News Column

MARKET COMMENT: FTSE 100 Set To End Week Lower As Data Disappoints

June 27, 2014

James Kemp

LONDON (Alliance News) - The FTSE 100 trades modestly higher Friday, but looks set to close the week firmly in the red, as it struggles to recover from heavy losses posted at the beginning of the week.

By mid-morning, the FTSE 100 is up 0.2% at 6,748.71, the FTSE 250 is up 0.3% at 15,692.56, while the AIM All-Share index is down 0.1% at 779.35.

However, sharp declines recorded earlier in the week on the back of some disappointing US and European macro economic data and increasing fears about the escalating violence in Iraq means that London's major indices are all set to record a significant weekly loss.

"On the final day of the week, and with the end of the quarter looming as well, there are few compelling reasons to boost equity exposure, keeping gains limited," says Chris Beauchamp, a market analyst at IG.

In data recently released, the UK Office for National Statistics has revealed that the UK economy expanded as estimated in the first quarter. Gross domestic product grew 0.8% quarter-on-quarter, unrevised from previous preliminary estimates. Annual growth, however, came in at 3.0%, down from the preliminary estimate of 3.1%.

At the same time, the ONS revealed that the UK current account deficit narrowed to GBP18.50 billion in the first quarter from a revised GBP23.52 billion in the fourth quarter. Economists had forecast that it would narrow to GBP17.5 billion from GBP22.4 billion.

In the eurozone, the latest data from the European Commission has shown a drop in consumer confidence, falling to minus 7.5 in June from minus 7.1 in May, and missing economists' estimates for a slight increase to minus 6.7. The economic sentiment indicator came in at 102.0, down from May's 102.6 reading, and again missing forecasts of a small rise to 103, while the business climate and industrial confidence indicators also came in below expectations.

It was not all bad news, however, as the services sentiment indicator showed a bigger-than-expected rise to 4.2 in June from 3.8 in May. Economists had forecast a more modest rise to 4.0.

Stocks are higher in Europe, with the CAC 40 in Paris up 0.3% and the DAX 30 in Frankfurt up 0.2%.

At the individual UK equity level, Rolls-Royce Holdings, up 1.2%, is one of the biggest risers in the FTSE 100. Reuters has reported that Airbus is very close to a decision to upgrade its A330 with engines provided by Rolls-Royce, citing people familiar with the matter.

The move will strengthen a growing strategic pairing between the European companies, with General Electric Co, the main alternative engine supplier on the existing version of the jet, no longer seen as a contender to take part in the USD2 billion project provisionally dubbed "A330neo", Reuters quoted the people as saying.

The go-ahead to make Rolls-Royce sole supplier for the new version of the A330, offering up to 14%-15% in fuel savings with the help of new wingtips, remains subject to Airbus board approval, Reuters added.

Standard Chartered, down 1.4%, is once again among the biggest losers in the FTSE 100, having closed down 4.3% as the blue-chip index's second-biggest loser on Thursday on the back of a disappointing trading update. UBS Friday has lowered its price target on the UK-based emerging markets-focused bank to 1,300 pence from 1,515p, while Societe Generale has cut its target to 1,450p from 1,550p. Canaccord has trimmed its target on the bank to 1,000p from 1,200p.

Imagination Technologies Group is the heaviest faller in the FTSE 250. Shares in the technology company fell sharply after Intel Capital Corp, the investment arm of chip giant Intel Corp, sold a 9.3% stake in the business, a move its banks said wouldn't impact the operational relationship the companies have.

Credit Suisse, which along with Jefferies International and JP Morgan, conducted the sale by Imagination Tech's biggest shareholder, said Intel Capital will be subject to a 90-day lockup on its remaining Imagination Technologies stake of about 5%.

In total, 25 million shares were placed by the banks at 205 pence a share, raising gross proceeds of GBP51.25 million.

Imagination Technologies shares are currently quoted down 7.2% at 208.66 pence, broadly in line with the placing price.

At the other end of the spectrum, SuperGroup is the biggest riser in the mid-cap index, currently trading up 3.9%. Shares in the fashion retailer have jumped after it took back the rights to trading its Superdry brand in Denmark, Norway and Finland when it bought Scandinavian distributor SMAC Group. It didn't provide any financial details about the acquisition, but said it paid for the deal with cash from internal resources.

National Express Group, up 3.6%, is another stand out gainer in the FTSE 250. The company has retained its c2c Essex Thameside rail franchise for a further 15 years, after committing to investments of GBP160 million in new trains, more peak-time services, station improvements, and adding free wifi on trains and at stations.

In a statement, the UK government's Department for Transport said the new franchise will run until November 2029, and the award reflected c2c's "impressive" performance on the franchise so far.

FTSE 250-listed engineering company Keller Group is up 2.2% after it said there have been no significant changes to its trading or outlook since it published interim results last month.

Still to come in the data calendar Friday, the preliminary reading of German consumer price inflation is due at 1300 BST.

In the US, the Reuters/Michigan consumer sentiment index is released at 1455 BST.

US futures trading currently indicates that Wall Street will open slightly lower Friday. The DJIA and NASDAQ Composite are both expected to open down 0.1%, while the S&P 500 is called to open down 0.2%.

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Source: Alliance News

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