20th Jul 2016 11:07
LONDON (Alliance News) - Stock prices in London were firm midday Wednesday, as the latest UK jobs report showed unemployment dropped to its lowest level since 2005 in the run-up to the referendum on European Union membership.
The Office for National Statistics said the unemployment rate for the three months to May fell to 4.9%, lower than the expected rate of 5.0% which would have matched the rate seen in the three months to April. The last time the reading was lower was for July to September 2005.
Average weekly earnings including bonuses increased 2.3% and earnings excluding bonuses climbed 2.2% compared with a year earlier. The number of people claiming unemployment benefits increased marginally by 400 from May, while it was expected to increase by 4,000.
"Another firm labour market report this morning, but one that pre-dates the referendum. Nevertheless, it provides further evidence that the UK economy was holding up well in the second quarter despite the heightened uncertainty in the run up to 23 June," commented Adam Chester, head of economics for Lloyds Bank.
Chester added that the tightening in the labour market, alongside the weakening in the pound following the referendum result, could see inflation rise more sharply than anticipated.
"Arguably some softening in the labour market is needed to help keep inflation pressures at bay," he added.
The pound shot higher following the data and at midday traded the dollar at USD1.3171 having traded at USD1.3092 before the report. The pound is now slightly higher than USD1.3134 at the London equities close on Tuesday.
A report from the Bank of England on UK business conditions also eased concerns about the UK economy amid the Brexit uncertainty.
In the month before the referendum, the Bank of England's regional agents said the annual rate of activity growth had remained moderate and little changed. Consumer spending and construction output growth had eased a little, offset by a pick-up in manufacturing growth from a low base.
"There had been further signs of uncertainty leading to delays in decision-taking, including on capital spending, hiring and property investment," the report said.
Following the result of the referendum many of the agents' business contacts said they planned to undertake strategic reviews of their operations, but the majority of firms said they did not expect a near-term impact from the result on their investment or staff hiring plans.
"As yet, there were few suggestions of disinvestment, such as exiting the United Kingdom in the near term, but there were a few reports of planned foreign direct inward investment being postponed," the report said.
The central bank report added that some companies were considering alternative European locations for aspects of their businesses, but other contacts mentioned the possibility of moving production back to the UK, or increasing the domestic sourcing of products, in light of sterling's fall
The BoE concluded that there was yet "no clear evidence of a sharp general slowing in activity".
At midday in London, the FTSE 100 index was up 0.3%, or 18.28 points, at 6,715.65. The FTSE 250 was up 0.6% at 17,009.34 and the AIM All-Share was up 0.5% at 733.79.
Stocks in mainland Europe were outperforming London, with the CAC 40 index in Paris up 1.3% and the DAX 30 in Frankfurt up 1.4%.
Ahead of the open on Wall Street, the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 also were pointed up 0.4%.
Shares in software giant Microsoft were up 4.4% in pre-market trade after it reported on Tuesday after the New York close a profit for its fourth quarter ahead of analysts' estimates and reflecting strong growth in its cloud business.
Reporting on Wednesday are semiconductor maker Intel, bank Morgan Stanley and financial services company American Express, amongst others.
On the London Stock Exchange, miners were holding back gains for the FTSE 100 index.
Anglo American was down 7.1% after it said the majority of its commodity units suffered falls in production during the first half of the year and lowered its full-year guidance in some segments.
In the first half of 2016, Anglo American said production of diamonds, copper, coal and iron ore were all lower year-on-year, while the platinum division and some smaller segments reported minor rises in the period. Anglo American reiterated its full-year guidance across most of its commodity units, except for copper and Brazil iron ore.
BHP Billiton was down 2.6%. The Anglo-Australian miner reported that its total iron ore production for the 2016 financial year to the end of June was 226.96 million tonnes, down 2.0% from the previous year. Total iron ore production is expected to increase to between 228 and 237 million tonnes in the 2017 financial year, excluding production from Samarco.
Admiral Group was one of the best performers in the FTSE 100, up 2.2%. UBS upgraded the insurer to Buy from Neutral, saying Admiral Group's valuation attributes very little to what the Swiss bank sees as "major growth drivers of group earnings".
UBS analyst James Shuck believes Admiral's story will be increasingly driven by new opportunities. These include transitioning into a full-service retail insurer, international expansion, and price comparison websites.
Electrocomponents led the gainers in the mid-cap index, up 8.8%. The electronic components distributor said trading in its first quarter was in line with its expectations and said it had made margin improvements in the period.
The group said underlying sales growth for the first quarter, in constant currencies, was 1.0%. The first half of the quarter was slower year-on-year against a strong comparator for orders in southern and central Europe.
This since has improved, and Electrocomponents said trading so far in July has been encouraging. Gross margin improved in the first quarter by 30 basis points year-on-year, driven by cost cuts made in the business and by a higher-margin revenue mix.
Hydrodec Group said it made significant progress in delivering its key objectives in the first half of 2016, and expects revenue in the core re-refining business to more than double.
The clean technology industrial oil re-refining group said sales volumes of premium quality SUPERFINE transformer oil and base oil grew to 16.8 million litres in the first half of 2016, from 1.7 million litres in the first half of 2015. It said this reflected full commissioning of the new Canton plant in Ohio at the end of 2015, contributing to record monthly sales of 3.2 million litres in June.
Revenue from the continuing core re-refining business is expected to more than double in the first half to USD7.6 million from USD3.3 million, while gross unit margin will also be higher despite lower product sales prices and challenging market conditions.
Shares in the company traded up 24%.
Still ahead in the economic calendar, US mortgage applications are at 1200 BST and the EIA crude oil stocks data are at 1530 BST.
By Neil Thakrar; [email protected]; @NeilThakrar1
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
AdmiralAnglo AmericanBHP Billiton PLCHYDG.L