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The end of the global earnings recession is in sight. That is the opinion of heavy-hitting broker Citigroup, which today said that even a sluggish return to growth could be sufficient to drive a sharp rebound in company's profits. It reckons that a combination of climbing profits and dirt-cheap valuations will push up share prices in the second half of this year.
“Analysts are putting through more global earnings upgrades than downgrades for the first time since 2007,” said Robert Buckland, the bank's well-regarded global equity strategist. “Financial conditions and economic expectations are also improving. It all suggests we could be approaching the end of the global earnings recession.”
Citi's optimism helped the FTSE to hold on to its recent big gains with the benchmark adding 0.42 points to 4494.15. The index is currently on its longest winning streak since January 2004 when it rose for 11 consecutive days of trading.
National Express put on 61⁄4p to 3161⁄2p as the crisis-struck coaches and trains operator swapped one suitor for another. FirstGroup, which runs the First Great Western franchise out of Paddington, walked away from a formal offer late last night, blaming “uncertainties” about National Express's rail franchises. But just an hour later, National Express said it had attracted a new potential bidder.
There was a flurry of speculation about the likely candidate, with Stagecoach, Deutsche Bahn, European private equity and France's SNCF all named. Sector experts believe Deutsche Bahn is most likely to be circling, given its desire to increase its grip in Britain's liberal trains market. It already owns Chiltern Railways and is said to be looking into launching a cross-Channel service to rival Eurostar.
FirstGroup ditched its bid after National Express asked the Takeover Panel to impose a “put up or shut up” deadline for it to make a formal offer. FirstGroup is now banned from making an offer for six months unless a rival bid is tabled.
Water watchdog Ofwat's calls for lower bills sparked a sell-off of shares in the sector. The regulator threw out Thames Water's plans to raise bills by 17% in the next five years, saying it could increase the average bill by just £1 in the period — below inflation. United Utilities claimed the Footsie's wooden spoon, with a drop of 201⁄4p to 4821⁄4p, while Severn Trent lost 43p to 1070p.
Wall Street ended its winning streak last night but losses were reined in by big gains from housebuilding stocks. Lennar jumped 7.7% to $10.62 and KB Home put on 6.1% to $15.03 as the markets were cheered by figures showing that house prices rose in May.
The Dow closed down 34.68 points at 8881.26 and the S&P 500 was almost flat, 0.51 points lower at 954.07. But the Nasdaq Composite rose for an 11th consecutive day, gaining 0.5% to 1926.38.
Better-than-expected figures from Starbucks and iPhone maker Apple helped the Nasdaq to remain in positive territory. The coffee chain's return to the black sent its shares surging 18.4% to $17.39 and spilled out into the rest of the consumer sector. Apple's numbers likewise received a positive reception and its shares jumped 3.5% to $156.74 as the company is particularly resilient to the consumer spending downturn.
Banking shares recovered from early losses after US Bancorp chief executive Andrew Cecere predicted that credit writedowns will stabilise. They had originally been marked lower on warnings of further loan losses from Wells Fargo and disappointing results from Morgan Stanley.
Bank of New York Mellon slumped 5.7% to $27.46 after posting a 43% plunge in first-quarter profit. US Bancorp shot up 3.8% to $18.96 while Morgan Stanley finished just 0.1% lower at $27.54.
Boeing beat earnings forecasts thanks to strong demand for its fighter jets and Apache helicopters. But its shares sank 2.4% to $42 as it kept its annual forecasts unchanged because of the costs from the latest delays to the 787 Dreamliner.
Asian shares added to recent gains, rising for the eighth consecutive day, despite some investors booking profits. In Tokyo, exporters jumped on a weaker yen. But the nation's biggest mobile phone operator, NTT DoCoMo dipped on reports that operating profits had fallen 16% between April and June. The Nikkei Average ended up 69.78 points at 9729.94.
