12th Jan 2016 12:12
LONDON (Alliance News) - A rebound in oil prices and a positive set of UK supermarket sales figures from Kantar Worldpanel combined to lift London equities midday Tuesday, while the pound fell to a five-and-a-half year low against the dollar after weak UK economic data.
UK industrial production declined unexpectedly in November on falling energy output, figures from the Office for National Statistics showed.
Industrial output slid 0.7% month-on-month after staying flat in October. It was forecast to grow 0.1% in November. On a yearly basis, industrial production advanced 0.9%, but this was slower than the consensus expectation of a 1.7% increase, which would have matched the growth seen in October.
Manufacturing output dropped 0.4% month-on-month, confounding expectations for a 0.1% rise. Annually, manufacturing output declined at the quickened pace of 1.2%, following a 0.2% drop a month ago. Economists had forecast a 0.8% decline for November.
RBC Capital Markets' senior UK economist Sam Hill said that within manufacturing, ten of the thirteen sub-sectors saw output falling on the month in November, albeit only very modestly in many cases.
"The manufacturing sector [purchasing managers' index] has been signalling limited expansion, rather than a small contraction, so this month's report by itself suggests that reality is tougher than indicated in some surveys, although clearly month-to-month volatility needs to be taken into account," Hill said.
"Even if we do see offsetting better months in the manufacturing sector from here, one consequence of this [industrial production] report is that it represents downside news to expectations for Q4 GDP," the economist added.
The contraction in industrial production in November and limited prospects for a significant reversal in December, in addition to the downside risks from the flooding in December, has meant RBC cut its UK fourth quarter GDP growth forecast to 0.4% quarter-on-quarter from 0.5%.
The pound sunk against other major indices after the industrial production report and hit its lowest level against the dollar since June 2010 at USD1.4417. Against the euro, sterling fell to a low of EUR1.3277.
The FTSE 100 traded up 1.5% at 5,958.04, the FTSE 250 up 0.8% at 16,789.15 and the AIM All-Share up 0.4% at 722.76. European stocks were outperforming, with the CAC 40 in Paris up 2.2% and the DAX 30 in Frankfurt up 2.4%.
Futures indicated a positive open on Wall Street. The Dow Industrials was pointed up 0.6%, the S&P 500 index up 0.7% and the Nasdaq 100 up 0.8%.
Stocks in Europe got off to a shaky start after oil prices reached a new low. Brent oil fell to a low of USD30.41 a barrel early Tuesday, its lowest level since April 2004, while US benchmark West Texas Intermediate hit USD30.39. However, since then oil prices have recovered somewhat, carrying equities with them. At midday, Brent traded at USD31.60 a barrel and WTI at USD31.33.
"Oil markets have become increasingly volatile. Traders are still pushing oil prices around by as much as USD3 a day just like when the price was at USD100 per barrel but with prices now at USD30 per barrel, what was a 3% move has become a 10% rollercoaster," said Jasper Lawler, market analyst at CMC Markets.
On the London Stock Exchange, supermarkets were posting broad gains with Tesco up 6.6%, J Sainsbury up 2.7%, and Wm Morrison Supermarkets, now in the FTSE 250, up 8.4%.
The gains were made after a better-than-expected Christmas trading update from Morrisons. The grocer reported a fall in total sales in the Christmas trading period, although sales grew on a like-for-like basis excluding fuel, and it announced the planned closure of a further seven stores.
Morrisons said total sales excluding fuel were down 1.2% in the nine weeks to January 3, on the same period the year before, and down 1.7% including fuel. On a like-for-like basis, sales excluding fuel grew 0.2% but fell 0.6% including fuel. The growth in like-for-like sales excluding fuel came in ahead of market expectations, which had expected a decline in this measure.
The strong results from Morrisons led to optimism the two blue-chip players will beat expectations as well when they provide updates in the next two days
Supermarket shares also were boosted by the results of the latest Kantar Worldpanel UK grocery market survey. Sainsbury's emerged as the only winner among the Big Four from the Kantar survey, posting a 0.8% rise in sales in the 12 weeks to January 3. Tesco's sales fell 2.7%, while Morrisons' declined 2.6%.
Debenhams was the best performer in the FTSE 250, up 16%. The department store operator reported growth in like-for-like sales in the first 19 weeks of its financial year, and in its Christmas trading period, as it benefited from less discounting and a reduction in stock levels.
The company said group like-for-like sales in the 19 weeks to January 9 grew 1.9% on the same period the year before, rising 1.8% in the seven weeks to the same date. Debenhams said it made further progress on its strategic priorities which helped to deliver a strong trading performance and record sales in the Christmas week.
The solid results were a surprise after disappointing numbers from peers, such as Next and Marks & Spencer.
Bakery and food-to-go retailer Greggs was the worst performer in the FTSE 250, down 8.9% despite reporting growth in sales in its recently-ended financial year, driven by sandwiches, drinks, hot food and coffee, although like-for-like sales growth slowed over the Christmas period against a strong comparative period and amid weaker footfall.
Greggs said total sales grew 3.7% in the 52 weeks to January 2, compared with the 53-week prior year. Excluding the prior year's 53rd week, total sales rose 5.2%, while company-managed shop like-for-like sales rose 4.7%.
Michael Page International was also amongst the biggest fallers in the mid-cap index, down 8.6%. The recruiter said its gross profit dipped in the fourth quarter due to currency weakness across its operations and tougher trading in Asia Pacific.
Michael Page said its total gross profit fell 0.5% in the fourth quarter to the end of December, though it would have increased 5.3% in constant currencies. The biggest currency hits came in its Europe, Middle East and Africa arm, where reported gross profit growth was 1.6% compared to 10% in constant currencies, hit by a weak euro, and in the Americas region, where gross profit fell 4.1% but rose 5.4% in constant currencies.
Market conditions also weakened in the UK and Asia Pacific, the group said. The news also dragged shares in recruitment rival Hays down 4.2%.
Still in the economic calendar, the US Redbook index is due at 1355 GMT, and US JOLTS job openings data are due at 1500 GMT. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, makes a speech at 2015 GMT.
By Neil Thakrar; [email protected]; @NeilThakrar1
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