Johnson Matthey Share News (JMAT)

LONDON (Alliance News) - Global equity markets have turned lower once again Thursday after the Federal Reserve cut its massive monthly bond-buying by a further USD10 billion late Wednesday, taking it down to USD65 billion, from USD85 billion in November.

Equity markets had risen in the past couple of days after a big multi-day selloff triggered by worries over the impact the slowing of the Fed's cheap money supply would have on economies of emerging markets.

However, the US central bank made no mention of the turmoil that ensued as investors pulled their money from emerging market economies, instead focusing on the domestic situation.

"Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement," the Fed said in a statement accompanying the decision.

The Fed seems most concerned with low inflation, which has been running below its 2% target rate. Persistently low inflation, "could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term," the central bank said.

Concerns about emerging markets have been heightened in recent weeks after several major multi-national companies, including Unilever and SABMiller, warned that they started to experience a slowdown in the markets. Thursday, drinks giant Diageo joined the list.

Diageo said it was hit by a steeper-than-expected decline in emerging markets, including in its small but struggling Chinese white spirits business. Its African sales also slowed, in particular in Nigeria's beer market, where hopes of some improvement in the market failed to materialise.

"After having a few years where emerging markets were the stars, now our performance is being driven from developed markets like North America, with the higher-end of our brand portfolio, and an improved western Europe," Chief Financial Officer Deirdre Mahlan said in a call with journalists.

Diageo reported a slight increase in profits for the first half of its financial year, as developed markets such as North America and an improving picture in Western Europe helped offset the weakness in emerging markets. The group increased its interim dividend by 9% to 19.7 pence a share.

Concerns about emerging markets were not helped Thursday when an index monitoring manufacturing activity in China indicated the sector contracted in January. The latest PMI from HSBC and Markit Economics came in at a seasonally adjusted 49.5, down sharply from 50.5 in December.

Diageo's interim statement came amid a heavy day for UK corporate news.

On the FTSE100, British Sky Broadcasting Group is the top gainer after it raised its dividend and reaffirmed that it was on track for the full year, as it saw revenue rise in the half year ended December 31. However, pretax profit continued to be hit by a step-up in Premier League football broadcasting licensing costs as it weathered competition from BT Group.

Royal Dutch Shell was another gainer after it released its detailed full-year results in the wake of last week's profit warning. Sure enough, pretax profit was down 33% for the year and 52% for the fourth quarter alone. Its revenues were down 3.4% for the year and 7.5% for the fourth quarter.

"Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance," said Chief Executive Officer Ben van Beuren.

In the FTSE 250, Serco shares have plummeted again after it warned that 2014 profits will be well below current expectations as recent unfavorable currency moves and a bigger-than-expected drop in volumes in its Australian immigration contract added to the ongoing costs of its corporate renewal in the wake of its UK government contract issues.

The support services company said it currently expects its adjusted operating profit to come in about 10% to 20% below current market forecasts for GBP277 million.

The warning overshadowed news that the UK government will now allow it to bid for new contracts after a six month ban, as long as Serco continues to implement its corporate renewal programme. The Cabinet Office said it had given a positive assessment of the plan so far.

Serco said it now expects its 2013 organic revenues to have fallen by a mid-single digit percentage compared with 2012 as it was hit by a lower amount of incremental work in the wake of its highly-publicised UK government contract issues, the lower-than-expected volumes in its Australian immigration contact, and as currencies, particularly sterling's rise against the dollar, went further against it.

For 2014, Serco said it now expects to book about GBP10 million in costs for its corporate renewal programme and costs of about GBP15 million to pay for external advisors, implementing the programme and initial training and systems set-up. It said it will also book a further restructuring charge of between GBP10 million and GBP15 million for cutting headcount and relate costs. It expects its 2014 adjusted operating margin to be about 50 to 100 basis points below the 2013 margin.

Acting Chief Executive Ed Casey said he hoped the government's positive assessment of its corporate renewal programme meant the company would now be considered on an equal basis with other supplies in bids, rebids and contract extensions, including a bid for the Northern Rail franchise extension and the Defence Infrastructure Organisation opportunity.

At the other end of the mid-cap index, healthcare equipment company Renishaw maintained its dividend after expressing confidence for its second-half, even though its first-half was hit by tough comparative figures.

In economic news, the US Commerce Department said gross domestic product increased by 3.2% in the fourth quarter compared with the 4.1% growth seen in the third quarter. The figure was in line with economists' expectations.

The US Labor Department, meanwhile, said first time unemployment claims in the US rose to 348,000 in the week ended January 25, from the previous week's revised figure of 329,000. Economists had expected claims to have risen to 327,000 in the week ended January 25, from 326,000 originally reported in the previous week.

In the UK, mortgage approvals grew less than forecast in December, but the figure was the highest in six years, according to data released by the Bank of England. The number of approvals for house purchase loans secured on dwellings rose to 71,638 in December, from an upwardly revised 70,820 in November. Economists had expected the figure to climb to 72,900 from November's original 70,758.

In political news, Ukrainian President Viktor Yanukovych has said he is taking sick leave due to "acute respiratory disease accompanied by fever," his office said, as two months of protests against his leadership continued across the country. His office did not specify when he might return.

The announcement came as his detractors rejected the terms of a law passed by parliament that grants amnesty to the hundreds of jailed protesters on condition that they vacate government buildings and end the demonstrations. Opposition leader Vitali Klitschko said protesters will stand firm until an unconditional amnesty is granted, Yanukovych steps aside and fresh elections are called.

A junior member of Denmark's three-party coalition has left the government amid deep internal divisions over plans to sell a stake in state-owned energy group Dong to a US investment bank, although the departure is unlikely to bring down the government.

The left-wing Socialist People's Party will continue to provide parliamentary backing for Prime Minister Helle Thorning-Schmidt's government, outgoing leader Annette Vilhemsen said.

Anti-government protesters have staged their latest noisy procession in Bangkok, amid heightened tension in the run-up to Sunday's general election. Several thousand protesters marched along the capital's busy central Sukhumvit Road, calling on caretaker Prime Minister Yingluck Shinawatra to resign and urging a poll boycott. Protest leader Suthep Thaugsuban has vowed to "completely shut down" the capital on election day.

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FTSE 100: down 0.2% at 6,532.30
FTSE 250: down 0.1% at 15,670.42
AIM ALL-SHARE: down 0.6% at 852.53
GBP-USD: 1.6499
EUR-USD: 1.3580
GOLD: USD1,241.05 an ounce
OIL (Brent): USD107.84 a barrel

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KEY UK CORPORATE NEWS:

FTSE 100: Johnson Matthey has raised its full-year guidance after reporting a strong third quarter, driven by sales increases in its emission control technologies unit. The firm also announced that Chief Executive Neil Carson had decided to step down after a decade at the helm and will be replaced by Finance Director Robert MacLeod. National Grid said it has made good progress since October 1 as its networks performed well, demonstrating strong resilience during some difficult weather conditions in both the US and UK. The company, which owns the electricity transmission system in England and Wales, said recent investment in UK flood defences for critical sites over the past few years helped to minimise any cost or reliability impact on its operations from recent bad weather. Media buying giant WPP said its Tenthavenue unit has bought a majority stake in a South African mobile activation and rewards company Jupicorp Proprietary Ltd. It didn't give any financial details. United Utilities Group said revenue has increased since October 1, reflecting regulated price changes for 2013/14 as it continued to make good progress on its regulatory capital investment programme. The utilities firm said its revenue increase is only partly offset by higher depreciation and other operating costs, as it continues to tightly manage its cost base, and that it remains on track to invest at least GBP800 million in its asset base in 2013/14.

FTSE 250: Mitchells & Butlers said its trading performance over the Christmas period was strong, resulting in a 2% increase in like-for-like sales in the year to date. Over the three-week festive period to January 4, like-for-like sales rose 2.6% and like-for-like food volumes rose 1.3%. RPC Group said its third quarter profits were ahead of the year-earlier period and in line with management expectations as activity levels improved, it cut costs and improved its sales mix towards more profitable products. The rigid plastic packaging supplier said input prices had remained relatively stable during the three months to end-December. Online gaming company Bwin.party Digital Entertainment has been selected as the live sports betting content provider for Fortuna Entertainment Group, a large betting operator in central Europe. ITE Group saw revenue increase in the quarter ended December 31, with trading ahead of expectations despite the strengthening of sterling against its major trading currencies. Great Portland Estates said the value of its portfolio has increased 5.8% in the final quarter of 2013, as investor appetite for London real estate strengthened occupational demand, and a shortage of both existing and new space to let have kept yields low and forced rents higher. Euromoney Institutional Investor said it has continued to trade in line with expectations in the first quarter, as it saw revenues rise 3%, but cautioned on the strengthen of sterling during the ongoing second quarter. Kentz Corp has been awarded a USD62 million development contract by Crestwood Midstream Partners LP. The engineering and construction group said the contract was awarded to its newly acquired US oil and gas handling company Valerus FS and is to provide the engineering, procurement, construction and commissioning of two gas compressor stations in West Virginia. Lonmin said its sales volumes and refined production increased in its first quarter, but announced a possible reduction in sales volume guidance due to strike action in South Africa. Kazakhmys said its production across most of its portfolio met or beat its previous guidance in 2013. Food producer Cranswick said sales rose 14% in its fiscal third quarter, buoyed by strong sales of pork products, particularly over Christmas, while its operating margin rose compared with the first-half of the year as it took steps to offset record high input costs. Online gaming and software firms 888 Holdings and Playtech reported strong performances in the fourth quarter of 2013. 888 Holdings said quarterly revenues rose 10% to a record USD107 million, boosted by an impressive performance from its casino products. Software provider Playtech said that, after its strong final quarter, both revenues and adjusted earnings for the full-year 2013 will be marginally ahead of current analysts' consensus. Centamin has forecast that production at its Egyptian Sukai gold mine will increase by 18% in 2014, a fifth year of output growth. Londonmetric Property has exchanged contracts to acquire the Superdrug Distribution Centre in South Elmsall, Doncaster for GBP13.0 million. Private equity company 3i Group said its portfolio was continuing to perform well, driven by its larger investments, with returns less diluted as it cut its costs and debt. Realisations and investments both increased in the final quarter of 2014.

AIM: Newmark Security is a top gainer after it reported an 8% increase in revenue for the first half of its financial year. It also reported an increase in pretax pre-items profit, although profit fell including an impairment charge. Egdon Resources is another gainer after it announced an opt-in agreement with Total for an exploration and development licence in Lincolnshire that it is a partner on. Under the terms, Total will have an option to earn a 50% interest by paying for all of the exploration programme of up to GBP13.47 million including seismic acquisition and the drilling of a well. Rare Earth Minerals is up after it said the current drilling programme at its Fleur-El Sauz Lithium project has significantly increased the potential size of the Mexican deposit once more. Photonstar LED is another riser as it reported a much better performance in the second half of 2013, meaning revenues for the year as a whole rose 8% while its operating loss narrowed. DiamondCorp is also up after it said underground development at its 74%-owned Lace diamond mine in the Free State province of South Africa remains close to schedule and under budget. Public Service Properties Investment is a big faller after reporting big falls in the value of its UK and German portfolios. African Copper is down after it noted a corporate and financial update filed by its 74% shareholder ZCI Ltd. As part of the disclosure, ZCI warned that African Copper is its only major investment and this lack of diversity is one of the key risks facing ZCI. The company said ZCI are pursuing all relevant opportunities to unlock value and to move towards a more diversified portfolio, which could include selling part of its stake in African Copper. Greatland Gold is another decliner despite saying it has achieved further positive results from drilling activities at its Warrentinna Gold project in Tasmania.

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AFTERNOON WATCHLIST: US Gross Domestic Product Price Index, US Jobless Claims, US Core Personal Consumption Expenditures, US Pending Home Sales, US EIA Natural Gas Storage change, Japan National Consumer Price Index, Japan Overall Household Spending, Japan Unemployment Rate, Japan Industrial Production

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Friday's Key UK Corporate Events

Air Partner Trading statement
Paragon Group of Companies Interim Management Statement
BT Q3 Results
Vedanta Q3 Results
Bellway Half Year Results
KCOM Trading Statement
Rank Group Interim Results
Aon Q4 Results

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Friday's Key Economic Events

All Day China Chinese New Year
00:05 UK Gfk Consumer Confidence
04:00 Japan Vehicle Production
05:00 Japan Construction Orders
05:00 Japan Housing Starts
07:00 Germany Retail Sales
07:45 France Consumer Spending
07:45 France Producer Prices
10:00 EU Consumer Price Index
10:00 EU Unemployment Rate
13:30 US Personal Spending
14:45 US Chicago Purchasing Managers' Index
14:55 US Reuters/Michigan Consumer Sentiment Index

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By Alice Attwood; aliceattwood@alliancenews.com; @AliceAtAlliance

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