13th Feb 2014 17:45
LONDON (Alliance News) - The FTSE 100 fell for the first time in seven days Thursday as stock markets around the world took a breather from the recent strong rally, with double-digit declines by Rolls-Royce Holdings and Tate & Lyle weighing heavy on the blue-chip index in London.
Meanwhile, the pound hit a 33-month high against the dollar after US retail sales and jobs data came in below economists' expectations and sent the greenback plunging against other major currencies.
Agribusiness Tate & Lyle, closing down 15%, was the blue-chip index's biggest faller after it lowered its profit guidance for its current financial year, saying that it now expects prices for its SPLENDA sucralose to fall more than it previously estimated in its fiscal fourth quarter.
Tate & Lyle had previously predicted earnings growth in fiscal 2014, but said it now expects flat profit. That would be 4% below current consensus expectations for pretax profit of GBP341 million, according to Jefferies analyst Alex Howson.
Tate also warned that SPLENDA prices will be down about 15% in its next financial year compared with the current year.
Engine maker Rolls-Royce, closing down 14%, was another big loser, after it warned that it expects a "pause" in both revenue and profit growth this year.
The firm said reported higher underlying profits and revenues in 2013, although reported profit fell due to higher charges and financial items. It's still expecting a strong year in its commercial aerospace markets in 2014, but overall profits and revenues will only be flat due to the well-flagged downturn in defence spending in the US and UK. It said it will resume growth in 2015.
The read-across saw BAE Systems close down 3.1%, and the FTSE 350 aerospace and defence sector index close down 7.7%.
In the FTSE 250, Lancashire Holdings closed down 5.3% and was the index's biggest faller.
Despite reporting a 6.8% increase in its fourth-quarter pretax profit, the speciality insurer and reinsurer said it only made a profit of USD218.1 million in 2013, signifcantly lower than the USD238.8 million seen in 2012, as gross written premiums were down for the year as a whole.
The sharp declines meant that the London's two largest stock indices both closed lower for the first time in seven days. The FTSE 100 closed down 0.2% at 6,659.42, while the FTSE 250 closed down 0.3% at 16,029.39. The AIM All-Share index, however, closed up 0.3% at 873.28.
It was not all bad news for UK corporates, however. Imperial Tobacco Group closed the day as the biggest winner in the FTSE 100, up 5.7%. The cigarettes and tobacco company maintained its expectation for modest earnings per share growth at constant exchange rates in its current financial year, with an at least 10% increase in dividend, despite starting the year with a decline in reported tobacco net revenue in its first quarter.
It also confirmed that it is reviewing its options in relation to a potential floatation of Compañia de Distribución Integral Logista SA, its European logistics business.
British American Tobacco was lifted on the news, closing up 1.1%.
International Consolidated Airlines Group, closing up 2.9%, was another big gainer. The airline holding company jumped after it said that its Spanish airline Iberia had finally agreed, in principle, a new restructuring deal with its pilots' union SEPLA. It said that the deal, which ends years of conflicts between the airline and the union, will mean a pay cut for the pilots, followed by a salary freeze until 2015, and then increases linked to the airline's profitability. The pay cut would have been deeper, but the pilots have agreed to significant productivity increases in return for not getting a further 4% pay cut.
In the forex market, sterling hit its highest level since May 2011 Thursday as the dollar fell in the wake of weak data.
A report released by the US Labor Department showed that first-time claims for US unemployment benefits unexpectedly increased in the week ended February 8. Initial jobless claims rose to 339,000 in the week, up from the previous week's unrevised figure of 331,000. Economists had expected the number to edge down to 330,000.
At the same time, the Commerce Department revealed that retail sales dropped by 0.4% in January, following a revised 0.1% decrease in December. Economists had been expecting a flat reading.
"Not only were January sales poor, the weakest in ten months, but both November and December sales were revised lower," said Brown Brothers Harriman's Marc Chandler. "The back month revisions, coupled with recent trade and inventory data, warn that fourth quarter GDP will most certainly be revised lower when it is released at the end of the month."
The pound jumped in the immediate aftermath of the data, hitting a 33-month high of USD1.6674 shortly after, before giving up some of its gains as the session wore on. At the close of the UK equity markets, sterling traded at USD1.6642.
The euro also rose against the dollar, despite the European Central Bank's downward revision of its inflation forecasts for the eurozone as a whole. As part of the ECB monthly report, the central bank said it now expects inflation of 1.1% this year and 1.4% in 2015, down from 1.5% and 1.6% respectively.
As the London stock market closed, the euro traded at USD1.3668.
The euro's rise comes after a sharp fall on Wednesday after ECB board member Benoit Coeure suggested that monetary policy makers are seriously considering negative interest rates.
Last week, the ECB left its key interest rate unchanged at a record low 0.25% for a third consecutive month, and ECB President Mario Draghi reiterated that there were no signs of deflation in the euro area, saying that he was going to wait for further information, such as the new inflation projections and growth data, before making any policy changes.
These latest forecasts were the first new figures released since then and suggest that policy loosening may be more likely. Next up, euro zone fourth quarter GDP preliminary estimates, scheduled for 1000 GMT on Friday.
Also in the data calendar Friday, Chinese consumer and producer price data are released overnight. French, German, Italian, and Greek fourth quarter GDP preliminary estimates are released at 0630 GMT, 0700 GMT, 0900 GMT, and 1000 GMT respectively.
In the US, import and export price data is released at 1330 GMT, ahead of industrial production and capacity utilization information at 1415 GMT. The Reuters/Michigan consumer sentiment index is released at 1455 GMT.
It a quieter corporate calendar Friday, FTSE 100-constituent Anglo American is joined by FTSE 250-listed Riverstone Energy in releasing full-year results, while Severn Trent and Pennon Group release interim management statements.
By James Kemp; [email protected]; @jamespkemp
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
International AirlinesAnglo AmericanTate & LyleRiverstone EnergyBritish American TobaccoBAE SystemsPennonLancashire HoldingsSevern TrentRolls-RoyceIMT.L