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London open: Markets flat on budget deal, taper speculation

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Markets opened broadly flat in the aftermath of a budget deal in the States, with upside being capped by the continuing uncertainty surrounding Federal Reserve monetary policy.

Imagination Technologies was also providing a drag on sentiment this morning after giving a poor outlook for its second half, while a surprise exit by a RBS boardmember was weighing heavily on the bank’s share price.

US markets finished slightly lower last night but news after the closing bell that negotiators in Washington had reached a deal has given UK markets a small fillip this morning.

Democratic and Republicans agreed on a budget deal to ease spending cuts for the next two years, which removes the threat of a government shutdown next month. While the budget still needs to be passed in both the Senate and the House, House Budget Committee Chairman Paul Ryan said the agreement “is a clear improvement on the status quo”. “It makes sure we don’t lurch from crisis to crisis,” he said.

“The only question now is, will this deal have any impact on the Fed’s decision to taper when it meets next week? While the data suggests it shouldn’t, I imagine it must be something the Fed officials will consider when making their decision next week,” said Market Analyst Craig Erlam from Alpari.

Ahead of the Fed policy meeting on December 17-18th, speculation continues to ramp up regarding a tapering of quantitative easing, especially after last week’s strong economic data from the States.

According to a recent survey by Bloomberg, 12 out of 35 economists believed that the Fed will begin to taper at its meeting next week, nine said a withdrawal will start in January while the remaining 14 don’t expect a scaling back of stimulus until March.

The share price of chip group Imagination Technologies sank sharply after markets opened as the firm said that shipment growth from its partners for the second half would be at a “slightly lower rate than previously seen”.

It expects its partners to ship 580-630m units (excluding MIPS) during the full year, down from a previous estimate of 650m, due to slowing growth in the higher-end smartphone market.

Fellow chip designer ARM Holdings was also trading lower this morning.

RBS was also a heavy faller after the surprise exit of Finance Director Nathan Bostock after just 10 weeks in the position. He is to leave to become Deputy Chief Executive of the UK arm of Spanish banking group Santander.

Lloyds was also under the weather this morning, while HSBC, Standard Chartered and Barclays edged higher.

Transport firm FirstGroup gained after rebuffing “flawed” restructuring proposals from US activist investor Sandell and said it planned to continue on its current strategy.

Engineering services group Babcock International was trading lower this morning after going ex-dividend, meaning that from today investors can’t access the company’s latest payout. 3i Group, Betfair Group, Big Yellow Group, Daisy Group and Bellway also went ex-div today.

Utility stocks were putting in a decent performance this morning with SSE, Severn Trent, United Utilities and Centrica among the best performers.

FTSE 100 – Risers
BAE Systems (BA.) 424.50p +2.19%
Whitbread (WTB) 3,510.00p +1.01%
Severn Trent (SVT) 1,681.00p +0.90%
BT Group (BT.A) 371.80p +0.87%
Compass Group (CPG) 925.00p +0.82%
United Utilities Group (UU.) 646.50p +0.78%
SSE (SSE) 1,318.00p +0.69%
WPP (WPP) 1,318.00p +0.69%
easyJet (EZJ) 1,450.00p +0.69%
IMI (IMI) 1,455.00p +0.69%

FTSE 100 – Fallers
Royal Bank of Scotland Group (RBS) 329.90p -2.02%
Randgold Resources Ltd. (RRS) 4,073.00p -1.64%
Mondi (MNDI) 960.50p -1.49%
BHP Billiton (BLT) 1,786.50p -1.16%
Lloyds Banking Group (LLOY) 77.28p -1.13%
Antofagasta (ANTO) 757.50p -1.05%
Bunzl (BNZL) 1,362.00p -1.02%
Aggreko (AGK) 1,565.00p -1.01%
Anglo American (AAL) 1,303.00p -0.99%
Prudential (PRU) 1,275.00p -0.93%

Source: ShareCast

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