News Column

MARKET COMMENT: Stocks Pull Back As Putin Parades His Troops

May 9, 2014

Jon Darby

LONDON (Alliance News) - UK stocks trade lower Friday, with investors consolidating positions ahead of a weekend likely to bring further tension in Ukraine as pro-Russian militants in the east of the country push ahead with a referendum on seceding from the country.

By mid-morning Friday the FTSE 100 is down 0.4% at 6,810.97, the FTSE 250 down 0.6% at 15,875.42, and the AIM All-Share down 0.4% at 807.81.

Within major European markets, the CAC 40 is down 0.7%, with the DAX off 0.4%.

The latest German trade data released earlier Friday showed an unexpected fall in exports from Europe's largest economy, bogged down by slowing global trade and the economic fallout from the Ukraine crisis.

While equities, particularly in Europe, staged a rally on Thursday after the European Central Bank strongly hinted at further monetary easing, ECB President Mario Draghi also cautioned that the eurozone is the most economically at risk of all regions to a deterioration in Ukraine. Knock-on effects would of course be felt in the UK, which conducts the majority of its international trade with the eurozone.

With this in mind - and against a backdrop of Russia's military testing nuclear missiles on Thursday and parading troops and military hardware around Red Square in front of TV cameras on Friday in celebration of its victory against Nazi Germany - investors are exercising caution heading into the weekend.

The pound has slipped to a session low against the dollar of 1.6896 following some unconvincing UK industrial and manufacturing production numbers.

Manufacturing production grew at 3.3% year-on-year in March, faster than the 2.9% growth expected, but slowing from 3.9% in February. Meanwhile, industrial production expanded by 2.3% annually in March, slower than the 2.4% expected growth, and also slower than the 2.5% recorded in February.

"Today’s data were mixed but on balance still pointing to a solid recovery," says Berenberg Chief UK economist Rob Wood. "The UK is heading for another strong quarter of growth and the recovery is broadening."

Still to come Friday, the National Institute of Economic and Social Research is due to release its UK GDP estimate for the three months to April at 1400 GMT. Many commentators are expecting the institute to raise its estimate from its previous estimate of 0.9% growth on the preceding three months.

As an article in The Times newspaper pointed out Friday, if big economic bodies are suggesting UK GDP has returned to near pre-crisis, it builds pressure on the Bank of England to start raising rates away from their current all-time low.

Within UK equity sectors, the FTSE 350 Oil Equipment Services & Distribution sector is the worst performer, down 6.0%. The sector is being led lower by Petrofac, which has been smashed almost 16% to lead the FTSE 100 lower after issuing a profit warning.

The oil and gas services group warned that net profit will fall in 2014, due partly to delays in development of is major Greater Stella Area project. The company said it now expects its net profit to fall to between USD580 million and USD600 million in 2014 from USD650 million in 2013, which it attributed to low earnings from the Integrated Energy Services division.

FTSE 250 listed sector peer Wood Group follows Petrofac lower, down 3.4%, ahead of its own interim management statement due next week.

Tullet Prebon leads the FTSE 250 lower after reporting a 15% decline in revenue for the four months to April compared to a year earlier. The interdealer broker also highlighted the difficulty it is facing in cutting costs any further. It is taking measures to reduce annual fixed costs by about GBP20 million, but estimates the cost of making the cuts will be around the same amount that will be saved in a year.

Grafton Group is performing well, up 2.6% and leading the gainers in the FTSE 250 after announcing a 14% rise in group revenue over the first four months of the year. The owner of brands including Selco, Buildbase and Plumbworld last October completed a move to the London market from Dublin in a bid to stimulate more international investor interest and entered the FTSE 250 in December. It said revenues rose to GBP654 million in the period to April 30, from GBP576 million in the same 2013 period.

The afternoon data calendar is fairly empty, leaving little in the schedule to boost investor sentiment ahead of the weekend, particularly as US futures currently indicate that a broadly softer open can be expected on Wall Street.

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Source: Alliance News

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