Market overview: FTSE closes down 83 at 5,774
Posted on: 22 Aug 2012 by Polly York

1630: A new ‘Policy Voice’ study of business opinion in the UK has today revealed executives´ preoccupation with the outlook for growth this year and the impact which it has had on their investment and hiring decisions. Meanwhile, a report by Aviva showed that the average Brit is now saving less and borrowing more, despite a greater number of people being worried that they will lose their job in the economic crisis. Looking abroad, data out overnight in Japan showed a 25% year-on-year drop in exports from the island nation to Europe for the month of July, with the decline in Asian stocks having a knock-on effect across Europe. The FTSE 100 closed down 83 at 5,774.

1534: A report in Bloomberg comments on how falling iron ore prices internationally and lower shipping costs may lead to increased imports from China, thus boosting that country´s demand and prices for iron ore from miners such as Rio Tinto. Defensives such as Centrica, SSE and Diageo (due to publish results tomorrow) are now amongst the day´s best performers. Prices for SSE’s household customers in the UK are to increase on average by nine per cent for both electricity and gas from the middle of October. ENRC, Kazhakmys and Anglo American are at the bottom of the pile following downgrades from the likes of Citi (on the first of those) and JP Morgan (on the latter two). FTSE 100 down 67 to 5790.

1437: US existing home sales fell to a 4.47m unit annualized pace in July (Consensus: 4.51m). The data has been released about half an hour earlier than scheduled due to an error. Also worth noting, the President of the Eurogroup, Jean Claude Juncker, has indicated that no decision on new aid for Greece will be forthcoming until October. FTSE 100 down 71 to 5,787.

1337: A little more on Lonmin. This is what analysts at BMO Capital have to say on the subject today: ‘Given Lonmin’s volatile operating environment’ as well as ‘depressed platinum-group metal prices and the current state of capital markets, any refinancing [of debt] on terms favorable to the company and shareholders could prove challenging.’ Over at Credit Suisse, for their part, they have lowered their target price to 525p from 740p before. The broker adds that: ‘Under our normalised framework, a 1bn dollar rights issue is valuation neutral at current levels for Lonmin shareholders (…) However given uncertainty over achieving the ‘normal’ 950koz target and valuation uncertainty (high cost) we believe investors should seek theoretical 10-15%+ upside. For this to happen the price of Lonmin shares would need to fall another circa 10%-20% at least depending on size of issue. FTSE 100 down 64 to 5,794.

1246: Labour unrest in South Africa’s platinum belt spread on Wednesday, writes Reuters. More specifically, it cites how the world’s top platinum producer, Anglo American Platinum, has said today that it has received a demand for a pay increase from its South African workers, while a trade union said miners at Royal Bafokeng Platinum’s Rasimone site were blocked from reporting to work by colleagues.

1026: There is a fair bit of market commentary today on the latest figures out from the The China Iron & Steel Association (CISA) showing a 1.1% increase in Chinese steel output during early August. That has confounded some analysts, such as those at Nomura, who had been forecasting a 5% drop. The apparent fear is that Chinese steel prices as well as those for its main ingredient -iron ore- may have further to fall despite being already at 3 year lows. In fact, even a price crash is possible if oversupply leads to inventory liquidation. According to CISA data, average daily steel output in the 10 days through Aug. 10 came in at 1.99699 million tons, up from 1.9494 million ton daily average in the 10 days ending July 31. FTSE 100 down 58 to 5,799.

0931: ENRC and Kazakhmys are amongst today´s worst performers. Analysts at Citi have downgraded the former to neutral from buy, while Credit Suisse has this to say on Kazhakmys ahead of the company´s interims which are due for release tomorrow: ‘KAZ has a significant capex pipeline ahead of it for the next three years ahead of volume growth from Bozshakol from H215. This should keep free cash flows negative and among the worst in the sector (averaging -10% per annum 2012-14).’

0915: Footsie has dipped below 5800 with just four index constituents in positive territory, among them Gemfields, which edges up after a production update. ‘Despite some early minor delays and slightly lower than anticipated full year production volumes, the past few quarters have continued to deliver improving production volumes, a trend that is likely to continue in the near term,’ said Ian Harebottle, Chief Executive Officer of Gemfields. Miners remain in the basement, but BHP Billiton suffers less than most of its peers after pulling the plug on its capital intensive Olympic Dam project in South Australia. FTSE 100 is down 57 at 5,799.

0809: Disappointing trade data from Japan is putting a dampener on proceedings in London. There is little economic data due out in Europe today so the spotlight will remain on Greece, suggests Markus Huber, of spread betting firm ETX Capital, with traders awaiting the Greek Prime Minister’s visit to Germany and France later in the week, as the Greek leader tries to renegotiate some of the agreed bailout terms. ‘A potential worst case scenario would be that Samaras would be unsuccessful in his undertaking and consequently resigns, followed by having to call new Greek elections once again,’ Huber notes, before suggesting that no one – not even the Germans – wants to see a third general election in Greece this year. ‘However, despite the prevailing optimism, it might still keep some investors on the sidelines until everything necessary has been agreed to,’ Huber reckons. That view seems to be holding true early on, with few blue-chips in London making progress, while mining stocks and ex-div stocks weigh down the top-share index. FTSE 100 is down 48 at 5,810.

Tags: anglo american | diageo | downgrades | economic crisis | existing home sales | iron ore prices | island nation | jp morgan | market overview | preoccupation