5th Aug 2014 16:09
LONDON (Alliance News) - A mixed day for UK stocks Tuesday saw the FTSE 100 open higher only to gradually give up early gains ahead of the US market open and then flatten completely after Wall Street opened lower.
The pound also made early gains following a particularly strong UK services PMI report, but while sterling remained well supported against many currencies, it gave up most of its gains against the dollar amid some strong US economic data that add to the pressure on the Federal Reserve to bring forward its rate-hike timetable.
"Trading was fairly skittish today with investors seemingly ready to give up positions at the slightest sign of danger, still nervous after the large declines seen last week stemming from Russian sanctions and the possibility of Fed tightening," said CMC Markets market analyst Jasper Lawler.
The FTSE 100 ended the day just fractionally higher, up less that 0.1% at 6,682.48. The FTSE 250 closed down 0.1% at 15,351.91, and the AIM All-Share fractionally lower at 755.73.
Major European markets performed a little better, with the French CAC 40 and the German DAX 30 both ending up almost 0.4%.
The gains in Europe come despite the first casualty of the knock-on effect from the problems at Portugal's Banco Espirito Santo being revealed as Credit Agricole. The French bank reported a sharp drop in second quarter profit as it wrote down the value of its stake in BES to nil.
Following the European market close, stocks in the US continue lower, with the DJIA and the S&P 500 both down about 0.3%, and the Nasdaq Composite down 0.1%.
UK service sector activity rose to its highest level in eight months in July, according to the Markit PMI report released Tuesday. The reading rose to 59.1 in July from 57.7 in June, far exceeding expectations for a print of 57.9 and reaching the highest level since November last year.
"Make no mistake about it, the services sector is the biggest segment of the UK economy and so this healthy reading does really matter," said Forex.com analyst Fawad Razaqzada.
Indeed, the strong reading provided intra-day support for UK stocks and sent to pound up to its highest level of the week against both the pound and the dollar, peaking at USD1.6888 and EUR1.2615.
The Markit report also indicated that companies are starting to see operating costs increasing, driven by an increase in wages, which provided a particular boost to the pound given that the Bank of England is now focused on wage growth before raising UK interest rates.
The pound slipped back to about USD1.6850, however, after the US ISM non-manufacturing PMI jumped to a very strong 58.7 reading for July, while US factory orders printed at a stronger-than-expected 1.1% in June, more than reversing the 0.5% drop in May.
The eurozone PMI's were a little less impressive, with German expanding a little faster than expected at 56.7 in June, while Italy expanded, but by less than expected, at 52.8, and France edged into expansion at 50.4, up from 48.2 previously. Spain recorded particularly strong expansion of 56.2 in June, which follows a recent small improvement in unemployment in the economy that has struggled for so many years.
The overall effect was for the eurozone services PMI to print 54.2, up from 52.8 in June but slightly missing the expectation for 54.4. The eurozone composite PMI also rose but missed expectations, coming in at 53.8.
Within UK stock movers Tuesday, Meggitt was the stand-out FTSE 100 laggard, down 7.2% after reporting a drop in pretax profit to GBP98.2 million for the first half from GBP122.4 million a year earlier, as revenue fell to GBP718.9 million from GBP810.1 million, missing the consensus expectation of GBP747 million.
The aerospace, defence and energy sector engineer has continued to suffer as a result of cuts to the US military spending budget and joins a long line of UK companies saying that the strength of the pound has depressed its earnings from overseas business. The company has indicated that it expects a strong second-half weighting, and indeed its first half orders rose by 9%, but analysts indicate that an 8% downgrade to full-year earnings-per-share expectations is likely.
Intercontinental Hotels Group ended down 3.3% after reporting a drop in pretax profit to USD377 million in the first half from GBP462 million a year earlier. Charles Stanley saw fit to cut its rating on the stock to Hold from Accumulate following the disappointing numbers.
Temporary power supplier Aggreko ended up 1.1% after announcing first-half profit ahead of analyst expectations. The company said its pretax profit fell 9% to GBP132 million for the first half from GBP146 million the previous year, but that was about 5% ahead of analyst expectations and underlying revenue showed improvements.
Intertek Group was a top FTSE 100 gainer for the second consecutive day, ending up 1.8%, having received a number of broker upgrades Tuesday after its first-half results were well received on Monday.
Looking ahead to Wednesday, UK industrial and manufacturing production data will provide the domestic data focus. Both measures are expected to show a turnaround in June from a slump in May, with 0.6% month-on-month growth expected in both.
Otherwise it's a relatively quiet day in the economic calendar, with little due from the US or Europe apart from German factory orders due before the market open, and US MBA mortgage applications later in the session.
In the UK corporate calendar Wednesday, Standard Chartered is the last of the FTSE 100 banks to report its interim results, which are due to be released along with interims from Legal & General Group, Ferrexpo, Johnston Press, and GW Pharmaceuticals. EasyJet is scheduled to released its July traffic statistics.
By Jon Darby; [email protected]; @jondarby100
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