News Column

MARKET COMMENT: UK Stocks Mixed, Pound Jumps On UK Retail Sales

May 21, 2014

James Kemp

LONDON (Alliance News) - UK stocks are trading mixed Wednesday, while the pound has jumped to a multi-day high against the dollar and a multi-month high against the euro following some much stronger-than-expected UK retail sales data and the release of the Bank of England's latest Monetary Policy meeting minutes.

By mid-morning, the FTSE 100 is down 0.2% at 6,786.45, the FTSE 250 is up 0.3% at 15,489.53, and the AIM All-Share index is up 0.4% at 792.46.

Major European markets are broadly higher, with the CAC 40 in Paris marginally higher, and the DAX 30 in Frankfurt up 0.3%.

The pound has shot higher Wednesday after UK retail sales increased at the strongest annual pace since May 2004, rising 6.9% year-on-year in April, following a 4.8% increase in March. Economists had been expecting a more modest increase of 5.2%. Month-on-month, overall retail sales volume growth improved to 1.3% in April from 0.5% in March, beating economists' expectations of 0.5%.

"The move in GBPUSD was given added strength by the Bank of England minutes, which shows the balance of opinion on the Monetary Policy Committee is shifting in favour of the hawks for the first time in years. " said Chris Beauchamp, a market analyst at IG.

The minutes revealed that BoE policy-makers voted unanimously to keep its interest rate steady at a record low of 0.5%, and its stock of GBP375 billion in asset purchases unchanged. However, they also showed that views on the appropriate path of monetary policy now are varied.

"For some members, the monetary policy decision was becoming more balanced," the minutes said. "In terms of the immediate policy decision, however, all members agreed would be necessary to see more evidence of slack reducing before an increase in Bank Rate would be warranted," they added.

By mid-morning, sterling trades at its highest level for over a week against the dollar at USD1.6899, at its highest level against the euro since January 2013 of EUR1.2322, at a four-month high against the Swiss franc of CHF1.5050, and at JPY170.545.

At the individual UK stock level, Burberry Group's shares have risen 1.6% Wednesday after it reported a higher pretax profit and revenues for its last financial year, as outerwear, large leather goods and menswear and demand in Asia continue to drive the business forward. The company also said it has appointed easyJet Chief Executive Carolyn McCall to its board as a non-executive director.

The luxury retailer posted a pretax profit of GBP444.4 million for the financial year to end-March, up from GBP350.7 million in the prior year, driven by a 17% increase in revenues to GBP2.33 billion. Adjusted pretax profit, a closely watch measure by analysts, which strips out exceptional items, was in line with market expectations at GBP460.3 million, up 8% from GBP428.1 million a year earlier.

Telecom Plus is currently the biggest winner in the FTSE 250, up 11%. The utility firm has reported a rise in revenue, higher pretax profit and a boosted full-year dividend, as the firm continues to grow its customer base.

Britvic, up 5.1%, is the second biggest riser in the mid-cap index. The soft drinks maker said it strong revenue, profit and margin growth in the first half of the year, supported by volume increases, higher prices and increased market share. It also raised its interim dividend by 13%, highlighting a confident outlook for the year ahead, the company said.

At the other end of the spectrum, WM Morrison Supermarkets is the heaviest faller in the FTSE 100. Deutsche Bank has downgraded the food retailer to Sell from Hold, and lowered its price target to 190.00 pence from 200.00p, saying that the group's recent share price performance is unjustified.

Morrisons share price has rallied 10% in the past two weeks, outperforming the FTSE 100 by 10%, and rivals J Sainsbury and Tesco by 3% and 1%, respectively, says Niamh McSherry, an analyst at Deutsche Bank. "Neither incremental news flow nor fundamental valuation supports the recent share price move," McSherry says.

Meanwhile, HSBC Holdings and Intertek Group are down 1.8% and 1.4%, respectively. The companies are big fallers after going ex-dividend Wednesday, meaning new buyers no longer qualify for the latest dividend payout.

FTSE 250-listed Provident Financial, down 1.2%, Dignity, down 0.9%, and Capital & Counties Properties, down 0.9%, also are all down after going ex-dividend.

Still to come in the European data calendar Wednesday, the preliminary release of consumer confidence for the eurozone in May is released at 1400 GMT.

In the US, the Mortgage Bankers Association releases its MBA mortgage applications data 1100 GMT. Federal Reserve Chair Janet Yellen gives a speech at 1500 GMT, with the President of the Federal Reserve Bank of Kansas City Esther George speaking at 1650 GMT, and Minneapolis Federal Reserve President Narayana Kocherlakota speaking at 1730 GMT.

The US Federal Open Market Committee releases the minutes from its April meeting at 1800 GMT.

US futures trading currently indicates that stocks on Wall Street will open higher, with the DJIA, NASDAQ Composite, and S&P 500 all called to open up 0.2%.

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Source: Alliance News

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