14th Aug 2014 16:16
LONDON (Alliance News) - Major stock indices across the UK and Europe managed to record modest gains Thursday despite data showing that economic growth in the eurozone completely stalled in the second quarter.
The return of merger and acquisition activity between construction groups Carillion and Balfour Beatty provided a boost to the London market, while an apparent easing of recent geopolitical tensions also provided an intra-day lift.
The FTSE 100 closed up 0.4% at 6,685.26, the FTSE 250 closed up almost 1.0% at 15,675.56, while the AIM All-Share underperformed, closing down 0.1% at 754.75.
Within European majors, the French CAC 40 and the German DAX both gained just under 0.3%.
After the European market close, the US markets continue higher, with the DJIA up 0.2%, the S&P 500 up 0.3%, and the Nasdaq Composite up 0.2%.
Eurozone GDP data Thursday recorded zero growth across the single currency block, missing economist expectations for growth of 0.1%. Growth was dragged down by Germany, the regions largest economy and traditional engine room of growth, where the economy contracted by 0.2% in the second quarter, missing expectations for growth to be flat.
Eurozone inflation data released at the same time showed that consumer prices rose by just 0.4% year-on-year in July. Although that was in line with expectations, it still marked a slowdown from the 0.5% CPI recorded in June.
The weak eurozone data caused a flight-to-quality in early trade and sent the German Government 10-year bond yield below 1.0% for the first time ever.
"The German 10-year dipping below 1.0% is a sign investors expect low inflation to continue and as such it makes holding the bonds worthwhile with such a tiny return," said CMC Markets Chief Market Analyst Jasper Lawler.
However, in the same way that less than a year ago global stock market levels were still being dictated by investors expectations of when the US Federal Reserve would start to wind down its monthly asset buying programme, markets now appear to have become ever more confident that the European Central bank will soon be forced to fill the liquidity gap with some quantitative easing of its own.
"While clearly not a good sign for the European economy, the drop in growth could be a good thing for European shares if persistent low growth and inflation lead Mario Draghi at the ECB to put into action the bank's “willingness” to deploy additional extraordinary measures including purchases of asset backed securities or even government bonds," said Lawler.
A softened tone from Russian President Vladimir Putin Thursday also provided a boost to shares, particularly in German where the stock market has been the worst hit by recent sanctions. Putin reportedly told MP's on a visit to Crimea that, "we have to develop our country with calm, dignity and efficiency, without barricading ourselves from the outer world or breaking ties with partners, but also without allowing anyone to treat us with disrespect."
Additionally, an extended cease-fire between Hamas and Israel appears to be holding, providing a more stable backdrop for the markets.
Within the UK equity movers, Carillion jumped back into the merger and acquisition spotlight and to the top of the FTSE 250 on the news that it has held meetings with a number of major Balfour Beatty shareholders since Monday. Balfour Beatty has turned down two takeover approaches from Carillion over the last few weeks due to disagreements over the treatment of Balfour's Parsons Brinckerhoff business, which is in the process of being sold separately.
While the two companies remain at loggerheads, analysts are continuing to increase their estimates of the synergies between the companies, with Liberum Capital Thursday saying final synergies could be as high as GBP250 million. Liberum says that prize is "too big to walk away from" and for that reason a deal should happen. Carillion shares rose by 8.4% Thursday, while Balfour Beatty gained 1.5%.
TUI Travel gained 2.7% after its German parent TUI AG said that full-year profit could exceed guidance following a particularly strong quarter. The German Group already owns more than half of the UK listing and is currently in talks over a full merger.
Ophir Energy closed up 4.9% after the oil and gas exploration company said it swung into profit in the first-half, boosted by the sale of its stake in three blocks in Tanzania to Pavilion Energy, which will leave the company well financed into 2015. It also announced a share buyback of up to USD100 million.
Dragging at the other end of the market, Centamin led the miners lower, closing down 6.2% after it reported lower profit for the second quarter as operating costs rose due a drop in the grade of ore being delivered to its main processing plant. The company reported a pretax profit of USD11.3 million for the three months to June 30, down from USD51.7 million a year earlier, as revenue declined to USD102.6 million, from USD134.3 million.
It's a much quieter day ahead on Friday, with no UK corporate updates scheduled and a lot of European markets closed in observance of Assumption Day.
The morning highlight will be the second estimate of UK second quarter GDP, which is expected to be unchanged from the initial estimate at the end of July and show 0.8% growth quarter-on-quarter, and 3.1% growth year-on-year.
By Jon Darby; [email protected]; @jondarby100
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