Market buzz: Redburn cynical on Burberry; FTSE shaken to the (Glen)core

1456: JPMorgan Cazenove analysts have highlighted favourite SMID investment opportunities, including Arrow Global, Cineworld, Gulf Marine Services and Vectura.

Their SMID stocks "to avoid", are recruiters Hays and Pagegroup, and online estate agent Rightmove.

1412: According to one report, citing the Rheinische Post, German SPD official Las Klingbeil has rejected the idea of closed transit centres.

1353: Analysts at Liberum have jiggled their 'most and least preferred' lists about, with Crest Nicholson and Imperial Brands added to the beloved few.

Galliford Try and Reckitt Benckiser have been booted out of the favourable file but are not in the "least preferred" list, to which was added Grafton, Domino’s Pizza, Croda and Nokia.

Possibly breathing a sigh of relief as they escape the naughty list, are Barratt Developments, Pets at Home, Symrise and Ericsson.

1327: Tullow Oil expects to pay $140m (£106m) after a court ruled the oil and gas company was wrong to terminate a contract in Ghana in 2016.

1228: Do you think Burberry can achieve a greater fashion mix and a higher luxury positioning? Management thinks so, but analysts at Redburn say they are "cynical".

They question the "potency and strength of the brand", point out their "mixed" track record in leather goods and its "low sales productivity".

"This is all sat on a 27x multiple, usefully above its history indicating that the market has already baked in full delivery on strategy. We are not so sure, and our outer year forecasts sit below the company's ambitions," they add, while reiterating their 'sell' recommendation.

1133: The most bought AIM stocks in June at broker Interactive Investor were led by two new entries in the top-10, UK Oil & Gas and Greatland Gold, with IQE slipping from second to third and Tern climbing to fourth from 10th.

Lee Wild, head of equity strategy at the broker, says UK Oil & Gas's surge in popularity coincided with the resumption of flow test operations at its part-owned oilfield a stone’s throw from Gatwick Airport. UKOG confirmed in results a few days later that it is still losing money, "but it’s the long-term potential of the field as a significant producer of oil and cash flow over many years that’s generating interest. This uptick in demand bumped the share price up by 45% in June to prices not seen since February, although they’re still way below last year’s peak at 11p."

On Greatland Gold, Wild observes that the explorer struck gold just days into a maiden exploration programme at its Black Hills licence in Western Australia in early July after positive news on Havieron in late June. "Hope here is that Black Hills can replicate some of the success of the large Telfer gold mine just 30 kilometres to the west. If it does, the trebling in value of the share price during June will be just the start. Positive drill results from the Havieron licence, also in the Paterson region of Western Australia, have kept up the momentum."

In fifth place was 88 Energy, followed by online retailer Boohoo.com, graphene specialist Versarien, Seeing Machines, EQTEC and in tenth place MySQU.

Versarien had a busy month, Wild says. "Appointed to the US National Graphene Association’s industry council, a deal signed with Arrow GreenTech in India soon after launching its Graphinks brand is potentially significant, and there’s optimism that 2D materials will generate substantial commercial demand. A range of earphones using Versarien’s graphene also paves the way for further monetising the technology." The news continues into July too, with more new collaboration agreements, including battery technology developer Zap&Go.

1058: PM Theresa May has received a letter from backbench MPs setting a few red lines they feel Britain cannot cross in its Brexit negotiations, as the cabinet gears up for a crunch meeting at the end of the week to decide on a detailed negotiating stance for the final phase of talks in Brussels this summer.

The Times reports that the cabinet was plunged into chaos yesterday, with infighting and mounting suspicions over a compromise on customs, with a febrile atmosphere described by one senior Tory as “a bit end of days”.

Currency analysts at Monex noted that sterling still lost ground yesterday despite the solid manufacturing PMI due to the political uncertainty, with details still remainig extremely vague as to the 'third way' customs union model with the EU that has been mooted by 10 Downing Street ahead of the Friday trip to Chequers.

Tory backbenchers behind this letter ought to know that the only way all of these red lines can be met is if we crash out on a no deal pic.twitter.com/87GdJFT0Jt

— Oliver Norgrove (@OliverNorgrove) July 3, 2018

1023: On Glencore, RBC Capital Markets said the DoJ subpoena "drives more uncertainty into the Glencore investment case, which we find compelling from a valuation perspective, but increasingly challenged from a headline risk perspective".

With not much detail in Glencore's announcement this morning to understand exactly what the investigation holds, RBC analysts say that with the subpoena covering multiple countries, "this would indicate that there is a relatively thorough investigation" is underway.

"After navigating the recent challenges in the Congo, albeit with a jurisdictional shift in risk from the Congo to the US, this investigation is likely to provide another reason for investors to proceed with caution around theGlencore investment case. We would expect that Glencore will use all legal means to defend itself and would highlight that there are no formal charges at this stage."

1016: Following another improved construction PMI survey, Blane Perrotton, managing director of surveyors Naismiths, said the figures are flattered by comparison to the weak data recorded at the start of 2018 but such solid improvements in both output and new orders reveal some genuine momentum.

“In part this is the release of pent-up demand, which has been building for months. There is only so long that investment decisions can be delayed, and on the front line we’re seeing increasing numbers of developers opting to pull the trigger before the opportunity passes them by," Perrotton says. “While optimism is strongest outside London – with the North West, West Midlands and Bristol markets all buoyant – even the capital is starting to see a creeping improvement in sentiment.

“The downside of this is the spectre of rapid cost inflation, as construction firms rush to recruit from a shrinking pool of available workers and the weak pound keeps imported material costs high."

0948: On Glencore, IG analyst Joshua Mahony says: "The fear for investors is that the firm will likely be hit by a substantial fine if found guilty of fraud and money laundering, the size of which will be subject to significant speculation."

0936: IHS Markit's construction PMI rose to 53.1 in June, up from 52.5 in May, which is where the market expected it to stay. The latest reading pointed to the sharpest overall rise in construction output since November 2017.

0928: One to watch from last night - the government is considering raising fuel and alcohol duty to raise billions of pounds to boost spending.

The Guardian reported that an inflation-linked increase on fuel duty next year could raise £800m in its first 12 months and is one of several proposals said to be “under serious consideration” to help fund Theresa May’s NHS spending pledge.

0918: Shares in insurer Hastings have been downgraded by JPMorgan Cazenove as it noted the UK motor market continues to see pressure on pricing.

While Hastings was early to react by slowing its growth at the end of the past financial year, but with average market premiums looking set to decline year-on-year, top-line estimates have been cut.

"Given the increase in reinsurance costs this year and unhelpful weather trends, we see downside risk to the current consensus," which leaves the analysts uncomfortable with an 'overweight' rating heading towards first-half results and so move back to 'neutral' to await a more attractive entry point.

0905: Glencore shares are down almost 11% after it was hit by a subpoena by the US Department of Justice over compliance with the Foreign Corrupt Practices Act and US money laundering laws.

The DoJ wants the company to produce "documents and other records" relating to its business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to the present. The Foreign Corrupt Practices Act prohibits companies issuing stock in the U.S. from bribing foreign officials for government contracts and other business.

Last month, the group settled its dispute over royalty payments in Congo with former country partner Dan Gertler, paying in euros rather than dollars. Analysts noted that the move to pay in euros appeared to have been orchestrated to circumvent US sanctions affecting Gertler, but that any further dispute would be moved from Congolese courts to US courts.

0901: Tuesday's London opening market report finds a stocks rebound as traders take their cue from a positive close in the US, although trade concerns are keeping a cap on gains.

Despite the upbeat tone in markets, escalating trade tensions remained in focus, particularly after it emerged that the Trump administration has recommended to the Federal Communications Commission that China Mobile not be allowed to enter the US telecommunications market.

"This understandably adds to fears of a US-China trade war stepping up another level (£34bn US tariffs on Chinese goods due Friday), putting at risk the rare occurrence of synchronised global growth," says analyst Mike van Dulken at Accendo Markets.

0830: The FTSE is up 0.4% to 7,578.49, while the pound was flat against the euro at 1.1294 and 0.1% firmer versus the dollar at 1.3162 as Prime Minister Theresa May conducts one-to-one meetings with her cabinet members to try to agree on a blueprint for the UK's future relations with the European Union. The cabinet will decamp to Chequers on Friday to bash out a final agreement.

0744: UK banks “face paying up to £18bn" more for PPI mis-selling following a "key legal ruling" says the FT.

After a judge ruled in favour of couple who took their case against Paragon Personal Finance, deciding they were entitled to receive compensation for all of the 76% commission they paid unwittingly, lawyers say banks may now have to pay full compensation of hidden costs.

0707: The FTSE 100 is set to recoup around 25 points on the open, traders reckon, after losing almost 90 the day before.

0703: Chinese markets are down a further 1%, despite support from Chinese state media, notes analyst Jasper Lawler at London Capital Group: "With the start of the US imposed tariffs now just days away and China expected to retaliate, alarm bells are starting to ring, sending the Shanghai bourse plunging to a two and a half year low on Monday, whilst the yuan also fell. Trade war fears are sending traders out of riskier assets, compounding the problem for China as an ermerging market. The timing of the tariffs comes just as the Chinese economy is taking its foot off the pedal; quite the opposite to the US, where the economy appears to be going at full throttle."

The UK construction sector will be in focus later with a PMI report at 0930 BST, which, following a strong rebound in May, is expected to be unmoved in June.

While a surprise to the upside could lift construction sector shares, the pound might be a tougher nut to crack, says Lawler. "As we saw from the previous session, where even a better than expected manufacturing PMI was insufficient to boost sterling in the face of Brexit concerns and trade war fears. The pound hit a peak of $1.3150, however it could still struggle to push much beyond here until after the heavier hitting service sector PMI later on Wednesday."

0700: US stocks reversed early losses to end higher overnight, led by strength in the technology sector even as worries about a trade war continued to play on investors’ minds.

The Dow Jones Industrial Average closed up 0.2% at 24,307.18, while the S&P 500 rose 0.3% to 2,726.71 and the Nasdaq pushed up 0.8% to 7,567.69.