London midday: Footsie flat despite mining strength, Xstrata surges

2nd Feb 2012 12:03

- Xstrata/Glencore surge on merger talks.- Mining strength outweighed by Astra, Unilever, Shell.- China considering increasing involvement in Eurozone rescue.The Footsie was broadly flat by lunchtime as poorly-received results from some big hitters outweighed strength in the mining sector.Markets are now awaiting the key weekly jobless claims data in the US to provide a boost. US stock futures are pointing to a flat start on Wall Street ahead of the data and a statement on the economic outlook by Federal Reserve Chaim Ben Bernanke to the US House Budget Committee.Chinese Premier Wen Jiabao is considering increasing Beijing's involvement in the Eurozone's rescue fund, he told reporters in a media briefing with German Chancellor Angela Merkel. according to Reuters. He did not make any explicit commitments, however.Meanwhile, Greece's deal with private creditors is said to be only hours away. According to a Wall Street Journal (WSJ) report, people close to the negotiations say that only small differences remain so the agreement could be concluded "in hours".The main delay however is, according to the paper, "the rift between the IMF and Germany". According to the Fund, cutting the €200bn in Greek debt simply won't do the job of getting Athens's debt down to 120% of gross domestic product by 2020. The IMF thinks it's necessary for the "official sector", such as the European Central Bank (ECB), to also swallow losses on its own Greek bond holdings.M&A ACTIVITY BOOSTS MINERSSpeculation that a merger of Swiss commodities giants Glencore and Xstrata could be on the cards has proved on the money, with Xstrata confirming that it is in talks about a merger of equals with its largest shareholder. A merger of mining outfit Xstrata and commodities trader Glencore could create a leviathan valued at around £52bn. Both stocks were in demand today, with Xstrata jumping 10% and Glencore up a lesser, but still impressive, 5%.Chris Searle, corporate finance partner at BDO LLP, said that this was no real surprise given that Glencore already owns a substantial stake in Xstrata. "Whether this merger triggers another round of consolidation in the industry remains to be seen, given anti-trust concerns around the world, but other companies may feel forced to merge just to keep up with this new giant," he said.Speculation seems to have driven the share prices in the sector higher, with Vedanta Resources, Anglo American, Antofagasta and Randgold Resources making strong gains.As an aside, according to a report in South African newspaper Business Day the country's ruling ANC government has decided that the nationalization of mines would be unconstitutional and too expensive, Bloomberg writes. Not coincidentally, some industry executives warned of such risks at the recent World Economic Forum in Davos.Also on the rise was medical devices maker Smith and Nephew. Fourth quarter sales came in a touch shy of market expectations, but showed a modest improvement on the previous year's fourth quarter figure.Food and support services firm Compass edged higher after saying that it has had a good first quarter and its expectations for the full-year remain unchanged, despite experiencing a continuing challenging macroeconomic environment in Europe.BIG HITTERS DISAPPOINTLeading the downside was drugs giant AstraZeneca after the company lowered its forecast for revenue contribution from recently launched and pipeline products. Astra announced a 1% rise in full-year revenues and a 29% increase in earnings per share in 2011, but warned that both revenues and earnings will decline in 2012 due to government interventions on pricing and ongoing generic competition. The company also revealed 7,300 job cuts in order to "enhance productivity" and reduce costs. Shares in consumer goods giant Unilever were left on the shelf after the Anglo-Dutch company reported revenues below expectations and expressed worries over input costs and the global economy. Anglo-Dutch integrated oil behemoth Royal Dutch Shell fell after underlying fourth quarter earnings came in below expectations. Net income on a current cost of supplies (CCS) basis, excluding various exceptional items such as gains from divestments and fair value accounting adjustments, rose to $4.8bn from $3.1bn the year before, but were below the $5.2bn the market was expecting.BCFTSE 100 - RisersXstrata (XTA) 1,241.50p +10.90%Glencore International (GLEN) 458.30p +6.15%Vedanta Resources (VED) 1,314.00p +5.04%Smith & Nephew (SN.) 639.50p +4.41%Anglo American (AAL) 2,809.50p +2.80%Johnson Matthey (JMAT) 2,217.00p +2.69%ICAP (IAP) 371.60p +2.65%Randgold Resources Ltd. (RRS) 7,470.00p +2.33%Antofagasta (ANTO) 1,361.00p +2.33%Petrofac Ltd. (PFC) 1,483.00p +2.28%FTSE 100 - FallersAstraZeneca (AZN) 2,962.00p -4.13%Unilever (ULVR) 2,003.00p -3.93%Royal Dutch Shell 'B' (RDSB) 2,271.00p -2.36%Severn Trent (SVT) 1,530.00p -1.73%Royal Dutch Shell 'A' (RDSA) 2,231.50p -1.63%GlaxoSmithKline (GSK) 1,404.50p -1.40%CRH (CRH) 1,269.00p -1.40%ARM Holdings (ARM) 584.50p -1.35%United Utilities Group (UU.) 601.00p -1.31%BP (BP.) 476.75p -1.29%FTSE 250 - RisersShanks Group (SKS) 110.80p +10.97%Hays (HAS) 80.90p +9.18%Petropavlovsk (POG) 825.00p +4.70%International Personal Finance (IPF) 203.70p +4.68%Afren (AFR) 129.10p +4.28%ITE Group (ITE) 215.60p +4.20%Redrow (RDW) 132.10p +4.18%Cape (CIU) 416.50p +3.87%Bovis Homes Group (BVS) 486.70p +3.53%Stobart Group Ltd. (STOB) 129.70p +3.35%FTSE 250 - FallersHeritage Oil (HOIL) 191.60p -2.79%FirstGroup (FGP) 308.50p -2.53%Soco International (SIA) 293.00p -2.40%WH Smith (SMWH) 546.00p -2.33%Diploma (DPLM) 416.50p -2.12%Capital & Counties Properties (CAPC) 190.20p -2.11%Go-Ahead Group (GOG) 1,263.00p -2.02%Unite Group (UTG) 184.80p -2.01%3i Group (III) 190.50p -1.60%Cranswick (CWK) 792.50p -1.55%