News Column

MARKET COMMENT: FTSE 100 Makes Highest Close In Six Weeks

April 24, 2014

James Kemp

LONDON (Alliance News) - The FTSE 100 closed Thursday at its highest level for more than six weeks, boosted by some strong quarterly earnings results from US companies.

However, European markets moved sharply off their highs late in the session as tensions in Ukraine ratcheted up.

London's major equity indices spent much of the day in positive territory Thursday as investors digested some stronger-than-expected US earnings reports released after the market close on Wednesday.

"Corporate earnings season appears to have given investors the boost they have been craving for months," said Alpari analyst Craig Erlam. "This is especially true of the results from Apple and Facebook after the close on Wednesday, with both easily exceeding expectations," the analyst said.

Facebook posted a 72% rise in first-quarter revenue to USD2.5 billion on the back of increased mobile advertising, while Apple said its profits rise 7% from last year as margins improved amid strong sales of its iPhones. The stocks are up by 1.3% and 8.0%, respectively, at the London close Thursday.

While analysts have been quick to caution that expectations for the current round of US corporate earnings were particularly low due to poor winter weather in the US, the significant beat from the two major technology bellwethers appears to have improved sentiment somewhat.

European stocks also spent the vast majority trading in positive territory as a string of positive US corporate earnings continued to lift sentiment, but moved significantly lower late in the day.

The equity sell-off was "driven by talk of an emergency press conference called by (Russian President) Vladimir Putin," said Alpari's Erlam. "With all the unrest in eastern Ukraine, traders are clearly concerned that Putin may announce support for Russian-speaking citizens and send troops across the border," he added.

The speculation came after Russian armed forces began drills along its border with Ukraine in response to the crackdown by Kiev authorities on pro-Russian separatists in the east of the country. Up to five pro-Russian militants were killed in clashes during an anti-terrorism operation in the eastern town of Sloviansk, the Ukrainian Interior Ministry said Thursday.

Putin described the interim Ukrainian government's use of the army against its own people as a "serious crime" and warned of "consequences."

"The peace accord signed in Zurich between Ukraine, Russia, Europe and the US is hanging by a thread," said Jasper Lawler, market analyst at CMC Markets. "The situation has been bubbling away in the background for months now and has the potential at any time to flare up and send cautious investors to safe-havens," he said.

Although UK equities managed to regain some strength, with the FTSE 100 and FTSE 250 managing to end the day in the black, London's major stock indices closed well below their daily highs.

The FTSE 100 closed up 0.4% at 6,703, its highest closing level since March 7. The mid-cap FTSE 250 closed fractionally higher at 15,991.77, and the AIM All-Share index closed down 0.3% at 824.08.

In Europe, the French CAC 40 closed up 0.6%, while the German DAX 30 closed up 0.1%.

On Wall Street, at the UK equity market close, the DJIA was up 0.2%, the NASDAQ Composite was up 0.7%, and the S&P 500 was almost up 0.4%.

The speculation and developments in Ukraine and Russia saw a sharp increase in gold. The precious metal, which is regarded as a safe haven, hit its highest level for four days Thursday as investors sought to move away from risk assets, including equities. At the close of the UK equity market, gold traded at USD1,288.92.

At the individual UK stock level, FTSE 250-listed tech stock Imagination Technologies Group was a big riser. The group, which supplies processing chips to Apple, closed up 7.4% following the update from the US tech giant saying iPhone sales remain strong, particularly in China.

Centamin closed up 12%, making it the mid-cap index's biggest winner. Shares in the metals and minerals producer shot up after it announced that a new investment law which came into effect in Egypt on Wednesday could help it in its ongoing court appeal against claims made against it.

Pharmaceutical companies were once again among the leading gainers in the FTSE 100.AstraZeneca shares closed up 3.9%, having jumped sharply on Tuesday and Wednesday amid speculation that US giant Pfizer Inc is set to return with an improved takeover offer.

Thursday's gain came despite the company reporting a drop in pretax profit in the first quarter to end-March as it was hit by write downs of USD257 million on the sale of its Alderley Park site and its USD2.7 billion acquisition of Bristol-Myers Squibb Co's share of their diabetes alliance. It posted a pretax profit of GBP638 million, down from the GBP1.30 billion in the previous year, as revenue rose to GBP6.42 billion from GBP6.39 billion, damped partly by the weakening of the yen against the dollar.

Shire, which has also risen sharply in the last two days, also ended the day 1.9% higher as it continues to be boosted by merger and acquisition chatter.

Smith & Nephew was another big blue-chip riser, closing up 3.4%. Shares in the medical equipment manufacturing company rose as merger and acquisition activity and speculation amongst pharmaceutical and health care equipment companies continued.

In the latest deal in the sector, US-based medical-device manufacturer Zimmer Holdings Inc said it had agreed to acquire Biomet Inc in a cash and stock deal valued at approximately USD13.35 billion, including the assumption of net debt.

Anglo American, closing up 0.7%, was another stand out blue-chip riser in London. The mining company's shares moved sharply higher after it said production has broadly increased across its major operations in its first quarter.

It said its iron ore production increased 10% to 11.3 million tonnes for the three months ended March 31 from 10.3 million tonnes the previous year, while its export metallurgical coal production increased 31% to 6.1 million tonnes from 4.6 million tonnes. The company also said that its copper production increased by 18% to 202,000 tonnes from 170,500 tonnes, and that its diamond production increased by 18% to 7.5 million carats from 6.4 million carats.

It did note, however, that its platinum equivalent refined production decreased by 39% to 357,000 ounces from 583,000 ounces, as a result of ongoing industrial action at its Rustenburg, Amandelbult and Union mines in South Africa.

At the other end of the spectrum, Unilever, ending the day down 1.7%, was one of the FTSE 100's biggest losers. The Anglo-Dutch consumer goods company reported another drop in revenues in the first quarter, as currency movements and weakness in emerging markets continued to weigh on its performance.

The group reported a 6.3% fall in revenue for the first quarter to EUR11.40 billion, down from EUR12.16 billion a year earlier, a slightly larger decline than analysts had been expecting, which was for a 6% decline. It said that currency movements wiped 8.9% off its revenue in the first quarter, as foreign-exchange rates continued to go against the firm during the period.

The company did manage to report growth in sales and volumes, however, helped by price increases, innovation and slight improvements in its food and refreshments businesses, but it said it faced slowing markets and a tough competitive environment in the first quarter.

Associated British Foods was another big loser. The firm, which jumped sharply on Wednesday, closed down 3.3%, despite a slew of positive price target revisions. JPMorgan, Canaccord, Credit Suisse, Exane BNP, Deutsche Bank, Societe Generale, and Barclays all have increased their price targets for the company.

This, however, was not been enough to lift the company's share price after it jumped 8.8% on Wednesday on the back of a positive half yearly report and plans to open a Primark store in Boston.

In the forex market, the euro experienced a volatile morning Thursday. The single currency edged higher in the aftermath of an unexpectedly strong German IFO business climate index reading. The index rose for the second consecutive month, recording 111.2 in April, up from 110.7 in March, and ahead of the slight dip to 110.5 that economists had been expecting.

However, the small gains were pared soon after in the wake of a speech by European Central Bank president Mario Draghi. Draghi reiterated his commitment to using both conventional and unconventional measures to maintain price stability, as well as again stating that the strength of the euro is becoming an increasingly important issue.

Later in the day, the dollar rose sharply against the euro and its other major rivals in the wake of some better-than-expected US durable good data, before dipping back down to pre-release levels

A report released by US Commerce Department revealed that durable goods orders in the world's largest economy rose by 2.6% in March, having jumped by a revised 2.1% in February, to record the biggest gain since November, 2013. Economists had expected orders to climb by 2.0% compared to the 2.2% increase that had been reported for the previous month.

At the European equity market close, the dollar trades at CHF0.8816 and JPY102.360, while the euro trades at USD1.3830, and the pound trades at USD1.6797.

In a quiet day in the data calendar Friday, UK retail sales information is released at 0830 GMT, at the same time as the British Bankers' Association's mortgage approvals data. The preliminary reading of the US Markit services purchasing managers index is published at 1345 GMT, with the Reuters/Michigan consumer sentiment index at 1355 GMT.

In the corporate calendar, FTSE 100-constituents William Hill and WPP are joined by FTSE 250-listed Colt Group, Spectris and Rotork in releasing trading updates.

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Source: Alliance News