16th Apr 2014 10:40
(Correcting the day in the first line - Previously stated as Monday. The correct version follows.)
LONDON (Alliance News) - The supermarkets are leading UK stock indices higher Wednesday after Tesco announced full-year results ahead of expectations, although indices are off their early highs as concerns over Ukraine continue to drag. Meanwhile, the pound has jumped to a near four-and-a-half year high on strong UK unemployment and wage growth data.
By mid-morning Wednesday the FTSE 100 is up 0.3% at 6,563.72, the FTSE 250 is up 0.7% at 15,691.68, and the AIM All-Share is up 0.4% at 821.28.
In Europe the French CAC 40 and the German DAX are both up 1.0%.
The UK unemployment rate fell to 6.9% in the three months to February, down from 7.15 in January, and the first drop below 7.0% for five years. It is also the first time the headline unemployment rate has fallen below the Bank of England's original forward guidance threshold of 7.0%, before which it would not consider an interest rate rise.
While BoE Governor Mark Carney has since dropped the single target policy in favour of targeting spare capacity in the economy, whatever slack there is also appear to be getting uses up fast as data released at the same time also showed real wages in the UK growing for the first time in four years.
Average earnings including bonuses rose by 1.7% in February, up from a 1.4% increase in January. The news follows the release of UK consumer price inflation data Tuesday that showed prices rising at 1.6%, which means that real wages are growing for the first time in many years - something that many see at the final chapter in the UK economic recovery.
"George?s marvellous medicine certainly seems to be doing the trick. Wage growth is now above inflation for the first time in four years and this is the news that households have been aching for over the past few years," said UFXMarkets managing director Dennis de Jong.
The pound jumped against the dollar on the positive UK data. Sterling is now almost a dollar higher over the morning session, making a high so far of USD1.6818, just a few points from a making four-and-a-half year high.
The strong data has had little effect on UK stocks however, which, although still higher, have slid from the morning peak, with headlines from the developing situation in Ukraine continuing to drag.
Various reports of pro-Russian troops continuing to push further in Ukraine have been weighing on equity sentiment since the strong open. A Ukrainian army formation in the eastern city of Kramatorsk has reportedly defected to join pro-Russian separatists, video footage posted on espreso.tv showed on Wednesday. The video shows the formation - which includes at least 10 armoured tanks - driving through the city bearing Russian flags.
In the eurozone, consumer price inflation slipped to 0.7% year-on-year in March, ticking down from the preliminary reading of 0.8% and confirming the fall from February's reading of 1.0%. On a monthly basis prices rose at 0.9% in March, also down from 1.0% in February.
Despite a continued expectation that the European Central Bank may introduce further monetary easing to address the deflationary environment, the euro has moved higher against the dollar over the morning, currently trading at USD1.3845.
Within UK equities, the supermarkets are leading indices higher, with the FTSE 350 Food & Drug Retail sector up 2.8%, led by Tesco, up 3.4% after releasing its full-year results. Despite announcing a 6% drop in its trading profit, the results were ahead of expectations, with analyst impressed by the growth in international profits, while the outlook for the UK looks as challenging as expected. Sainsbury and Morrison are both up about 0.5%.
Sports Direct International leads the individual FTSE 100 gainers, up 6.2% after receiving a positive write up from Bank of America Merrill Lynch. Analysts increased their price target on the stock to 1,070p from 1,000p, saying that the market is underestimating the potential for international and online growth.
Hargreaves Lansdown is amongst the biggest fallers, despite an initially positive start after releasing third quarter results. The retail stock broker increased its assets under administration by GBP1.83 billion over the period, leading analysts to suggest it has seen no negative impact of the retail distribution review. Even so, Numis securities reduced its earnings per share forecasts for the current year by 2.0% due to lower revenue yields and marking to market.
Still to come Wednesday, US MBA mortgage applications at 1100 GMT, followed by US housing starts data at 1230 GMT, and US industrial production at 1315 GMT. The markets are also waiting for another busy day in the US earnings calendar.
Futures trading currently indicates US markets will follow Europe to open about 0.5% higher.
By Jon Darby; [email protected]; @jondarby100
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