News Column

MARKET COMMENT: UK Stocks Gain As Geopolitical Tensions Pause

August 11, 2014

Jon Darby

LONDON (Alliance News) - UK stocks have started the week strongly, following on from a positive session in Asia and a strong turn around in US stocks at the end of last week.

By mid-morning Monday, the FTSE 100 is up 0.7% at 6,611.50, the FTSE 250 is up 1.1% at 15,406.07, and the AIM All-Share is up 0.5% at 753.17.

Within major European markets, the French CAC 40 is up 0.8%, and the German DAX is up 1.4%.

The particularly strong performance of the DAX highlights the reason for the turnaround from last week's slump, which is the apparent easing of tensions between Russia and Ukraine. The ongoing hostilities in eastern Ukraine have weighed on the German market particularly heavily in recent weeks given the strong trade links between Berlin and Moscow.

The other big geopolitical events that hurt investor sentiment last week also have shown signs of improving, with a ceasefire currently holding between Hamas and Israel and reports that the US is achieving progress with its objectives in northern Iraq.

"Friday's news that Russian military exercises have come to a conclusion on the outskirts of Ukraine, coupled with a more proactive strategy from the White House in dealing with ISIS forces in Iraq, triggered a market rally," said IG market analyst Alistair McCaig.

Chinese inflation data released at the weekend also have been supportive. CPI was unchanged at 2.3% year-on-year in July, in line with expectations and below the 3.5% target, which suggests that there is room for the Chinese government to continue with stimulus measures without worrying about high inflation.

Balfour Beatty surprised investors Monday by releasing its half-year results ahead of schedule. The group reported a sharp drop in pretax profit to GBP22 million for the six months to June 27, down from GBP47 million a year earlier, as group revenue dipped to GBP4.17 billion from GBP4.31 billion.

Weak results had been previously flagged and were broadly anticipated, but the company also said that it has rejected a second offer from Carillion, after an initial offer was rejected last month. Balfour said it has "lost confidence" in a successful merger with Carillion, which wants any deal to include Balfour's Parsons Brinkerhoff business but which Balfour is in the process of selling separately.

Under UK takeover rules, Carillion now has until August 28 to make a revised offer or walk away from any deal. Shares of both companies are up with the market Monday, with Carillion up 1.2% and Balfour Beatty up 1.5%.

Synthomer is a stand-out gainer on the FTSE 250, up almost 6% after raising its interim dividend by 25%. The speciality chemical company reported a pretax profit of GBP45.0 million for the six months to June 30, down from GBP48.6 million a year earlier, as revenue in the period fell to GBP510.1 million, down from GBP558.3 million. It said revenue and profit were hit by significant weakness in the Asia and Rest of World region. Investors have looked past the earnings, which were a little light of consensus, to the improved pay out potential of the stock.

There's very little left in the economic calendar Monday, with no releases from the US. The British Retail Consortium retail sales monitor is scheduled for release, but not until long after the European market close.

US Federal Reserve Vice Chair Stanley Fischer has been giving a speech Monday morning, entitled 'The great recession - moving ahead', at the Swedish Ministry of Finance in Stockholm. Fischer said that the US and global economic recoveries have been disappointing, and that a declining participation rate in the labour force, as well as a drop in productivity, may have led to a permanent dent in economic potential. The Fed vice chair said the long-term annual growth rate in the US may now be as low as 2%, a whole 1% lower than the Fed's official estimate back in 2009.

Futures trading currently indicates that US stocks will continue higher at the opening bell, with the DJIA and the S&P 500 both pointing up about 0.2%.

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Source: Alliance News

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