Long-awaited Bernanke speech leaves investors uncertain over further quantitative easing
Leading shares ended an uncertain week on a downbeat note, despite a rebound in mining companies after their recent falls.
The sector had been hit by worries about a global economic slowdown, particularly in China, which in turn led to falling metal prices, with iron ore especially weak. But investors seemed to feel the declines may have been overdone and dipped their toes back in the water, albeit fairly tentatively.
So Kazakhmys climbed 6.5p to 593p while precious metals miner Fresnillo finished 18p higher at £15.61 and Rio Tinto rose 20p to 2735.5p.
Glencore shook off the prospect of a collapse in its proposed merger with Xstrata, adding 27.6p to 385.05p. Qatar, the second largest investor in Xstrata, confirmed on Thursday it would vote against the deal unless the terms were improved, while fellow shareholder Knight Vincke was also negative.
But analyst Ash Lazenby at Liberum Capital said:
Glencore should strongly outperform the sector from here whatever the outcome on the deal. Glencore/Xstrata is the cheapest major on a merged basis and has no exposure to plummeting iron ore, standalone Glencore is by far the cheapest and has the best free cash flow metrics and earnings momentum.
We retain our buy recommendation on Glencore and hold on Xstrata, and while we see limited downside to Xstrata on a break we estimate 25% outperformance in Glencore.
Xstrata added 51.2p to 952.2p.
But Eurasian Natural Resources Corporation missed out, falling 4.6p to 301.9p as Nomura issued a reduce recommendation and cut its target price from 400p to 375p.
Overall the FTSE 100 finished at 5711.48, down 7.97 points on the day and around 65 points on the shortened Bank Holiday week.
Investors had spent much of the time since Tuesday’s market open waiting for Ben Bernanke’s words of wisdom at Friday’s US Federal Reserve’s annual meeting at Jackson Hole. There was much anticipation the Fed chairman would unveil further measures to boost the US economy, such as another round of quantitative easing. In the event he did not specifically indicate further action, but nor did he rule it out. So the market is now betting on something happening at the next Fed meeting on 13 September.
Meanwhile attention will shift next week to the European Central Bank’s meeting, with hopes of action to ease the eurozone crisis boosted by news that ECB president Mario Draghi had cancelled a planned trip to Jackson Hole. Optimists saw this as confirmation the ECB was busy at work on new measures to help alleviate the eurozone crisis.
Among the fallers, Barclays ended 0.25p lower at 183.25p. On Thursday the bank appointed retail banker Antony Jenkins as its new chief executive in place of Bob Diamond, who left after the libor-fixing scandal. His task is not helped by the bank facing a Serious Fraud Office investigation into payments made when the bank tapped Middle Eastern investors for emergency funds in 2008.
Marketing group WPP lost another 3.5p to 815p following Thursday’s cut in its annual growth forecast as clients in the US and western Europe became more cautious about their advertising spending. Investec said:
We move to hold from buy as we see limited near-term catalysts, but will revisit when the third and fourth quarters become clearer. Outlook reduction is a disappointment but not a disaster, in our view, and fundamental attractions remain, i.e. international/emerging exposure. Shares may drift for now, and we believe it would be interesting to look to buy on any general market setback.
Elsewhere, BAE Systems has returned around £2bn to shareholders over the past two years, but analysts suggested this golden period could be coming to an end.
With defence budgets coming under pressure, particularly in the company’s key US market which is facing cuts of up to $1bn, Morgan Stanley said there was less room for BAE to mount more buybacks. It put an equalweight rating on the shares, which nevertheless edged up 3.2p to 318.5p.
Among the mid-caps, online gaming group Bwin.party Digital dropped 4.9p to 94.1p. Half year profits climbed 13% to €92m but there was some caution on the outlook and the prospects of regulation in Germany, its largest market in terms of revenue.
Finally Beowulf Mining, where Sweeney star Ray Winstone invested, rose nearly 3% to 9.75p after positive assay results from its Kallak north project in Sweden, with high grades of iron ore over a wider area than expected.