22nd May 2014 10:06
LONDON (Alliance News) - UK stocks are flat to slightly higher at mid-morning Thursday, with indices off their early highs after making their first convincingly positive start to a session in the week so far, amid a raft of company news and as the second estimate of UK GDP in the first quarter retained healthy-looking growth.
The FTSE 100 is down marginally at 6,819.33, the FTSE 250 is up 0.3% at 15,643.55, and the AIM All-Share is outperforming, up 0.5% at 795.28.
The UK economy grew by 0.8% in the first-quarter of the year, slightly faster than the 0.7% growth recorded in the fourth quarter of 2013 - in line with economists expectations and unchanged from the initial estimate at the end of April. Similarly, on a yearly basis, the GDP reading also matched the first estimate of 3.1% growth.
The reading has helped support stocks, which got off to a positive start after a broadly positive Asian session on the back of the Chinese manufacturing PMI that beat expectations in rising to a five-month high in May of 49.7 from 48.1 previously.
Although the reading below 50.0 still indicates contraction, the improvement helped boost a mining sector that has been relatively suppressed so far this week. The FTSE 350 mining sector is currently up 0.9%.
Some positive company updates have helped support the UK indices further through the morning. SABMiller leads the FTSE 100 gainers after the brewer reported higher full-year profits, supported by good growth in emerging markets. It reported pretax profit of USD4.82 billion for the year ended March 31, a 3% increase on the USD4.68 billion reported a year earlier.
British American Tobacco, another one of the UK's biggest stocks, is also gaining Thursday as the recent trend for large-cap merger and acquisition spreads to the tobacco sector. According to an article published by Reuters News Thursday, two of the US's biggest tobacco names are in advanced takeover talks. Reynolds American, of which British American Tobacco owns 42%, is said to be looking to acquire Lorillard. British American Tobacco's sizeable stake should give it a significant say in any deal, and the stock is up 2.1% on the news.
Royal Mail is performing less well, down 6.6% and leading the FTSE 100 fallers despite announcing results in-line with expectations. In its first full-year release since last year's IPO, the company said it significantly cut its level of debt, grew revenue by 2.0%, and made GBP1.7 billion in pretax profit, up from GBP283 million the year before. However, management also expressed caution over the increasingly competitive parcel delivery market, in which it has this week announced it will start operating on Sundays, leading to some profit taking given the strong recent performance of the stock.
"Royal Mail certainly has managed to meet expectations with respect to its profits today," said CMC Markets chief market analyst Michael Hewson. "But the increasing competition it is likely to face from much nimbler rivals is likely to make its profit forecasts much more difficult to attain without making further cost efficiencies in what is becoming an increasingly crowded market place."
Another of the UK's biggest stocks, Royal Dutch Shell, has its A and B shares moving in opposite directions Thursday. The B shares are down 2.7% following the news that, from the second-quarter, B share holders will no longer receive script dividends, having their dividend payments settled entirely in cash instead. Shell's management also noted Thursday that a Dutch tax levy that previously had made the buying back of A Shares unattractive is set to be cancelled, boosting the A shares 1.0% Thursday.
Halfords has jumped 11% to the top of the FTSE 250 after saying it is seeing a big benefit from the UK's growing cycling market. For the year ended March 28, the retail chain recorded pretax profit of GBP72.6 million, up 2.3% from GBP71.0 million a year earlier, driven by a 7.9% increase in revenues to GBP939.7 million from GBP871.3 million last year. Halfords is one year into its three-year ?Getting into Gear? revamp programme, refocusing the shops on the most successful lines of cycles and car maintenance products.
FTSE 250 listed Imagination Technology is up 7.0% after saying it has signed a collaboration deal with Oracle Corp, intended to enhance Java for embedded and Internet of Things applications and optimize Java for the MIPS CPU architecture.
Dairy Crest is underperforming in the FTSE 250, down 4.2% despite reporting results broadly in line with expectation. Shore Capital has a Hold rating on the stock and says that it expects to make downgrades to its forecasts for the current year, reflecting "a tough dairy market".
The pound took a knock to a session low against the dollar of USD1.6858 after data released along with the UK GDP figures showed UK borrowing jumped unexpectedly in April. Public sector net borrowing rose to GBP9.63 billion in April from GBP6.07 billion in March, disappointing the market that had been expecting borrowing to fall to GBP3.5 billion.
The picture in Europe is more mixed Thursday as the latest round of PMI data continues the trend of Germany driving growth while France solidifies its position as the sick man of Europe. The French manufacturing and services PMI's both missed expectations and, significantly, slipped back into contraction for the first time since February, with readings of 49.3 and 49.2 respectively.
"France?s stuttering economic performance continued in May," said Markit senior economist Jack Kennedy. "With new orders and employment both falling at sharper rates in the latest month, the malaise looks set to persist, dashing hopes of any convincing recovery taking hold."
In Germany the picture couldn't be much more different, with the services PMI roaring ahead to 56.4 in May from 54.7 in April, easily exceeding expectations for a print of 54.5. The manufacturing PMI was a little weaker however, down to 52.9 in May from 54.1 previously, although still comfortably signalling growth.
Eurozone wide, the Markit composite PMI came in exactly as expected at 53.9 in May, factionally lower that the 54.0 recorded in April.
It's the divergence between the constituent nations that will cause concern, however, as evidenced by the major European equity markets Thursday. By mid-morning, the French CAC 40 is down 0.2%, while the German DAX is up 0.1%.
Still to come Thursday, a raft of data from the US, including the Chicago Fed national activity index and initial jobless claims at at 1330 BST, followed by the Markit manufacturing PMI at 1445 BST, and home sales data at 1500 BST.
Ahead of the data, futures trading indicates a modestly higher open can be expected on Wall Street, with the DJIA and the S&P 500 both pointing up about 0.1%.
By Jon Darby; [email protected]; @jondarby100
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Imagination Technologies GroupDairy CrestBritish American TobaccoHalfordsRMG.LSAB.L