10th Dec 2015 17:14
LONDON (Alliance News) - The so-called 'Santa Rally' has thus far failed to materialise in the UK, with the FTSE 100 ending lower for the sixth consecutive session Thursday, and financial stocks with exposure to South Africa suffering as the country's currency fell to record lows.
The Santa Rally is a well-known phenomenon in the run-up to Christmas, as investors close out positions ahead of the holiday.
The FTSE 100 index closed down 0.6% at 6,088.05 points, the FTSE 250 index ended down 0.4% at 17,080.25 and the AIM All-Share was down 0.4% at 731.52. European stocks outperformed the UK throughout the day. The CAC 40 in Paris closed down 0.1% and the DAX 30 in Frankfurt ended up 0.1%.
Trading in New York was also more positive than London. At the European equity market close, the DJIA was up 0.6%, while the S&P 500 and Nasdaq Composite were both up 0.5%.
Old Mutual, down 12%, and Investec, down 11%, were the worst performers in the FTSE 100 and FTSE 250 respectively after the South African rand hit a record low following the dismissal of finance minister Nhlanhla Nene.
Both companies, which derive a great deal of their earnings from South Africa, have suffered from the weakness of the rand, and further depreciation of the currency is unhelpful when translating earnings to report accounts in sterling. The rand was quoted at GBP0.0436 on Thursday. It has fallen 4.8% since the start of December and 21% in the year to date. Against the dollar the rand hit a low at USD0.0651.
To make matters worse, ratings agency Standard & Poor's went negative from stable on the outlook of eight South African financial institutions, including Old Mutual's majority-owned Nedbank and Investec Bank Ltd, on Wednesday.
Sports Direct International was another major faller in the index, ending down 11% at 594.57 pence and touching a 14 month low of 567.00p earlier in the session. The sporting goods retailer suffered the huge share price decline after its underlying pretax profit came in significantly below consensus expectations and as the group faced heavy criticism after a newspaper article which alleged it was effectively paying temporary staff less than the minimum wage.
Sports Direct said its underlying pretax profit for the 26 weeks to October 25 was GBP166.4 million, up 3.6% from GBP160.6 million but well below Bloomberg-reported consensus expectations of GBP180.0 million.
Reported pretax profit for the half was GBP187.3 million, up 25% from the GBP149.7 million it made a year earlier, mainly due to the group booking a big gain on its investment income. The company also saw its gross margin improve, up to 44.9% from 44.0% a year earlier.
In addition, The Guardian published an undercover investigation which accused Sports Direct of effectively paying temporary staff working at the Derbyshire distribution centre less than the minimum wage, while also making them work under very strict and difficult conditions.
The report also found employees are harangued by tannoy if they are not working fast enough, banned from wearing other clothing brands and can be fired for accruing six black marks, or "strikes", which are handed out for offences including "excessive or long toilet breaks", "excessive chatting" and "horseplay".
Though not directly referencing the article, Sports Direct said it had streamlined security operations at the warehouse in order to cut down waiting times for staff leaving the warehouse and said it complies with all legal working requirements. It noted, however, that those changes had been made after concerns raised at its annual general meeting. The company also said no warehouse workers are on so-called 'zero hour' contracts.
Glencore closed as the best performer in the FTSE 100, up 7.4% after the miner and trading house said it has accelerated its debt-reduction and cost-savings initiatives as it, like the rest of its peers, raced to simplify its business and shed debt burdens to deal with lower prices.
The miner said it will increase its debt reduction and capital preservation measures target to USD13.0 billion, from a previous target of USD10.2 billion, with USD8.7 billion of this either already achieved or locked-in. The new net debt target for the end of 2016 is USD18.0 billion to USD19.0 billion, from the company's previous target of the low twenties of billions.
The group has also further reduced its capital expenditure targets for 2015, down to USD5.7 billion from USD6.0 billion, and for 2016, where the cut is more severe, down to USD3.8 billion from USD5.0 billion.
In the FTSE 250, Micro Focus International was the biggest gainer, closing up 14% at 1,516.00p, and reaching an all time high of 1,524.00p. The software company reported an increase in pretax profit for its first half following its acquisition of The Attachmate Group last November, and announced a shake-up of its board as it plans to separate its chairman and chief executive officer roles over the next one to two years.
Micro Focus acquired Attachmate for USD2.5 billion towards the end of last year, and saw a big boost in revenue as a result of the acquisition.
For the half year to end-October the company reported a pretax profit of USD98.8 million, up from USD57.1 million, as revenue nearly tripled to USD604.5 million from USD208.3 million.
Consumer products company PZ Cussons said trading in the half to the end of November was broadly flat, as a strong performance in its European business offset a more difficult conditions in Nigeria and currency challenges in Asia and across Africa.
The FTSE 250-listed company, which makes the Carex and Imperial Leather brands, said it has managed to hold on to market share due to product launches, but said its performance in certain product categories in Nigeria is likely to be affected by the ongoing squeeze on consumer disposable income in the country.
The company closed down 8.3%, making it the second worst performer in the FTSE 250.
Oil prices prices continued their recent declines Thursday, reaching new lows not seen since February 2009. At the London close Brent oil traded at USD39.76 a barrel compared to its low of USD39.46 a barrel.
West Texas Intermediate sank to USD36.51 a barrel earlier Thursday. It was quoted at USD36.83 a barrel at the close.
Gold meanwhile was largely unchanged from the beginning of the day at USD1,073.20 an ounce.
The Bank of England kept its key interest rate unchanged at its record low again as widely expected, in a split vote at the final monetary policy meeting of the year. The Monetary Policy Committee voted 8-1 to hold the interest rate at 0.5%, with Ian McCafferty the sole dissenter.
McCafferty suggested that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term, the bank said in a statement. All members agreed that when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.
The pound fell against the dollar following the decision and minutes but by the London equity close, it had recovered much of those losses to trade at USD1.5180. The euro traded the dollar at USD1.0939.
In the economic calendar Friday, German inflation data is at 0700 GMT and the Bank of England's consumer inflation expectations is at 0930 GMT. In the afternoon, US retail sales and producer price index are at 1330 GMT and the Reuters/Michigan consumer sentiment index is at 1500 GMT.
In the UK corporate calendar, FTSE 100-listed outsourcer Capita issues a trading statement, as do housebuilder Bellway, recruiter SThree and regeneration and strategic land company MJ Gleeson. Specialist asset managers Polar Capital Holdings and Gresham House Strategic both report interim results, while Edinburgh Worldwide Investment Trust reports full-year results.
By Neil Thakrar; [email protected]; @NeilThakrar1
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InvestecOld Mutual PLCMCRO.LSports DirectGlencorePz Cussons