News Column

MARKET COMMENT: FTSE 100 Pushes On As Pound Rallies On Data

July 2, 2014

Jon Darby

LONDON (Alliance News) - UK blue-chip and mid-cap stocks are continuing to push higher Wednesday, with mining stocks again leading the way, while the pound continues to rally after more positive UK economic data backed the case for an early interest rate rise.

UK stocks started the third quarter higher Tuesday, after positive Chinese data drove up mining stocks. And by mid-morning Wednesday, the FTSE 100 is up 0.2% at 6,815.98, the FTSE 250 is up 0.3% at 15,889.00, while the AIM All-Share is underperforming, down 0.2% at 786.08.

The mining stocks are performing well for the second consecutive day, with the FTSE 350 mining sector index up 0.6%. BHP Billiton is performing particularly well, up more than 1.0% in the wake of press reports that it is considering further job cuts to its iron ore operations in Australia. The miner's iron ore unit president said on an Australian business news website that his aspiration is to at least hold headcount, or reduce it, while increasing volumes.

A number of stocks going ex-dividend are providing a drag on the UK indices Wednesday. Royal Mail leads the FTSE 100 fallers, down 2.0% after going ex a 13.3 pence full-year payment. Babcock is also a big FTSE 100 faller, sown 1.2% after going ex a 16.4p full-year dividend. In the FTSE 250, De La Rue leads the fallers, down 3.4% after going ex a 28.2 pence full year dividend, while Homeserve, TalkTalk and ICAP are all big fallers after also going ex-dividend.

Blinks is the main reason for the underperformance of the AIM All-Share. The online advertising company is down about 44% after warning that its pretax profit will be about USD5 million below previous expectations. Management noted "industry-wide issues of efficiency," but also the lingering effect of a negative blog about the company published back in January.

Real Estate Investment Trusts are performing well in the wake of a positive note on the sector from Jefferies. "Commercial real estate prices are still adjusting to ultra-low interest rates and are in the early stages of a bull market," the bank said in a morning note to clients. Great Portland Estates is up 1.2%, Londonmetric Property is up 1.1%, and Land Securities is up 0.9%.

FTSE 250-listed Kier Group is up 3.2% after the construction group released a positive trading statement. Liberum Capital said the update provided a buying opportunity ahead of an investor day on Thursday, at which new Chief Executive Officer Haydn Mursell will set out his strategy.

Carillion is up 1.8% after being named as the preferred bidder for Liverpool Football Club's main stand extension. The construction company also said its performance in the first half was in line with expectations, and it remains on track to resume revenue growth in the full year, despite an expected dip in first-half revenue due to the rescaling of its UK construction activities.

Mothercare is up over 11% on the news that it has rejected two approaches from US peer Destination Maternity that appeared to offer a significant premium to shareholders. The latest proposal from Destination Maternity was for 230p in cash and 70p in the shares of the combined entity, which would be listed in the US as a new holding company. The total consideration of 300 pence would value Mothercare at GBP266 million, a 29% premium to Tuesday's closing price.

In Europe, the French CAC 40 is fractionally higher, and the German DAX is up 0.3%.

The pound has pushed up against the dollar to a fresh recent high of USD1.7177, the highest level since October 2008. Against the euro sterling has peaked Wednesday at EUR1.2571, the highest level since October 2012.

The UK construction PMI rose to 62.6 in June, from 60.0 in May, reversing the last few months of declining growth to reach the highest level since February. The jump in the reading came as a surprise to economists, who had been expecting a continued decline to 59.8.

Mortgage lender Nationwide, meanwhile, said that UK house prices have now reached their pre-recession peak once more, having risen by 1.0% in June alone.

Recent strong UK economic data is leading investors to increasingly price in a UK interest rate rise before the end of the year.

Still to come Wednesday, US MBA mortgage applications for the week ended June 27 are due at 1200 BST, followed by the ADP employment report for at 1315 BST. The report is expected to show an additional 205,000 jobs added in June after 179,000 were added in May. The report comes ahead of the non-farm payroll report on Thursday, although it has proved to be a poor indicator for the non-farm number in recent months.

In a busy afternoon for US data, the ISM New York index for June is due at 1445 BST, followed by factory orders at 1500 BST.

The highlight of the afternoon is then likely to be a speech on monetary policy by Federal Reserve Chair Janet Yellen from the International Monetary Fund at 1600 BST.

Ahead of all that, futures trading indicates that US markets will open fractionally higher.

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Source: Alliance News

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