Financial market research and analysis

Choppy action continues to rule the equity space and while for a change European markets have not taken cues from events in Chinese equities. Shanghai’s Composite dropped heavily by 6.41% as money market rates jumped. PBOC Vice Governor Yi said they will maintain a delicate balance on reform-stability, put more emphasis on basket regime and strive for more CNY flexibility.

Volatility works both ways and there are certainly no guarantees that today’s surge in the FTSE is anything but a temporary phenomenon.
Yesterday’s bounce in US equities came mainly from the fact that services PMI and new home sales missed estimates – the habitual optimism that poor data will keep the Fed from hiking rates in the near term keeps risk assets in favour for the time being. While oil prices have stabilised, any significant moves in the commodity will still likely dictate direction in risk assets. With the supply glut still a major factor and no real solution forthcoming, the trajectory over the short to medium term points to lower prices.

Nevertheless, with all UK sectors trading in the green, only a few stocks are failing to enjoy upside this morning on the UK benchmark ahead of the UK Q4 second GDP reading. As expected the UK saw 0.5% growth in the quarter, the pound has stabilised a little. Having shed 3.3% in the past 3 sessions it trades above $1.39 and at 79p to the euro.

Some companies trade ex-div this morning, Rio Tinto (-2.4%), Diageo (-0.75%) and Easyjet (-2.58%) which adds up to a total decline of 6 points for the FTSE100.

While much of the news recently has been rather pessimistic, the banking sector is definitely feeling the love this morning. Lloyds (+9.74%): reported a 7% fall in annual pre-tax profits to £1.6bn compared with £1.8bn a year earlier. The bank set aside £4bn to compensate customers who were mis-sold PPI. We may be coming to the end of these negative provisions owing to an FCA proposal that all claims should be in by 2018 in order to benefit from compensation. Investors were given a boost in spite of all the bad news, the bank also announced it would pay shareholders an ordinary dividend of 2.25p per share, plus a special dividend of 0.5p giving a total payout to shareholders of £2bn.

RSA (+6.89%) posted a 2015 operating profit of £523m, up 43% on a year earlier and ahead of expectations. Set to pay a final dividend of 7 pence and total dividend of 10.5 pence, compared with a forecast of 10.4 pence.

Merlin Ent (+3%) reported flat annual profits after visitor numbers at some theme parks collapsed in the wake of the Alton Towers rollercoaster crash. an 8% rise in revenue per visitor at its Legoland division largely offset a 12.4% drop in resort theme park sales - the majority at Alton Towers. Pre-tax profit for the year to 26 December came in at £250m - up fractionally on £249m for 2014.

British American Tobacco (-0.8%) one of the few losers this morning ahead of FY earnings announcement tomorrow.

IAG (2.54%) also set to report FY2015 tomorrow. The uncertain yield/fuel environment may well see management strike a cautious note on outlook. Had its “overweight” rating reissued by equities research analysts at Barclays in a research note issued to investors on Monday. Trapped beneath the main moving averages, price action will need to break above 557p to achieve the average price target of 767p. The majority of brokers hold a buy rating on the stock.

We call the Dow flat to 16485.