1st Apr 2016 11:12
LONDON (Alliance News) - UK stocks remained on the back foot Friday midday, after a raft of manufacturing data from the UK, Asia and Europe failed to inspire investors ahead of the key US nonfarm payrolls report due at 1330 BST.
The FTSE 100 index was down 1.3%, or 83.13 points, at 6,091.77. In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt also were lower, down 1.9% and 1.7%, respectively.
According to FXStreet, the market expects the US economy to have added 205,000 jobs in March, lower than the 242,000 seen in February. The US unemployment rate is expected to hold steady at 4.9%.
Lloyds Bank said the headline nonfarm payroll number is likely to be overshadowed by other measures given the unemployment rate is hovering at pre-financial crisis lows. The bank believes average hourly earnings and the labour participation rate may prove to be more important in the coming months. Lloyds expect the former to tick up by 3% in March, following a 2.2% reading in February.
IG analyst Chris Beauchamp said the real focus is on earnings, as "rising wages, and the positive impact this would have on inflation, is still the missing piece of the puzzle for the US recovery".
"Until pay does improve the economic recovery will still be built on loose monetary policy, rather than a really sustainable foundation," Beauchamp added.
Stocks in New York were called for a lower open, with the DJIA seen down 0.2%, the S&P 500 down 0.3% and Nasdaq 100 down 0.4%.
As investors awaited the US job report to be released, they had a flurry of manufacturing data from the UK, Europe and Asia to dissect, with a disappointing reading from Japan offsetting some positive signs coming from China.
The Bank of Japan's Tankan survey showed Japanese companies losing confidence amid slumping domestic spending and slow growth in emerging economies.
The large manufacturers' index came in with a score of 6 for the first three months of the year, down sharply from the reading of 12 recorded for the fourth quarter. Economists had expected a decline to a score of 8, but the drop was steeper than predicted. It is also the first time the index in the quarterly survey has fallen to below 10 since June 2013.
Among non-manufacturing companies, which covers sectors such as retail, construction and real estate, there was a decline in the first quarter, though the drop was not as pronounced as with manufacturing firms. The non-manufacturing index slipped to 22 from the fourth quarter's 25.
The results of the surveys weighed on the Nikkei 225 index in Tokyo, which ended down 3.6%. The Shanghai Composite finished up 0.2%, while the Hang Seng in Hong Kong closed down 1.3%.
China's Caixin manufacturing Purchasing Manager's Index rose to 49.7 in March from 48.0 in February. Although a reading below 50 signals contraction, this was the highest score in 13 months, as the benefits of stimulus measures adopted by the government started to penetrate into the economy.
At the same time, the official PMI survey showed a recovery in Chinese manufacturing activity in March. The factory PMI climbed to 50.2 in March from 49 in February, a joint survey by the National Bureau of Statistics and the China Federation of Logistics and Purchasing showed. Economists had forecast a score of 49.3. Likewise, the official non-manufacturing PMI improved to 53.8 in March from 52.7 in prior month.
In the UK, the Markit/Chartered Institute of Procurement & Supply manufacturing PMI rose to 51.0 in March from February's 34-month low of 50.8. Economists had expected the index to climb to 51.2. Output growth remained unchanged from February's seven-month low, while new orders increased on the back of improved domestic demand.
The pound declined against the dollar, with sterling quoted at USD1.4298 at midday in London, having stood at USD1.4360 prior to the data. At the London equities close on Thursday, the pound traded at USD1.4399.
Germany's manufacturing PMI for March came in at 50.7, higher than the 50.4 reading in February, with economist expecting an unchanged score. The same from France was unchanged, as expected, at 49.6. The overall eurozone's manufacturing PMI came in at 51.6, above February's 51.4. Economists expected it to remain unchanged.
Still ahead in the economic calendar are the US Reuters/Michigan consumer sentiment index, the US ISM manufacturing PMI and US construction spending data, all due at 1500 BST.
In UK corporate news, J Sainsbury has agreed to acquire Home Retail Group, ending its long-running pursuit of the Argos owner. The supermarket chain will pay 55.00 pence per share in cash, plus 0.321 of a Sainsbury's share to acquire Home Retail, valuing the company at GBP1.2 billion. Including the GBP200.0 million capital return Home Retail shareholders already stood to get from the sale of the Homebase DIY and garden centre business, the deal values Home Retail at GBP1.4 billion.
Sainsbury's shares were down 2.1% while mid-cap Home Retail was down 0.9%.
Shore Capital said the UK Competition & Markets Authority's assessment of the takeover could be a stumbling block for the deal. "Sadly, in the real world that businesses have to operate in, rather than the parallel and largely unaccountable environment of the CMA, we harbour concerns that this deal could yet face timetable challenges from the regulator," the broker said.
Blue-chip pay television group Sky is set to sell its headquarters and studio in west London for GBP545.0 million, The Daily Telegraph reported. Sky has instructed agents at BNP Paribas Real Estate to find a buyer for the site in Osterley, which Sky will then rent back under an anticipated 30-year deal. Much of Sky's news and sports programmes are produced at the site, in addition to it being the location of its main office.
Sky shares were down 2.7%.
The FTSE 250 was off 0.8% at 16.794.40 and the AIM All-Share was down 0.2% at 709.52.
Mid-cap power generator Drax Group gained 1.3% after saying it expects to deliver 2016 earnings at the top end of market expectations as it revealed it has been awarded a new contract from London-listed power grid operator National Grid. Drax said that, based on a range of current market forecasts, Ebitda will be toward the top end of the GBP132.0 million to GBP161.0 million range.
That suggests the company is progressing its commitment to have a "laser sharp" focus on cost control this year and to optimise its revenue.
Car distributor Inchcape was down 4.6% after Berenberg downgraded its rating on the stock to Hold from Buy. The German bank raised concerns about Inchcape's exposure in the UK to scandal-hit Volkswagen, as well as to currency translation issues in Australia and a slowdown in consumer and business confidence in Hong Kong.
Also hit by a broker downgrade was PZ Cussons, down 3.2%, after Goldman Sachs cut the personal care products group to Neutral from Buy.
Arrow Global was up 5.3%. The debt buyer and manager said it has agreed terms to acquired consumer debt purchasing and collections business InVesting BV for around GBP78.5 million. Arrow will pay the consideration in cash from existing cash resources and a new GBP50.0 million financing facility.
Arrow said the acquisition of InVesting, which operates in the Netherlands and Belgium, will create a leading player in the Benelux debt purchasing market, boosted Arrow's existing operations in the UK and Portugal.
Shore Capital analyst Gary Greenwood said that, due to the small exposure Arrow had to the Netherlands, having recently made a small purchase in the region last year, this deal "will take them to another level".
By Daniel Ruiz; [email protected]
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