News Column

MARKET COMMENT: Quindell Weighs On AIM As London Main Market Gains

August 21, 2014

Jon Darby

LONDON (Alliance News) - UK stocks are higher Thursday despite early caution in light of a more hawish tone from both the Bank of England and the Federal Reserve, and with an update of Fed Chair Janet Yellen's latest thoughts on the US economy due from Jackson Hole on Friday.

August PMI data from Asia and Europe has provided the main focus of early trade, with the mining and natural resources stocks providing a drag on the London market after the Chinese HSBC manufacturing PMI slipped to a three-month low of 50.3, down from 51.7 in July and missing expectations for a print of 51.5.

By mid-morning Thursday, the FTSE 100 is up 0.3% at 6,776.55, the FTSE 250 is up 0.4% at 15,812.40, while the AIM All-share is underperforming, down 0.1% at 763.42 due to selling pressure on insurance outsourcer Quindell.

London'sFTSE 350 mining sector is down 0.5%, with Fresnillo leading the blue chip fallers, down 3.4%, while Randgold Resources is down 1.5%, Anglo American is down 0.7%, and Rio Tinto is down 0.5%. FTSE 250-listed Kazakhmys also is lower, down 1.1%, despite releasing results in line with expectations, saying its pretax loss narrowed by more than half to USD118 million from USD244 million last year.

Major European equity markets also are higher, with the French CAC 40 up 0.6%, and the German DAX up 0.4%.

The gains in Europe come despite more evidence that the eurozone economic recovery remains weak and uneven, with a mixed round of flash European PMI data that showed an overall drop in manufacturing activity.

The eurozone composite PMI slipped to 52.8 in August from 53.8 in July, missing expectations for a print of 53.4. The drop was driven by a fall in the manufacturing PMI to 50.8 in August from 51.8 in July, marking the lowest level of manufacturing output in over a year. The eurozone services PMI was also a little weaker, down to 53.5 in August from 54.2 in July.

In the region's biggest economy, Germany, output slowed fractionally, with a manufacturing sector PMI of 52.0, down from 52.4, and a service sector print of 56.4, down from 56.7.

French overall output stabilised in August, with a sharp drop in manufacturing activity balanced by an improvement in the service sector. The manufacturing PMI fell faster than expected to 46.5 from 47.8 in July, marking the fifth consecutive monthly decline. Economists had expected a small improvement in the reading to 47.9. The service sector, however, expanded faster than expected, with a reading of 51.1, up from 50.4 and beating the expectation for a print of 50.3.

The dollar was already broadly stronger following the hawkish Fed minutes, but the pound slipped to session lows of USD1.6561 and EUR1.2484 after some weaker-than-expected UK retail sales data.

UK retail sales grew by 2.6% year-on-year in July, down from the 3.4% growth recorded in June and missing expectations growth of 3.0%. On a monthly basis, sales grew by just 0.1%, also missing the expected 0.4% growth. Excluding fuel, retail sales expanded by 3.4% annually, in line with expectations.

The pharmaceutical sector is the best performing in London, with GlaxoSmithKline up 1.1% after it said late Wednesday that the US Food and Drug Administration has approved its Arnuity Ellipta treatment for asthma in patients aged 12 years and older.

Fellow drug maker AstraZeneca is up 1.8% after saying it has partnered with Illumina Inc to develop a gene-sequencing platform for companion diagnostic tests, applicable across AstraZeneca's oncology portfolio. AstraZeneca plans to use Illumina's technology for a diagnostic test in studies for one of its investigational oncology compounds, which AstraZeneca said could speed up the clinical trial process.

Barclays is weighing a little on the banking sector, down 0.4% amid a report that it has agreed yet another expensive settlement. USD23 million will be paid to the creditors of Thornburg Mortgage Inc, settling allegations of "improper" margin calls that contributed to the bankruptcy of the mortgage lender, the Wall Street Journal reported.

The underperformance of London's junior market Thursday can be partially attributed to one of its biggest stocks, Quindell. The AIM listing is down 4.9% despite reiterating its confidence in meeting all of its key performance indicators for the full year, on revenue guidance of GBP800 million to GBP900 million, as it saw profit more than triple in the half to GBP153.7 million from GBP39.2 million in the previous year.

Quindell said its cash balance at June 30 was GBP85.0 million, up from GBP35.4 million in the previous year. Quindell has been under increased scrutiny since April, when US research group Gotham City published a damning report on the company that claimed a large amount of its profits were suspect.

Still to come Thursday, the eurozone consumer confidence reading for August is due at 1500 BST. Confidence is expected to have slipped for the fourth consecutive month, with a reading of negative 9.0 forecasts, down from negative 8.4 in July.

There's also lots of data still to come from the US Thursday, starting with weekly jobless claims at 1330 BST, followed by the Markit manufacturing PMI for August at 1445 BST. Economists expect to US PMI to moderate fractionally to 55.7 in August from 55.8 in July. Existing home sales data and the Philadelphia Fed manufacturing survey for July are also both due at 1500 BST.

Ahead of the data, futures trading indicates that Wall Street will continue to push higher for the fourth consecutive day. The DJIA is currently expected to open up about 0.2%, which would put it back above the 17,000 level for the first time this month.

Yellen is scheduled to speak at a meeting of world central bankers in Jackson Hole in the US state of Wyoming at 1500 BST on Friday.

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Source: Alliance News

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