Financial market research and analysis

Materials and miners lead the gains in the FTSE as commodities are better bid with nickel and copper futures higher by 2.33% and 0.97% on the session. Oil and gas companies rank at the bottom of the list given that the recovery in oil prices appears to losing a degree of upside momentum. WTI is fighting back offers at $35; Brent is struggling to make gains above $37.50.

Financials are softer in London. Schroders (-0.95%) and Old Mutual (-0.67%) led early losses. WPP and LSE announced results.

WPP (2.40%) reported 6.1% increase in full year revenues despite concerns that a slowdown in Brazil, Russia and China may have hit prospects in key high potential, emerging markets. Sales increased to 12.2 billion pounds in line with analyst estimates, profit before tax rose 5.6%. The company also projected a better headline operating margin by 0.3 percentage points for this year, once the currency effects are filtered out.

LSE (+0.01%) Full year total revenues jumped 78%, final dividend has been higher than expected at 25.2p vs 21.7p. LSE remains committed to progressive dividend policy. On a longer-term perspective, expanding both in terms of product and geography, remains a key focus for LSE group. Further M&A is likely particularly in the information services and post-trade services. Merger talks with Deutsche Boerse have helped the LSE stock price by more than 40% higher since February 9th, ICE has lately voiced interest in LSE also. There is clearly potential to boost the business with M&A considering cost synergies and improvement in profit margin. ICE reported operating margin of 54% in the first nine months of 2015, Deutsche Boerse posted a margin of 47%.

BHP Billiton (2.74%) jump-opened above 800p as miners started the day by rallying in London. The fundamental picture is not rose however. Moody’s downgraded BHP’s credit rating by two levels on belief that the cheap commodity prices will continue weighing on profits even after the company announced a sharp 74% cut in its dividend couple of weeks ago. News that a Brazilian prosecutor complained about the deal reached with the government to pay 20 billion reais for the damages caused by the deadly Samarco incident, could also weigh on investor sentiment once the upside momentum comes to exhaustion.

Glencore (+4.79%)

Anglo American (+3.56%)

Rio Tinto (2.46%)

According to Morgan Stanley’s swaps based index, the expectation for the first rate hike from the Bank of England is being pushed toward 2020. Digging into the guts of the Gilt market, the implied probability for a rate cut surged to 36.20% by the end of 2016.

At this point, it is worth reminding that BoE Governor Carney has made clear that the Bank’s next move is going to be an increase in rates, although the period of low rates could be prolonged. Remember also that Carney stated in mid-2015 that he would be considering raising rates ‘at the turn of the year’ so it’s probably sensible to digest any forward guidance with a rather large pinch of salt.

Of course, the Brexit risks are playing a big part in this ‘mispricing’ – if we could call it so, as the market is seeking ways to hedge against the risk of Britain exiting the EU.


US Nonfarm Payrolls

The US nonfarm payrolls are due today and the consensus is that the US economy has added a balanced 195,000 nonfarm jobs over the last month versus a sub-standard performance of 151,000 in January. Given the gloomy start to the year, the below-average expectation (222K average of last twelve months) is perfectly reasonable. According to Markit’s PMI survey, the US services sector contracted for the first time since October 2013. The slight recovery in manufacturing was clearly not enough to fill the gap. From an overall perspective, the composite PMI was just at 50, the limit between expansion and contraction.

The foreign central banks’ US debt holdings declined by $3.214 billion to $3.251 trillion on February 24 week, Treasury holdings dropped by $5.180 billion to $2.935 trillion. The US 10-year yields hold above the 1.80%. Only a satisfactory jobs data today could resume a recovery toward 2%.