’t even trust that the ONS is measuring it correctly!,’ wrote Daniel Vernazza, Economist at Unicredit.

Meanwhile, the Germany IFO business climate index rose from 109.3 to 109.5 in December, in line with expectations. While the current assessment sub-index declined month-on-month, the expectations survey rose by more than expected.

M&S hit by UBS downgrade

High Street retailer Marks & Spencer was a heavy faller this morning after analysts at UBS cut their rating on the stock from ‘buy’ to ‘neutral’ and lowered their target price from 550p to 475p. In a review of the sector, the bank raised concerns about margins given that promotional levels across the industry are up on last year, as it downgraded ASOS and cut its target for Debenhams.

Sainsbury was off shopping lists again today, along with fellow supermarket groups Tesco and Morrison, after a report from Kantar yesterday showed that over half the UK shopped in discount grocery stores over the past 12 weeks. Deutsche Bank cut its target price for Sainsbury slightly this morning, keeping a ‘hold’ recommendation.

United Utilities Group was in the red after going ex-dividend, meaning that from today investors won’t be able to get their hands on its latest payout. Grainger, Marston’s, Berkeley Group, Greene King and Halfords also went ex-div today.

Oilfield services firm Petrofac was trading lower this morning after a profit warning from French peer Technip.

Oil major BP advanced after making its first significant oil discovery in the Gulf of Mexico since 2009, in the Gila deepwater prospect 300 miles off New Orleans. Sector peer Tullow however was down after saying that one of its wells offshore Côte d’Ivoire has turned up dry.

Africa-focused oil and gas group Ophir Energy pleased investors with a farm-out of its blocks in Gabon, while India-focused Essar Energy rose after an update which reported healthy current trading.

Online poker group was higher after saying that overall trading in the 11 weeks since September 30th has been in line with management’s expectations.

FTSE 100 – Risers
Centrica (CNA) 331.70p +2.66%
ARM Holdings (ARM) 1,011.00p +1.81%
Standard Chartered (STAN) 1,323.50p +1.53%
Rexam (REX) 495.40p +1.50%
TUI Travel (TT.) 397.70p +1.48%
Reckitt Benckiser Group (RB.) 4,625.00p +1.45%
Travis Perkins (TPK) 1,757.00p +1.44%
Sports Direct International (SPD) 720.50p +1.34%
Associated British Foods (ABF) 2,330.00p +1.30%
Legal & General Group (LGEN) 210.00p +1.20%

FTSE 100 – Fallers
Marks & Spencer Group (MKS) 434.80p -3.87%
Sainsbury (J) (SBRY) 366.20p -3.28%
Tesco (TSCO) 318.15p -1.96%
RSA Insurance Group (RSA) 90.75p -1.79%
United Utilities Group (UU.) 658.50p -1.42%
Morrison (Wm) Supermarkets (MRW) 253.30p -1.32%
Burberry Group (BRBY) 1,438.00p -0.96%
CRH (CRH) 1,465.00p -0.81%
Amec (AMEC) 1,040.00p -0.76%
Glencore Xstrata (GLEN) 305.65p -0.76%

FTSE 250 – Risers Digital Entertainment (BPTY) 122.40p +5.79%
Enterprise Inns (ETI) 144.90p +3.72%
Laird (LRD) 268.80p +3.38%
Keller Group (KLR) 1,104.00p +3.18%
Synthomer (SYNT) 244.40p +2.86%
Alent (ALNT) 343.30p +2.85%
Carpetright (CPR) 545.00p +2.83%
Ophir Energy (OPHR) 313.70p +2.52%
ICAP (IAP) 433.10p +2.12%
African Barrick Gold (ABG) 164.20p +2.11%

FTSE 250 – Fallers
Perform Group (PER) 230.00p -5.89%
Wood Group (John) (WG.) 664.50p -5.41%
Smith (DS) (SMDS) 315.90p -2.98%
Imagination Technologies Group (IMG) 169.80p -2.86%
Evraz (EVR) 96.40p -2.82%
Berkeley Group Holdings (The) (BKG) 2,459.00p -2.15%
Marston’s (MARS) 143.90p -2.11%
Dunelm Group (DNLM) 916.50p -2.08%
Computacenter (CCC) 634.00p -2.01%
Hochschild Mining (HOC) 127.70p -1.84%

FTSE TechMARK – Risers
Vislink (VLK) 43.75p +5.11%
Vectura Group (VEC) 125.00p +3.31%
Wolfson Microelectronics (WLF) 131.00p +2.95%
BATM Advanced Communications Ltd. (BVC) 19.50p +2.63%
E2V Technologies (E2V) 153.50p +2.33%
Oxford Biomedica (OXB) 2.10p +1.69%
Torotrak (TRK) 19.00p +1.33%
Sepura (SEPU) 123.50p +1.23%
RM (RM.) 107.50p +0.94%
Ricardo (RCDO) 621.50p +0.73%

FTSE TechMARK – Fallers
Triad Group (TRD) 7.75p -8.82%
SDL (SDL) 324.75p -1.29%
Puricore (PURI) 47.00p -1.05%
Filtronic (FTC) 55.50p -0.45%

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