London midday: Markets show caution ahead of Budget

21st Mar 2012 11:32

- Budget to commence shortly- MPC votes unanimously on rates, divided on asset purchases- Wolseley, Serco, Vodafone advance after broker upgradesAfter a strong start, UK stocks pared early gains ahead of the upcoming 2012 Budget announcement expected shortly from the Chancellor of the Exchequer, George Osborne.One of the more contentious issues of the Budget is expected to be, as always, income tax. According to The Daily Telegraph, Osborne is planning to reduce the 50p top rate of tax to 45p because it is deterring investors and entrepreneurs. Meanwhile, senior economic advisors have announced that the Chancellor can afford to delay the proposed rise in fuel duty of 3p per litre (3.6p with value added tax). Other leaked reports have suggested that: Osborne will increase trading hours on a Sunday; the Budget will aid North Sea investment through a series of cheap loans; corporation tax is to be slashed by 20% in the medium term; and the Chancellor will put in place local pay settlements for some government departments from April onwards, a year earlier than planned.MPC MEMBERS DIVIDED ON QEIn other news, the Monetary Policy Committee (MPC) voted unanimously to maintain its Bank Rate at a record-low level at the last meeting, but two members were opposed to keeping the asset purchase programme on hold. Both David Miles and Adam Posen called to increase in QE by a further £25bn to £350bn "to reduce the risk that persistently weak growth would damage the future supply capacity of the economy." Analysts at Barclays Capital had expected both decisions to be unanimous. The Committee did however highlight the sharp increase in crude oil prices, with Brent rising 12% since the end of January. "If oil prices were to rise to a level significantly higher than the Committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth, and put upward pressure on domestic costs and prices." Meanwhile, UK public sector borrowing figures are out and significantly higher than expected. Public sector net borrowing (excluding interventions) was £15.2bn in February, compared to consensus estimates of £8bn.In other news, Federal Reserve Chairman Ben Bernanke said that the recent reduction in European financial stress is positive for the US, but warned that the danger is not over and the Old World's leaders need to follow through on policy commitments to ensure a lasting stabilisation.WOLSELEY ON THE RISEPlumbing giant Wolseley was the best performer by midday after Credit Suisse reiterated its outperform rating on the stock and lifted its target price from 2,400p to 2,850p. Jefferies, however, cut its own target price on the stock from 2,360p to 2,320p and kept a hold recommendation.Supermarket group Sainsbury wasn't too far behind after fourth quarter like-for-like (LFL) sales growth was ahead of expectations. LFL sales in the 10 weeks to March 17th were up 2.5% year-on-year, or 2.6% excluding fuel. That was down from the third quarter growth rate of 4.8% (inc. fuel) but better than the 2.1% growth the market had been expecting.Outsourcing giant Serco was making gains after both HSBC and Morgan Stanley upgraded their rating on the stock to overweight and lifted their target prices from 550p to 635p. Telecoms giant Vodafone was also advancing after Goldman Sachs upgraded the stock from buy to conviction buy. Kazakhstan-focused miner Eurasian Natural Resources Corp (ENRC) fell despite giving a bullish outlook statement alongside its strong 2011 results. The board is to have another go at persuading shareholders to give the thumbs-up to the company taking full control of Kazakh coal producer Shubarkol Komir JSC. The company called off the proposed acquisition back in November, responding to pressure from shareholders who said that the uncertain macro-economic environment made it a bad time for the $600m buy-out.FTSE 250: DEBENHAMS ON CITI'S SHOPPING LISTDebenhams was leading the gainers on the FTSE 250 after Citigroup upped its recommendation on the stock from hold to buy, a day after reporting that LFL sales had accelerated towards the end of the first half.Shares in Bovis Homes were advancing after UBS upped its target price by nearly a fifth. "Bovis should see substantial increases in profitability over 2012-14E as new, more profitable outlets are opened and legacy low return land is sold," UBS said. The broker did however keep its sell rating on the stock.Ophir Energy, the African energy firm which began trading in London last year, is hailing 2011 as a 'transformational year' as both revenue and cash-flow surged. Revenue jumped from just $0.53m in 2010 to $14.68m in the 12 months ended December 31st 2011, helped by a farm-out gain from its AGC Profond interests toNoble Energy. BCFTSE 100 - RisersWolseley (WOS) 2,576.00p +3.33%Sainsbury (J) (SBRY) 315.00p +3.11%Randgold Resources Ltd. (RRS) 6,545.00p +2.43%Marks & Spencer Group (MKS) 386.10p +1.61%Polymetal International (POLY) 965.50p +1.58%Imperial Tobacco Group (IMT) 2,533.00p +1.56%Prudential (PRU) 785.50p +1.35%Intertek Group (ITRK) 2,492.00p +1.30%Bunzl (BNZL) 1,007.00p +1.21%BT Group (BT.A) 218.50p +1.16%FTSE 100 - FallersAviva (AV.) 358.30p -4.12%Weir Group (WEIR) 1,903.00p -3.99%Standard Life (SL.) 237.60p -3.10%International Consolidated Airlines Group SA (IAG) 174.30p -1.91%Eurasian Natural Resources Corp. (ENRC) 653.00p -1.58%Royal Bank of Scotland Group (RBS) 28.26p -1.29%BAE Systems (BA.) 309.60p -1.28%Vedanta Resources (VED) 1,345.00p -1.18%Man Group (EMG) 139.50p -1.13%Admiral Group (ADM) 1,185.00p -1.09%FTSE 250 - RisersDebenhams (DEB) 80.10p +4.64%Dixons Retail (DXNS) 18.17p +4.01%Bovis Homes Group (BVS) 512.50p +3.98%Barratt Developments (BDEV) 147.00p +3.16%Imagination Technologies Group (IMG) 693.00p +2.97%Exillon Energy (EXI) 193.90p +2.92%Lamprell (LAM) 338.70p +2.64%Persimmon (PSN) 676.00p +2.42%Home Retail Group (HOME) 118.50p +2.24%Essar Energy (ESSR) 152.20p +2.22%FTSE 250 - FallersMillennium & Copthorne Hotels (MLC) 482.60p -3.46%Chemring Group (CHG) 421.10p -3.17%SEGRO (SGRO) 242.10p -3.04%Hunting (HTG) 918.50p -2.80%Kenmare Resources (KMR) 47.25p -2.78%Ocado Group (OCDO) 119.90p -2.76%Cable & Wireless Worldwide (CW.) 36.98p -2.68%John Laing Infrastructure Fund Ltd (JLIF) 106.60p -2.65%Centamin (DI) (CEY) 77.75p -2.57%Talvivaara Mining Company (TALV) 253.90p -1.82%