23rd Apr 2014 09:56
LONDON (Alliance News) - Stocks indices are trading mixed across the UK and Europe Wednesday, with no clear direction evident despite some stand-out stock movers, while the euro has risen in response to strong PMI numbers and the pound has fallen after the Bank of England published the minutes from its latest policy meeting.
By mid-morning Wednesday the FTSE 100 is flat at 6,680.20, the FTSE 250 is down 0.2% at 16,040.82, and the AIM All-Share is down 0.1% at 822.11.
Within major European markets, the French CAC40 is down 0.3% and the German DAX is down 0.2%.
The pound dropped against the dollar to a session low of USD1.6794 on release of the minutes of the latest Monetary Policy Committee meeting at the BoE. The minutes showed that the nine members of the committee voted unanimously to keep interest rates on hold at 0.5%.
With unemployment in the UK now at 6.9%, below the BoE's original threshold to look at raising interest rates, the key question for the members of the MPC is how much "slack" remains in the labour market. Although these minutes are from the meeting before the drop in unemployment below the threshold, the issue was discussed at some length, with a range of views amongst the members. The rise in self-employment in the UK over recent months was noted as a possible reason for there to be more slack remaining than official unemployment figures suggest, meaning some self employed people may be underemployed.
With the UK economy firing on all cylinders, the market is likely to increasingly look for the first vote in favour of a rate hike at the BoE. "If this trend continues, which seems likely, then the May meeting could well see some policymakers looking to dissent from the consensus view and start pushing for measures to tighten policy," said CMC Markets chief market analyst Michael Hewson.
Alpari analyst Craig Erlam suggests that the low inflation environment may lead potential dissenters to the BoE to hold off any rate hike calls until the third quarter at the earliest. "Until then we may see some sterling weakness in response to a lack of calls for a rate hike," Erlam says.
The BoE minutes also show that the committee discussed the potential impact of a Chinese economic slowdown. "A slowdown in China might have a larger impact on the United Kingdom than would be implied by its 4% share of UK exports, through a combination of trade, financial and confidence channels," the minutes read.
The Chinese HSBC manufacturing PMI, released earlier in the morning, showed activity continued to contract, with a reading of 48.3 in April. Although that was up from 48.0 in March it was slightly lower that the 48.4 expected by economists and below the 50-point level dividing expansion from contraction.
Better numbers in Europe however have seen the euro rise to a high for the week against the dollar of USD1.3855 after the latest Market PMI numbers showed both manufacturing and service sector activity growing faster than expected in Germany and the eurozone as a whole.
The German manufacturing PMI rose to 54.2 in April from 53.7 in March, beating economists expectations of 54.0. The service sector number rose very strongly to 55.0 in April from 53.0 in March, beating expectations of 53.4.
Similarly, the eurozone wide manufacturing PMI came in at 53.3 in April, up from 53.0 in March and beating economist expectations for a flat reading. The eurozone service sector PMI expanded to 53.1 in April from 52.2 in March, beating the expectation of 52.4.
The eurozone composite PMI rose to 54.0 in April, from 53.1 in March. The reading exceeded the flat growth expected by economists and reached its highest level since May 2011.
"The eurozone has started the second quarter on a solid footing. A welcome quickening in the pace of growth of business activity in April means the region is expanding at the fastest rate for almost three years," said Markit chief economist Chris Williamson.
Within UK equities, the pharmaceutical stocks are continuing to perform well after Tuesday's strong gains on merger and acquisition talk. The FTSE 350 sector is up 1.1%, with AstraZeneca up 2.3% and GlaxoSmithKline up 0.4%.
The stand out blue-chip gainer Wednesday is Associated British Foods. The group, which owns low-cost clothing retailer Primark, is up more that 9.0% after reporting strong first half results and raising its dividend by 4%. While weak sugar prices continued to hold back its traditional business, management said that with strong growth from Primark, and further store expansion planned for the remainder of the year, retail profits are expected to be well ahead.
At the other end of the FTSE 100 spectrum, ARM Holding is down more than 3.5% after saying that its royalty revenue from its micro chip processors continues to disappoint. The chip maker's royalties are likely to continue to grow by slower than the market expects over the next five years due to an underlying shift to lower-end smartphones and tablets, says Liberum Capital analyst Janardan Menon.
Drax Group is the key faller holding back the FTSE 250. The stock is down 13% after the company said it has commenced legal proceedings against the UK government after it overturned a decision advising that two generating units at Drax Power Station - the "second" and "third" unit conversions - were eligible for investment contracts under a new contracts-for-difference scheme.
Still to come in the data calendar Wednesday, the Confederation of British Industry's industrial trends survey, due at 1000 GMT, followed by US MBA mortgage approvals at 1100 GMT, and the US Markit manufacturing PMI at 1345 GMT.
US corporate earning will continue to drive markets, with technology giants Apple and Facebook of particular focus Wednesday. Ahead of any earnings releases, futures markets indicate that the US equity markets will open marginally higher.
By Jon Darby; [email protected]; @jondarby100
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