15th Feb 2016 12:27
LONDON (Alliance News) - Stimulus hopes were back on the agenda Monday after another round of disappointing economic data from Japan and China, sparking a rally in equities in Asia and subsequently in Europe.
UK and European equities took their lead from Asia on Monday, where the Nikkei 225 index in Tokyo closed up 7.2% and the Hang Seng in Hong Kong up 3.3%. The Shanghai Composite avoided heavy losses on Monday, closing down 0.6%, reopening after the Lunar New Year celebrations, having missed a week of global market declines.
The Asian market movements followed poor economic data from both Japan and China. Japan's gross domestic product contracted an annualized 1.4% on year in the fourth quarter of 2015, preliminary readings from the Cabinet Office revealed. That missed forecasts for a decline of 0.8% following an upwardly revised 1.3% increase in the third quarter.
On a quarterly basis, GDP was down 0.4%, also shy of expectations for a decline of 0.2% following the 0.3% gain in the three months prior.
In China, data from the General Administration of Customs showed the country's exports plunged 11% year-over-year at the start of the year, much faster than the 2.0% fall expected by economists. Imports slumped by even more in January, down 19% from a year ago. The expected decrease for the month was only 3.9%.
As a result, the visible trade surplus of the country came in at USD63.29 billion in January, which was above a USD60.6 billion surplus forecast by economists.
"It would appear to be a case of bad news is good news again," said Michael van Dulken, head of research at Accendo Markets. "Poor data from China (Exports, Imports) and Japan (GDP, Industrial Production) added to hopes of more central bank intervention and stimulus which buoyed commodities prices."
Market sentiment was further lifted by comments from the People's Bank of China over the weekend which played down currency fears.
In an interview published over the weekend in Caixin, China's central bank governor, Zhou Xiaochuan, said that there is no foundation for the yuan to keep depreciating and that it is normal for foreign reserves to rise and fall as long as the fundamentals face no problems.
The PBoC set Monday's central parity rate for yuan at CNY6.5118 per dollar, compared to February 5's reference rate of CNY6.5314. The central bank sets the reference rate every morning and allows the currency to move up to 2% from that level.
In London at midday, the FTSE 100 was reading up 2.2% at 5,832.23, the FTSE 250 was up 2.1% at 15,749.67, and the AIM All-Share was up 1.1% at 671.80 points. European indices also were substantially higher, with the CAC 40 in Paris up 3.6% and the DAX 30 in Frankfurt up 3.0%.
Wall Street is closed Monday for President's Day.
London's financial sector, which has been under fire recently, was helping to fuel the rally in the FTSE 100 index, buoyed by the stimulus hopes in Japan and China.
Fears about the European banking sector, centred on Deutsche Bank, had spilled over to the UK in the past few weeks and saw a widespread sell-off in UK financial stocks.
However, on Monday they continued the bounce-back started on Friday. Asia-focused life insurer Prudential was up 4.5%, emerging markets fund manager Aberdeen Asset Management up 4.3%, and UK fund supermarket Hargreaves Lansdown up 4.1%. Hargreaves also was upgraded to Buy from Hold by Shore Capital.
Ahead of them all and trading as the best performer in the FTSE 100 was Reckitt Benckiser Group, which was up 6.2%. The consumer goods giant said an improved sales mix, lower commodity prices and cost-cutting combined to help it deliver a margin-driven growth in pretax profit in 2015..
The group, which makes products including painkiller Nurofen, Durex condoms and Finish dishwashing tablets, said pretax profit for the year to the end of December was GBP2.21 billion, up 3.8% from GBP2.13 billion in 2014.
Net revenue was GBP8.87 billion, up marginally from GBP8.84 billion the year earlier, but cost of sales declined enough to offset a minor uptick in its net operating costs.
Reckitt said the improvement in margins was down in part to a good sales mix, benefits from low commodity prices, and cost cutting undertaken across the business. Sales growth in constant currencies hit 5.0% in the year and 6.0% on a like-for-like basis, but this was held back on a reported basis by adverse currency translation effects.
Property developer Hammerson traded up 4.3% after it said pretax profit rose in 2015 as its rental income was boosted by strong demand for premium retail space in the UK.
Hammerson said its pretax profit for the year to the end of December was GBP731.6 million, up from GBP702.1 million a year earlier as its net gains from its property investments, including those with joint ventures and associates, increased.
Fidessa Group led gainers in the FTSE 250, up 7.1%. The trading systems provider reassured investors about its ability to pay special dividends, amid investment in the range of asset classes it supports, expansion of its regional coverage, and the build out of its infrastructure.
The dividend guidance came as the financial trading software company reported flat pretax profit in 2015, at GBP39.1 million, as revenue rose by 7.4% to GBP295.5 million and expenses before accounting for the effects of amortisation and acquired intangible assets increased by 8.7% to GBP256.4 million.
Fidessa lifted its ordinary dividend for the year to 38.5 pence from 38.1p, and maintained a special payment of 45.0p.
Acacia Mining shares were down 7.4%, making it the worst performer in the mid-cap index. The gold miner said 2015 was "another year of transformation" as it maintained its dividend despite swinging to a huge pretax loss, thanks to a drop in revenue and some hefty impairment charges.
Acacia swung to a USD124.2 million pretax loss in 2015 from a USD115.2 million profit in 2014, after it booked a substantial amount of impairments and saw revenue decline to USD868.1 million from USD930.2 million. Impairments totalled USD146.2 million in 2015 and were the cause of the loss, with Acacia Mining not booking any impairments last year.
Shares in 88 Energy more than doubled after the Australia-based exploration company said its estimates for the Icewine-1 well in Alaska have been confirmed to be correct by the evaluation of the HRZ shale core, and said the majority of its acreage lies in a "thermal maturity sweetspot".
The company said the final thermal maturity analysis of the core of the HRZ shale interval has confirmed the company's pre-drill predictions concerning the Icewine-1 well to be accurate.
With the US on holiday, the only remaining event in the economic calendar is European Central Bank President Mario Draghi's speech to the European Parliament at 1400 GMT.
By Neil Thakrar; [email protected]; @NeilThakrar1
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