By This Is Money
17.30 (CLOSE): British Gas owner Centrica suffered a shares fall after Energy Secretary Ed Davey called for radical reform of the energy supply market.
It emerged that it was singled out by Mr Davey in a letter asking regulator Ofgem to examine whether the industry’s profit margins for gas should be the subject of a market investigation.
The wider FTSE 100 Index climbed 19.9 points to 6591.6 over the course of the session but Centrica and rival SSE were among the fallers.
Focus: British Gas owner Centrica has caught the eye amid calls to reform the energy industry.
Mr Davey said there was evidence that British Gas had tended ‘to charge one of the highest prices over the past three years, and has been on average the most profitable’.
The Cabinet minister’s fresh intervention in the energy debate knocked as much as 600million off the value of Centrica as the stock fell nearly 4 per cent during the day.
It pared some of the losses by the end of the session, to leave shares down nearly 2 per cent, or 5.3p, to 308.9p, while rival SSE was off 6p to 1351p.
But Centrica stock is now down by nearly a quarter since Ed Miliband’s pledge last autumn to freeze bills if Labour won the next election.
Elsewhere, equities markets in Europe saw a mixed performance, with France’s Cac 40 up and German’s Dax down.
In New York, the Dow Jones Industrial Average was in negative territory as traders took profits following a rally on Friday’s US employment figures.
On currency markets, the pound was flat at 1.64 US dollars and 1.20 euros.
Meanwhile in London, banking group Barclays announced its headline full-year profit figures a day early.
The stock market disclosure came after a report in the Financial Times said that the bank was set to reveal a one-third fall in operating profits to 5.17billion, while bottom-line profits should triple to 2.86billion.
Barclays, which is due to present its results at 7am on Tuesday, confirmed that the figures were set to be 5.2billion and 2.9billion respectively.
Even though the underlying figure was below the City’s consensus forecast of around 5.4billion, Barclays shares held on to earlier gains to stand 3.3p higher at 275p.
Elsewhere in the top flight, shares in Vodafone initially fell on speculation that it is preparing a seven billion euro (5.8billion) bid for Spanish cable company Ono as it attempts to revive its European business, but later recovered to finish flat at 222p.
The UK company is currently cash rich after the $ 130billion (78billion) sale of its stake in US mobile phone operator Verizon Wireless.
Outside the FTSE 100, shares in set-top box maker Pace led the way in the FTSE 250 Index after Barclays improved its rating on the Yorkshire-based firm. Shares rallied 27.7p to 385.5p, a rise of nearly 8 per cent.
The biggest FTSE 100 risers were Fresnillo, up 70p to 862.5p, Petrofac up 37p to 1232p, Amec up 31p to 1073p and Randgold Resources ahead 106p to 4530p.
The biggest FTSE 100 fallers were Hargreaves Lansdown off 49p at 1304p, G4S down 6.1p to 229p, Babcock International down 25p to 1342p and Centrica down 5.3p to 308.9p.
15.30: Strength in Barclays and heavyweight mining stocks helped the Footsie cling on to a modest advance in late afternoon trading, with the UK blue chip index hovering near a two week high and looking set for a fourth straight session of gains.
With an hour of trading to go, the FTSE 100 index was up 5.0 points at 6,576.7, building on gains overnight in Asia following Wall Street’s advance on Friday.
However, US stocks retreated in early trade today, with the Dow Jones Industrial Average down 39.8 points at 15,754.2, consolidating after two sessions of gains with investors awaiting signals this week from Federal Reserve boss Janet Yellen.
Yellen speaks: Markets were focused ahead to two testimonies from new Federal Reserve boss Janet Yellen to Congress this week
The new Fed head testifies to Congress tomorrow and Thursday just days after data showed a second month of softer jobs growth for which most investors seem to be blaming the weather rather than any weakening of economic recovery.
Yellen, a long time supporter of the Fed’s loose monetary policy, must walk a line between maintaining enough support for the economic recovery and not spooking markets convinced the US central bank will cease buying bonds by the end of this year, having tapered its purchases in the past few months.
Kathleen Brooks, research director UK EMEA for FOREX.com said: ‘The average monthly job creation in the last three months has been 154k, down from 201k in three months to October. This is a sharp drop and also coincides with weather disruptions, thus the Fed may suggest that it will stay its tapering course until there is further non-weather-impacted evidence of a slowdown in the labour market.
‘If Yellen sounds fairly sanguine on the progression of the US economy this could be good news for the dollar in the coming days, which came under pressure at the end of last week.’ ‘Congress may ask her what the FOMC intends to do once the unemployment rate hits 6.5 per cent – which it could do this month.
‘We expect Yellen to emphasize that it is unlikely that rates are going to rise anytime soon and she may hint that the Fed remains firm to its forward guidance pledge. From a trading perspective, the market remains sceptical about the impact of forward guidance,’ Brooks added.
Barclays was a big blue chip gainer in London after the lender surprised the City by announcing its headline full-year profit figures a day early.
The bank, which is due to present its results at 7am tomorrow morning, confirmed that the underlying profits figure for 2013 was set to be 5.2billion, almost bang in line with the forecast of the Financial Times report which prompted the early release.
Even though that underlying figure was below the City’s consensus forecast of around 5.4billion, Barclays shares held on to earlier gains adding 2.5p at 275.1p although it moved off the top of the blue chip leader board.
Staying firmly rooted to bottom place in the FTSE 100 today was British Gas owner Centrica, down 6.5p to 307.7p after Energy secretary Ed Davey called for regulators to consider radical reform of the gas supply market, including a possible break-up of the dominant player.
Centrica (CNA) was singled out by Mr Davey in a recent letter asking Ofgem to examine whether the industry’s profit margins for gas should be the subject of a market investigation.
Energy supply rival SSE shed 12.0p at 1,345.0p.
‘The direct attack by Ed Davey highlights the political risk that continues to dominate in the UK, and the direct attack on SSE and CNA is a step up in pressure from the incumbent coalition,’ analysts at RBC Capital said in a note.
‘In our view the criticism of the gas supply margins is a little simplistic. It ignores the differential margins on gas and electricity, with both British Gas and SSE faring much worse on electricity.
‘It also ignores the benefit of economies of scale. Were the companies to be broken up British Gas in particular would lose this benefit and this would only result in higher bills to customers,’ RBC concluded.
13.20: The Footsie pared back earlier gains by lunchtime under pressure from big falls by utilities on regulatory concerns, although strength in Barclays as the bank confirmed a report of its 2013 profit numbers a day ahead of its results release helped keep the blue chips positive – just.
The FTSE 100 index was just 0.4 points higher at 6,572.1, having notched up double-digit gains at the open as the energy supply sector dominated on the fallers board.
Centrica was down 9.7p to 304.5p and SSE lost 20p at 1,337p as Energy secretary Ed Davey’s call for regulators to consider radical reform of the energy supply market.
Surprise release: Barclays issued its annual profit numbers a day ahead of schedule in response to weekend press comment
British Gas owner Centrica was singled out by Mr Davey in a recent letter asking Ofgem to examine whether the industry’s profit margins for gas should be the subject of a market investigation.
The Cabinet minister’s fresh intervention in the energy debate knocked 600million off the value of Centrica and extended the decline seen since Ed Miliband’s pledge last autumn to freeze bills if Labour won the next election. The stock is now down by around 25 per cent since October.
Manoj Ladwa, head of trading at TJM Partners said: ‘The comments from the Labour Party impacted the utilities quite heavily last year and this adds further fuel to the fire.’
‘Initially, it was just the opposition party kicking up a stink, but now it’s government ministers, it takes it to a new level and creates uncertainty for companies in that industry.’
Elsewhere among the fallers, manned security provider G4S shed 5.6p at 229.5p after Nordic rival Securitas reported lower than expected quarterly earnings and said signs of economic recovery in Europe and the US had not fed through to the security market.
G4S was also blighted by a downgrade in rating from Panmure Gordon, which cut its stance to sell from hold on valuation grounds.
But broker comment had a positive effect on blue chip oil services firm Petrofac which gained 3.9 per cent after HSBC raised its recommendation to ‘overweight’, saying risks have been overly discounted given the group’s attractive bid pipeline.
Petrofac shares, which have lost 17 per cent since early November, topped the FTSE 100 leader board today, up 28.0p to 1,223.0p.
Barclays was also a big blue chip gainer, adding 4.6p at 276.3p after the banking group surprised the City by announcing its headline full-year profit figures a day early.
The disclosure came after a report in the Financial Times said that the bank was set to reveal a one-third fall in operating profits to 5.17billion, while bottom-line profits should triple to 2.86billion.
Barclays, which is due to present its results at 7am tomorrow, confirmed that the figures were set to be 5.2billion and 2.9billion respectively.
Even though the underlying figure was below the City’s consensus forecast of around 5.4billion, Barclays shares held on to earlier gains.
‘So even if there is a small miss against more frothy sellside forecasts, we are reassured that the 2013 outturn was marginally better than we expected. Clear valuation support remains. Buy,’ analysts at broker Investec Securities said in a note.
Miner African Barrick Gold was also in demand, adding 13.7p to 237.3p as HSBC raised its rating to neutral from underweight, while a rise in the gold price helped push up Mexican precious metal miner Fresnillo 47.0p higher to 839.5p.
Outside the top flight, shares in set-top box maker Pace led the way in the FTSE 250 Index, gaining 21.2p at 379.0p after Barclays raised its rating for the Yorkshire-based firm to overweight.
09.40: Shares in British Gas owner Centrica fell sharply today amid fresh pressure on regulators to announce a radical reform of the energy supply market, with weakness in the sector curbing Footsie’s overall enthusiasm as the morning session progressed.
The FTSE 100 index was up 12.7 points at 6,584.4 but the energy supply sector dominated on the fallers board, with Centrica down over 3 per cent, or 9.9p to 304.3p and rival SSE off 13.0p at 1,344.0p.
Energy secretary Ed Davey highlighted the dominance of British Gas in a recent letter asking Ofgem to examine whether the industry’s profit margins for gas should be the subject of a market investigation.
Heat up: Centrica shares suffered as Energy Secretary Ed Davey asked regulator Ofgem to examine whether profit margins for gas should be the subject of a market investigation
Davey said there was evidence that British Gas had tended ‘to charge one of the highest prices over the past three years, and has been on average the most profitable’.
Elsewhere in the top flight, shares in Vodafone were 0.9p lower at 221.1p on speculation that it is preparing a 5.8billion bid for Spanish cable company Ono as it attempts to revive its European business.
The UK mobile phones company is currently sitting on a 78billion cashpile from the sale of its stake in US mobile phone operator Verizon Wireless.
Among the biggest risers in London’s top flight, Barclays rose 2.6p to 274.3p ahead of its annual results due tomorrow when the lender will detail the full extent of plans to shrink its investment bank.
Barclays shares failed to be dented by news at the weekend that stolen personal details of 27,000 customers have been sold to rogue traders in what is thought to be the worst data breach case ever at high street bank.
Barclays said it had launched an investigation after the Mail on Sunday reported that the personal details of 27,000 customers had been stolen and sold, raising the prospect of new fines for the bank.
London shares tracked gains by global markets today, with Asian stocks bolstered by gains last Friday on Wall Street after a mixed US jobs report for the second month in a row, with growth in non-farm payrolls disappointing by the unemployment rate still falling.
Michael Hewson, chief market analyst at CMC Markets UK: ‘Despite the poor number the payrolls report does give new Fed Chief Janet Yellen a tricky line to walk this week as she gets set to take the stage for her first meeting with US lawmakers tomorrow and Thursday given that the unemployment rate is within a whisker of the 6.5 per cent unemployment rate threshold.
‘We already know that the Fed will keep rates below zero well past the time the jobless rate hits 6.5 per cent, however this could well happen next month and I would imagine markets and lawmakers will want some form of definition of “well past” given we’re now knocking on the door of the threshold of the FOMC’s forward guidance. As such we can expect markets to play close attention to what Janet Yellen has to say tomorrow.
‘While Janet Yellen faces Congress this week, Bank of England governor Mark Carney has a similar guidance problem which he will be wrestling with this week when he presents the quarterly inflation report from the Bank of England.
‘Both central bank chiefs will have to tweak their guidance in such a manner for it to remain credible so that markets don’t start to price in rate hikes any sooner than policymakers would like, while at the same time not appearing to be too pessimistic about recent falls in the unemployment numbers,’ Hewson said.
08.30: The Footsie pushed higher in early deals today, extending Friday’s rally in tandem with gains by global markets although volume was low and overall direction still lacking.
The FTSE 100 index was up 8.0 points at 6,579.7 at open, having closed 13.40 points higher on Friday despite another disappointing US jobs report.
Shrugging aside the poor data, US stocks advanced on Friday to record only their second positive week of the year, and this prompted a strong performance overnight in Asia.
Global gains: US stocks closed higher on Friday to record only their second positive week of the year spurring gains by Asian shares today
Craig Erlam, market strategist at Alpari (UK) said: ‘These minor gains have led many to suggest that the correction seen since the start of the year is over, which is something I’m not fully convinced of yet.
‘Only last week, in the lead up to the release of the jobs report, everyone seemed to be saying that if we had another poor non-farm payrolls figure, it would be very bad news for the US economy. ‘Well, the number was very poor and the December figure was only revised up by 1,000, so either one of the above statements is wrong or we’re about to see a continuation of the bullish move in stocks at a time when people are worried about a slowdown in the US and the Fed is scaling back its support, in the form of quantitative easing.
‘As far as I’m concerned, it’s the second statement that’s incorrect and up until now, the poor December and January figures have simply been one excuse for a long overdue correction that has been healthy for the market. While I may need to see a little more evidence that it is over, there are a number of things that would suggest this is the case, including the fact that we rarely see a full 10 per cent correction, with it usually being between 5-8 per cent.’
There is little in terms of major economic releases this week to provide direction, with the key focus being on the central banks, as new Federal Reserve boss Janet Yellen testifies on the semi-annual monetary policy report to a committee of Congress, while Bank of England Governor Mark Carney delivers the latest quarterly inflation report on Wednesday, and ECB President Mario Draghi speaks in Brussels this week.
Gas distributor Centrica bucked the positive trend in London, with its shares dropping nearly 3 per cent, or 9.1p to 305.1p on regulatory concerns.
Energy Secretary Ed Davey has written to regulators saying profit margins of big energy companies’ gas supply units are too high, and suggesting dominant player British Gas, owned by Centrica, may have to be broken up, the Financial Times reported late on Sunday.
Stocks to Watch include:
BARCLAYS – The British bank said it had launched an investigation after the Mail on Sunday reported that the personal details of 27,000 customers had been stolen and sold, raising the prospect of new fines for the bank. The Sunday Times also reported that Barclays is to slash the size of its investment bank by a fifth as part of its efforts to win back the trust of the Bank of England.
VODAFONE – The British telecom company has made a formal bid for ONO which will be studied at the cable firm’s next board meeting on February 11, newspaper Expansion reported on Saturday.
CATLIN – The mid-cap insurance group announced a 27 per cent increase in full year profit, with a 5 per cent increase in dividend, adding that it remains optimistic on 2014.
HYDER CONSULTING – The consulting firm says it expects results for the current financial year to be materially below current market expectations, hit by delays in new contract awards in Australia and project delays in the Middle East.
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