14th Feb 2017 12:03
LONDON (Alliance News) - Stocks in London were higher on Tuesday midday, with the FTSE 100 supported by a weak pound after a rise in UK consumer inflation hit the currency, while the market focus turns to Federal Reserve's Janet Yellen testimony before Congress.
Travel operator TUI AG and engineer Rolls-Royce Holdings were the main movers in the blue-chip index, but were seeing opposite fortunes.
TUI was the best performer after affirming its guidance for its full financial year following a solid first quarter and said it has agreed to sell its Travelopia business for GBP325.0 million. Rolls-Royce was leading the fallers after reporting a massive pretax loss for 2016 due to one-off effects, but anticipated a "modest" improvement for 2017.
The FTSE 100 index was up 0.1%, or 9.84 points, at 7,288.76. The FTSE 250 was up 0.1% at 18,785.30, and the AIM All-Share was up 0.2% at 902.06.
The BATS UK 100 was flat at 12,330.72, the BATS 250 was up 0.1% at 17,082.30 and the BATS Small Companies was up 0.1% at 10,994.01.
The pound fell against other major currencies after the Office for National Statistics said UK consumer inflation accelerated to the highest level in more than two years in January. CPI rose to 1.8% year-on-year in January, the highest since June 2014, from 1.6% in December. Nonetheless, the rate was weaker than the expected 1.9%.
Month-on-month, consumer prices dropped 0.5%, offsetting December's 0.5% increase. This was the first fall in six months and matched economists' expectations.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, held steady at 1.6% year-on-year in January.
"UK CPI inflation [...]looks set to breach the Bank of England's 2% target next month before reaching around 3% by the end of this year," said Capital Economics UK economist Paul Hollingsworth.
"While this is a significant rise, it is not anywhere near as high as the 5% peak seen in late-2011. And crucially, we doubt that it this will be strong enough to panic the MPC into hiking interest rates," noted Hollingsworth.
However, Hargreaves Lansdown senior economist Ben Brettell highlighted that the most recent Monetary Policy Meeting minutes noted that some members were getting a little closer to the limits of their tolerance for higher inflation.
"[This] means that if price or wages continue to rise more quickly than expected, we could see at least some votes for the first interest rate rise in more than a decade," noted Brettell.
The pound was quoted at USD1.2521 before the CPI data, standing at USD1.2475 at midday. At the close on Monday, sterling had stood at USD1.2504.
Another report from the ONS showed that input prices surged at the fastest pace since September 2008. Input prices jumped 20.5% annually, following a 17% rise in December. Prices were forecast to grow 18.5%. Monthly growth in input prices eased to 1.7% from 2.7%, but stayed above the expected 1%.
Output prices climbed 3.5% year-on-year in January, above the expected 3.2% rise. On a monthly basis, output prices gained 0.6% versus the expected rise of 0.3%.
The ONS also said UK house price inflation accelerated in December, with the house price index climbing 7.2% year-on-year in December, faster than the 6.1% increase in November. Prices were expected to rise by 6.9%.
Outside of the UK, the eurozone's preliminary gross domestic product reading for the fourth quarter of 2016 showed a rise of 0.4% quarter-on-quarter, unchanged compared to the third period, but weaker than expectations of 0.5%. On a yearly basis, GDP growth slowed slightly to 1.7% from 1.8%.
The CAC 40 index in Paris was flat, while the DAX 30 in Frankfurt was down 0.1%. The euro was quoted at USD1.0618 at midday, compared to USD1.0605 at the close on Monday.
In New York, stocks were called for a flat open. On Monday, the DJIA, the S&P 500 index and the Nasdaq Composite all posted fresh record closing highs.
In the US economic calendar, the producer price index is at 1330 GMT. At 1500 GMT, Fed Chair Yellen will speak before the US Senate Baking Committee. On Thursday, Yellen will do so before the US House Financial Services Committee.
"Overall, the market is looking for three things: is the Fed still thinking about three rate hikes this year? Has anything occurred that could de-rail this expectation? Will Yellen give the markets a reality check by voicing some scepticism about potential fiscal change under US President Donald Trump?," said City Index analyst Kathleen Brooks.
"Prospects for interest rate increases this year could impact corporate investment intentions. If Janet Yellen is too hawkish at this week's Congressional testimonies then we could see corporates start to worry about the cost of capital," noted Brooks.
Back in London, Roll-Royce was down 4.8%. The jet engine and turbine systems maker said it made a pretax loss of GBP4.64 billion in the year to the end of December, swung from a GBP160.0 million profit in 2015. The loss was driven by a GBP4.40 billion mark-to-market revaluation of derivatives, Rolls-Royce said, plus a one-off charge it booked from settling bribery allegations made against it.
Underlying pretax profit, stripping out any one-off effects, fell to GBP813.0 million from GBP1.43 billion the year before.
Rolls-Royce said its massive restructuring, a push to improve efficiency across the business and improve accountability, remains on track, with GBP60.0 million in annualised savings achieved in 2016. A further GBP80.0-100.0 million in savings are expected in 2017, leaving the company on track to meet its overall GBP200.0 million annualised savings run-rate by the end of 2017.
TUI was up 2.9%. The Anglo-German travel operator said it made a net loss of EUR81.6 million in the quarter to the end of December, compared to a EUR138.7 million loss a year before. It made an underlying earnings before interest, tax and amortisation loss, adjusted for any one-off impacts, of EUR72.5 million, narrowed from EUR101.7 million the year prior.
The loss was narrowed as the group continued to deliver synergies from the merger of TUI's London-listed unit with its German parent.
TUI sold its Travelopia brand to US private equity firm KKR & Co. Travelopia, a UK-based brand, provides a range of tours, tailor-made holidays and adventure trips to a customer base of around 800,000 travellers a year.
Meanwhile, Antofagasta was up 1.4% after the miner was upgraded to Buy from Underperform by Merrill Lynch.
Elsewhere, Acacia Mining was the best FTSE 250 performer, up 6.1%. The miner said it reversed the losses seen in 2015 and generated a significant amount of earnings in 2016 following a strong operational performance and more favourable economics.
Spectris was up 4.1%. The precision instrumentation and controls supplier said pretax profit slumped in 2016 due to an impairment charge booked by the group, though its underlying performance was robust. Spectris beat UBS and Shore Capital underlying operating profit estimates, with both brokers being positive on the company.
By Daniel Ruiz; [email protected]
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