28th Jan 2014 10:40
LONDON (Alliance News) - UK stocks are gaining Tuesday, with the FTSE 100 looking to snap a five-day slump, buoyed in part by further data that points to a strong UK economic recovery.
By mid-morning Tuesday the FTSE 100 is up 0.4% at 6,575.64, the FTSE is up 1.1% at 15,705.44, and the AIM All-Share is up 0.7% at 856.04.
The UK economy grew by 0.7% in the fourth quarter, in line with economists expectations, according to the first GDP estimate from the Office for National Statistics. That means total growth for 2013 was 1.9%, the strongest since the 2008 crash, although UK GDP still is 1.3% below the pre-crisis peak.
On a yearly basis, the UK economy would grow by 2.8% in 2014 if the current rate of growth continues. The vast majority, 0.7%, of the quarterly growth came from the Services sector, with just 0.1% coming from Production, and Construction actually receding slightly.
"The recovery continues to strengthen, but it is still too reliant on consumer spending and wage growth is what is needed to make it truly sustainable," said Dennis de Jong, managing director at UFCXMarkets.
The pound, which had rallied above USD1.66 heading in to the numbers, fell on the release of the data and has made a low of the day against the dollar at USD1.6533 as traders may have been hoping for another upside surprise to forecasts.
"Positive economic surprises have supported (the pound) and triggered a sharp re-pricing of the interest rate outlook, despite Mr Carney?s best efforts to keep that in check," said Societe Generale senior strategist Kit Jukes.
Bank of England governor Mark Carney will be pleased with any softening of the pound and will have his next opportunity to talk it down further on Wednesday, when he gives a speech in Edinburgh. As well as potentially facing further questions over his forward guidance measures, Carney is expected to use his first official trip to Scotland to warn First Minister Alex Salmond about the dangers of an independent Scotland retaining the pound.
Within UK stock movers, the Technology sector leads the fallers, dragged lower by ARM Holdings, which is off 2.1% following the disappointing guidance overnight from US technology giant Apple. Apple revised down its revenue forecasts for the coming quarter by about 6.5% as demand for smart phones is slowing. ARM, which supplies Apple with processors and receives 50% of its royalties from smart phones, is suffering a read across. FTSE 250-listed Imagination Technologies, which also supplies parts to Apple, is down 1.0%.
Royal Bank of Scotland shares are gaining Tuesday and have reversed all off Monday's losses that followed the announcement of a further GBP3.07 billion in provisions. Investors and analysts appear to be in agreement that although the extra provisions will put a big dent in full-year 2013 earning, Monday's announcement should have no effect on future profitability. RBS is up 1.9%.
Carnival PLC is one of the top gaining blue chips Tuesday as the cruise company benefits from improved sentiment following the release of strong results from US peer Royal Caribbean, which reported earnings per share 4% ahead of expectations. Carnival is up 3.1%.
Gold, oil and the dollar remain relatively quiet ahead of the start of the January US Federal Open Market Committee meeting. Gold trades at USD1,253.30 per ounce, while Brent Oil trades at USD107.17 per barrel. The market is expecting a further USD10 billion cut to the central bank's monthly asset-purchase program to be announced at Wednesday's press conference.
Still to come Tuesday, US Durable Goods Orders are released at 1330 GMT, followed by the US Consumer Confidence survey and the Richmond Fed Manufacturing index at 1500 GMT. Consumer confidence is expected to have increased slightly to 78.9 in January from 78.1 in December, while the manufacturing index is expected to have remained stable.
By Jon Darby; [email protected]; @jondarby100
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