13th Jan 2015 16:54
LONDON (Alliance News) - UK Main Market indices closed higher Tuesday, with the grocers amongst the best-performing stocks in the FTSE 100 after Wm Morrison Supermarkets reported better-than expected Christmas sales and ejected its chief executive.
The equities markets shrugged off another plunge in oil prices, with Brent hitting a near six-year low, and a lower-than-expected UK inflation figure that briefly weighed on the pound.
The FTSE 100 closed up 0.6% at 6,542.20, the FTSE 250 ended up 0.9% at 16,084.97, while the AIM All-Share index underperformed and closed down 0.2% at 702.24.
European stocks outperformed London for a second consecutive day, with the French CAC 40 ending up 1.4% and the German DAX 30 up 1.6%, while at the close of the European markets, the DJIA was up 1.3%, the S&P 500 was up 1.2%, and the Nasdaq Composite was up 1.6%.
UK inflation slowed more-than-expected to its lowest level since May 2000, driven by falling fuel and food prices, data from the Office for National Statistics showed. The UK's Consumer Price Index halved to 0.5% in December from 1% in November. Economists had expected the figure to ease to 0.7%.
Core CPI, which excludes volatile products such as food and energy rose to 1.3% in December, from 1.2% in November, but also missed expectations of a 1.4% rise.
"Clearly one of the saving graces of the latest inflation numbers was the fact that the core inflation was above the headline rate and actually accelerated. The implication is that this reflects a fall in bad inflation – the kind which eats into consumers’ incomes – while good inflation remains positive (albeit low)," said Guy Foster, head of research at Brewin Dolphin.
The fall in inflation means the Bank of England is unlikely to raise interest rates until late this year or even the first quarter of 2016, analysts said.
Berenberg's chief UK economist Rob Wood said inflation is set to fall even further in coming months as fuel prices continue to fall and utility companies start passing on lower gas and electricity prices, and could even swing to deflation.
"We expect the Bank of England to keep interest rates on hold until late this year, when it should be faced with a sharp upward trajectory for headline inflation as petrol price falls drop out of the annual comparison. At that point they should begin considering rate hikes again," Wood said.
"Rising real wages were set as an indicator for the Bank of England to raise interest rates. Whilst we would have sympathy with the notion that rates should rise if wages were rising in real terms due to rising nominal wages, we believe that the Bank may tread warily toward tightening, especially given the evidence of the stalling housing market," said Shore Capital analyst Gerard Lane.
In an interview with the BBC, Bank of England Governor Mark Carney said that the central bank still expects interest rates to move up gradually over the course of the next couple of years, even though it expects inflation to fall further which will mean rates are kept lower for longer and raised more gradually than it had expected a year ago.
"I think it is important people understand the direction; we have got good news in terms of temporary falls in some of the goods we buy every single day but we have that ability to bring inflation back to target [of 2.0%] and it will be an environment, most likely, that interest rates start to increase and move up over the course of the next couple of years," Carney said.
"So it’s a question of the pace of those interest rate increases and the degree. Relative to a year ago it’s probably a little more gradual and a little more limited than it was then, largely because of factors outside our shores, there are these disinflationary or low inflation pressures globally," he said.
Oil prices resumed their decline, as United Arab Emirates' oil minister Suhail Mohamed Faraj al-Mazrouei said in Abu Dhabi that the Organization of the Petroleum Exporting Countries will stick to its decision to keep oil output unchanged even if prices continue to fall.
"[OPEC] cannot continue protecting a certain price. That is not the only aim of OPEC," al-Mazrouei said. "We are concerned about the balance of the market but we cannot be the only party that is responsible to balance the market."
Brent oil touched it lowest price since mid-March 2009 at USD45.16 a barrel Tuesday morning, while US benchmark West Texas Intermediate touched a low of USD44.17 a barrel, its lowest level since early March of the same year. However, oil did stage a small rebound towards the close of London trade, with Brent trading at USD46.00 a barrel, and WTI was at USD45.70.
Tullow Oil, down 4.7% was the biggest FTSE 100 faller, and Weir Group, was down 3.7%.
Morrisons, closing up 4.5%, was the second-best blue-chip performer. The supermarket chain said that Chief Executive Dalton Philips will step down in March after five years at the helm, as the company continues to try and return to growth after once again underperforming its major rivals in the sector over the key Christmas trading period.
Morrisons revealed a 3.1% fall in like-for-like sales excluding fuel over the six weeks to January 4, a performance that was better than recent quarters. However, it still meant that it was the weakest of the UK's big-four grocers.
"Dalton has done a good job under difficult circumstances, but now it is time to restore growth in the business," Chairman Elect Andrew Higginson told journalists. "It was a judgement call based on trading momentum around the business. A business like this needs trading momentum to perform, and we think it is time to restore that... time for a fresh pair of eyes."
Fellow supermarkets Tesco and J Sainsbury both closed up 3.6%, lifted by the Morrisons results, as the UK supermarket sector as a whole beat expectations over the Christmas period despite the sales declined that all three posted.
Greggs, up 9.5%, was the best performer in the FTSE 250 after it upgraded its expectations for its full year results for the second time in as many months on the back of a rise in sales over the full year and a boost from a strong Christmas trading period. Greggs said total sales for the 53 weeks to January 3 are expected to be up 5.5%, with own-shop like-for-like sales expected to increase 4.5%. The rise in sales includes an extra trading week against the year before.
Michael Page Group was the third biggest mid-cap gainer, rising 6.3%. The recruiter reported profit growth across all its operating regions in the fourth quarter, with gross profit for the full year expected to increase in spite of a drag from currency. For the fourth quarter to December 31, the company said gross profit increased to GBP136.2 million, up 8.9% against the GBP125.1 million reported last year.
Debenhams, down 6.7%, was the second biggest mid-cap faller behind Kaz Minerals, down 8.8%, which was downgraded by Credit Suisse to Underperform from Neutral. The department store reported good sales growth for the key Christmas trading period, and crucially said it had been less reliant on discounting to pull shoppers into its stores, although it warned that margin growth had been capped as sales of low-margin products were particularly strong. However, like peers, the company also warned that its autumn sales had been hit by unseasonably warm weather which stopped consumers heading to stores for winter clothing ranges.
In the economic calendar Wednesday, Chinese new loan data for December is expected to be released at 0200 GMT, ahead of French inflation figures for December at 0745 GMT. November industrial production figures from the eurozone is scheduled at 1000 GMT, before US retail sales for December at 1330 GMT. Mark Carney, alongside other members of the Bank of England will be speaking at the Treasury Select Committee Hearing at 1415 GMT.
In the corporate calendar, luxury fashion retailer Burberry Group is scheduled to release its third quarter trading statement, while fellow FTSE 100-constituent Barratt Developments will issue a trading statement. Premier Oil and Cineworld Group will issue trading statements and online-only grocer Ocado Group will release a Christmas trading update.
By Neil Thakrar; [email protected]
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