News Column

MARKET COMMENT: UK Stocks Boosted By BoE Report, US Trading

August 13, 2014

LONDON (Alliance News) - After opening flat due to a mixed trading session in Asia amid poor Chinese loan results, UK stocks ended the day higher boosted by the dovish Bank of England quarterly inflation report and a strong start to trading at Wall Street despite poor US retail sales results.

The FTSE 100 ended the day up 0.4% to 6,656.68, the FTSE 250 also ended 0.4% higher at 15,527.48 while the AIM All-Share index fell 0.2% to 754.28.

European stocks rebounded after falls on Tuesday. The CAC 40 ended up 0.8% and the DAX up 1.4%.

The Bank of England quarterly inflation report Wednesday outlined the bank's cut in wage growth forecast to 1.25% from 1.5% following official data which showed the first fall in wages, including bonuses in more than five years. Average earnings, excluding bonuses, grew by just 0.6% year-on-year in the three-months to June, slipping from 0.7% growth previously and disappointing economists that were expecting growth to remain stable. Including bonuses, average earnings fell 0.2%, reversing some of the 0.4% growth recorded last month.

Governor Mark Carney also highlighted the bank's adjustment in the natural rate for unemployment, the rate of unemployment which causes no inflation, from 6-6.5% to 5%. This means that unemployment can continue to fall without putting extra pressure on the policy makers for a rate rise.

The markets now predict that the Bank of England will not be raising interest rates until wage growth starts to pick up.

In response to the BoE report, the pound fell to a ten-week low against the US Dollar and lost ground against all other major currencies. It is down more than a cent from its Wednesday high of USD1.6844 to USD1.6691. It is also trading at EUR1.2486.

While the pound fell, interest rate-sensitive equity sectors received a boost, with the FTSE 350 Real Estate Investment Trust sector index up 1.5%, and the housebuilders all rallying. Barratt Developments ended among the top gainers in the FTSE 100, up 2.8%, while FTSE 250-listed Redrow ended up 2.4%.

UK stocks, however, were hit by poor US Retail sales which came in flat after a 0.2% rise last month and the expectation of another 0.2% rise.

"The worst performing figure in six months was due to decreased car demand and tepid wage growth which has retrained US consumers from spending," says Spreadex trader Lee Mumford.

At the close of European markets, the DJIA was 0.6%, the S&P 500 ahead by 0.7% and the NASDAQ Composite was up 0.9%.

In individual stock news, G4S was the one of the leading FTSE 100 gainers Wednesday, closing 2.9% higher at 267.4279 pence after it said it swung back to a profit in the first-half of the year as revenue rose and it didn't repeat the write-offs and impairments that weighed on last year's results.

The company is undergoing a revamp which has included asset sales, restructuring of its UK and Ireland operations, and a focus on gaining new profitable contracts, particularly in emerging markets, is showing signs of paying off. The company swung to a pretax profit of GBP85 million in the six months to June 30, compared with a loss of GBP94 million a year earlier when it had booked GBP124 million of impairment charges after a review of its operations and a writedown on some unprofitable contracts.

Admiral Group suffered a fall in its share price of 5.5% to 1,371 pence after it reported a 2% rise in pretax profit but a 5% decline in revenues in its interim results. It also announced that Kevin Chedwick will replace Geraint Jones as the new chief financial officer, which according to Ben Vartia, trader at Accendo Markets, "has not impressed investors and shows a lack of confidence in Chidwick and the company going forward." Moreover, analysts have highlighted the pressure on earnings from many sources going into the future.

Admiral's news was felt throughout the industry as Direct Line insurance Group was among the FTSE 250 losers falling 4.8% to 282.2535 pence. In addition, Shore Capital notes that regulatory clouds still surround the industry and that UK households are being provided no respite from an income squeeze, as evidenced by the most recent wage data.

Looking ahead to Thursday, a host of European GDP estimations are to be released including from Germany and the Eurozone.

In the corporate calendar interim results are to be released from Ophir Energy, Centamin and Rank Group amongst others.

By Neil Thakrar;

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Source: Alliance News

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