News Column

MARKET COMMENT: Housebuilders Lead Rebound Despite Data Concerns

August 18, 2014

Jon Darby



LONDON (Alliance News) - UK stocks closed higher Monday, with the market reversing the heavy sell-off suffered at the end of last week amid relief that tensions in Ukraine hadn't escalated, while housebuilders performed strongly despite data showing a slowdown in annual house price growth.



The FTSE 100 fell sharply late on Friday amid reports that Ukraine had a attacked an armed Russian convoy that had crossed the border into the east of the country. Even though the situation remains tense, with pro-Russian rebels allegedly hitting a refugee convoy on Monday with rockets and mortars, markets were relieved there was no escalation in the fallout from the border incursion and that talks continue about a potential ceasefire.



That meant the FTSE 100 jumped at the open, and it remained higher for the rest of the day. The blue-chip index closed up 0.8% at 6,741.25, the FTSE 250 closed up 0.8% at 15,796.37, and the AIM All-share closed up 0.4% at 759.34.



Major European markets, which have been most sensitive to the tensions in Ukraine, posted even stronger gains Monday, with the French CAC 40 gaining 1.4%, and the the German DAX gaining 1.7%.



In the US, the DJIA was up 0.9%, the S&P 500 up 0.8%, and the Nasdaq Composite up 0.9% after European markets closed.



The UK housebuilders were broadly higher Monday, led by Bovis Homes which raised its dividend threefold after pretax profit more than doubled in the first-half. The Kent-based company increased its interim dividend to 12.0 pence from 4.0 pence, as pretax profit rose to GBP49.4 million for the six months ended June 30, from GBP18.6 million a year earlier. Revenue jumped 75% to GBP322.1 million from GBP184.4 million a year earlier. Bovis shares ended up 4.5%, fellow FTSE 250-listed housebuilder Redrow gained 2.4%, while FTSE 100-listed Persimmon, which reports its own numbers on Tuesday, gained 1.8%.



The gains in the house building sector came despite the latest Righmove survey recording a drop in the average UK house price of 2.9% in August. That's the largest monthly decline ever observed in August, the site noted, and it follows a 0.8% contraction in July. On a yearly basis, house prices were up 5.3%, slowing from the 6.5% increase in the previous month.



Also, Nationwide, which accounts for 15% of the UK's first-time buyer mortgage market, said its gross mortgage lending was down 9% in the the second quarter compared with the first quarter. It said new mortgage lending rules introduced by the Bank of England had led to a "period of adjustment" for the industry.



Still, Bovis gave a bullish individual outlook, saying it was planning to grow to annual volumes of between 5,000 and 6,000 homes a year, at premium profit margins. Its planning a total dividend of 35 pence for this year, up from 13.5 pence in 2013, and "at least" 35 pence in 2015.



The pound was one of the best performers in the currency market Monday, reversing some of its recent weakness after Bank of England Governor Mark Carney gave an interview in a weekend newspaper that seemed at odds with guidance given at last week's quarterly inflation report.



The pound reached a four month low against the dollar on Thursday of USD1.6654 as Carney sounded concerned about sluggish wage growth in the UK. The market's expectation of the first interest rate rise lengthened to the first-quarter of 2015. However, the governor said at the weekend that the BoE does not have to wait for real wages to rise before raising rates, and this sent sterling to USD1.6738 on Monday. The apparently conflicting messages from the BoE puts the focus on the minutes of the last Monetary Policy Committee meeting, due to be released on Wednesday.



"This Wednesday's minutes are crucial for the pound. The market is pricing in the possibility of dissent as we start the week, however this leaves us open to disappointment if all members vote together," said Forex.com research director Kathleen Brooks.



The interest rate sensitive real estate investment trusts were the worst performers Monday amid the mixed messages from the BoE. British Land closed down 0.9%, the biggest faller on the FTSE 100, while Land Securities ended down 0.1%.



Royal Mail was hit after Jefferies said it expects the group to be the worst performing stock in the European postal sector in the second half of the year. The investment bank cut its earnings forecasts for Royal Mail by 6% to 8% on the back of a relatively sluggish parcel growth assumptions compared with the rest of the sector. The cut follows Royal Mail's first quarter interim management statement, which showed a 1% decrease in UK parcel revenue for the three months to the end of June. Royal Mail ended down  0.7%.



Arm Holdings was one of the best blue chip performers, gaining 1.5% after analysts at Goldman Sachs turned more positive on the micro-chip maker and added the stock to its Conviction Buy list. Goldman has a price target of 1,400 pence, suggesting more than a 50% upside to the stock.



The UK economy will be in early focus on Tuesday when the latest inflation data for July is released by the Office for National statistics at 0930 BST. The Retail Price Index will be in particular focus as its is used to set the rail fare increases that can come into force next January.



In the UK corporate calendar Tuesday, BHP Billiton is scheduled to release preliminary full year results, while an interim management statement is expected from Imperial Tobacco Group, and interim results are due from Persimmon, Cairn Energy, John Wood Group, TT Electronics, and John Menzies.










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Source: Alliance News


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