15th Nov 2013 17:49
LONDON (Alliance News) - UK stocks closed mixed Friday, with large-caps outperforming their smaller peers. However, the end-of-week equity rally was not enough to prevent London's flagship index closing down for the second consecutive week.
Global stocks were boosted Thursday after incoming Federal Reserve Chairwoman Janet Yellen suggested that the Federal Reserve is not yet ready to taper its USD85 billion-a-month asset buying programme, effectively ensuring the continued availability of cheap money. UK equities underperformed gains seen in the US Thursday and Asian gains overnight, and continued to trade relatively cautiously for much of Friday.
"Even the robust testimony and Q&A by Yellen, with clear message that she sees quantitative easing needed for longer, benefits outweighing costs and no asset bubbles in sight, which helped US markets move to new highs last night, has failed to see the UK flagship follow suit," said Michael van Dulken, head of research at Accendo Markets.
Yellen, whom President Barack Obama has nominated to lead the central bank, told the Senate Banking Committee at her confirmation hearing Thursday that the Fed will continue its programme of government bond purchasing as it remains necessary to promote economic recovery.
"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," she said.
"Investors took the remarks as confirmation of Yellen?s dovish credentials, speculating that her ascendancy will translate into a longer-lasting 'full-sized' quantitative easing effort," said DailyFX's Ilya Spivak.
The delay of tapering is deemed positive for equities because the flow of cheap money has been lifting the economy and companies.
Additionally, a batch of largely weaker-than-expected economic data may have added to optimism that the Fed will leave its stimulus programme intact for the foreseeable future.
A report from the New York Fed showed an unexpected contraction in regional manufacturing activity in November, while the Labor Department released a report showing a bigger than expected drop in import prices in October.
In a separate report, the Federal Reserve revealed that industrial production in the US unexpectedly saw a modest decrease in the month of October. The report said industrial production edged down by 0.1% in October after climbing by an upwardly revised 0.7% in September. Economists had been expecting production to inch up by 0.2% compared to the 0.6% increase originally reported for the previous month.
However, commenting on the report, Rob Carnell, chief international economist at ING, said the headline appears worse than the underlying picture. "Most of the softness was concentrated in utilities and mining, in particular natural gas extraction, where on-going price softness seems to have weighed on extraction activity and production has been feeble for some months," Carnell said.
The FTSE 100 closed up 0.4% at 6,693.44, while the FTSE 250 closed down 0.1% at 15,246.58 and the AIM All-Share Index closed down 0.1% at 808.38. However, compared to the last day of last week, all of the indices were lower; with the FTSE 100 down 0.2%, the FTSE 250 down 0.6%, and the AIM down 0.3%.
At the individual UK stock level, Vedanta Resources, closing down 6.4% at 958.2445 pence, was the biggest faller on the FTSE 100. The mining company reported a plunge in pretax profit for the first-half of the year, falling to USD261.1 million from USD1.07 billion in the previous year. Revenue declined 17% to USD6.16 billion from last year's USD7.45 billion. During the period, average prices received by Vedanta fell 9% for copper, 7% for aluminium and 3% for zinc, while average Brent oil prices were down 2%.
IAG was another blue-chip faller, closing down 2% at 365.409p. In a statement ahead of a capital markets day, the airline group said it is now targeting a EUR1.8 billion operating profit in 2015, up from its previous forecast for EUR1.6 billion. It raised its target for British Airways to GBP1.3 billion, from GBP1.1 billion, citing improved margins. Setting out other targets, IAG said it is aiming for earnings per share equal to or above 54 euro cents, while keeping leverage at around 55%. However, Deutsche Bank analyst Anand Date said that the upgrade of the company's guidance left unanswered questions. While overall profit was increased by only EUR200 million, BA profit was upgraded by GBP200 million, equivalent to EUR239 million, possibly implying a downgrade in estimates for Iberia, Date says.
FTSE 250-listed Ultra Electronics Holdings, closing down 4.4% at 1,813.0544p, was another big loser. The defence, security, transport and energy group warned that it has been hit by the US government shutdown and a general slowdown in government spending in that market. It said the US shutdown delayed expected orders, approvals and payments, while many of the contracts it has won are still being funded incrementally.
It also warned that it is continuing to experience delays on a contract in Oman, which means that it will now not be able to install its products until next year rather than in the fourth quarter.
Genus, on the other hand, closing up 3.9% at 1,297.00p was the leading riser on the FTSE 250. The animal genetics company's revenues and volumes have risen in recent months as its customers saw pork and beef prices rise and feed costs fall. The company said volumes of both products and services were up 5% between July 1 and November 14, with revenues up by the same amount at constant currencies.
Additionally, Genus acquired Génétiporc's business in North America and Mexico in October, and said it was pleased with the initial reaction of customers and with the progress of integration.
In the data calendar Monday, UK house price index data is released at 0001 GMT. EU current account information is released at 0900 GMT, ahead of trade balance figures at 1000 GMT. In the US, the National Association of Home Builders housing market index is scheduled for 1500 GMT.
In the corporate calendar, blue-chip Petrofac is joined by FTSE 250-listed Unite Group, amongst others, in releasing interim management statements. FTSE 250-listed Aveva Group and Mitie Group release interim results.
By James Kemp; [email protected]; @jamespkemp
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