24th Oct 2013 16:41
LONDON (Alliance News) - London's main equities indices all closed higher Thursday, buoyed by another day of strong corporate reports and after strong manufacturing data from China and the UK.
"European markets opened confidently today as better-than-expected manufacturing data from China provided an excuse for investors to dive back in the equity markets in full throttle," said Shavaz Dhalla, a financial trader from Spreadex.
China's manufacturing growth hit a seven-month high in October, adding to evidence that it is regaining strength after the slowdown in the first half of the year. The flash manufacturing Purchasing Managers' Index rose more-than-expected to 50.9 in October from 50.2 in September, a survey conducted by HSBC and Markit Economics between October 11 and 22 showed Thursday. The reading remained above the neutral 50-mark and exceeded the expected score of 50.4.
Optimism among UK manufacturers also improved, at the fastest rate since April 2010 as orders and output continued to grow steadily in the three months to October, survey data from the Confederation of British Industry showed. According to Industrial Trends Survey, around 32% of businesses said they were more optimistic about the general business situation than three months ago and 8% less, giving a balance of +24%, the highest since April 2010. In October, the order book balance dropped to -4% from +9% in September, confounding expectations of a reading of +10.
The news came as UK car manufacturing continue to surge, with production above 1.5 million vehicles on a rolling 12 month basis for the first time since the financial crisis in 2008. Output was up 9.9% on the year in September, bringing the total for the year-to-date to 1.13 million vehicles, according to the Society of Motor Manufacturers and Traders.
However, French and German manufacturing and services PMI disappointed, said Michael Hewson, chief market analyst at CMC Markets.
France's manufacturing sector remained in negative territory with the Purchasing Managers' Index falling to 49.4 from 49.8 in September. The reading was forecast to rise to 50.1. Likewise, the services PMI decreased unexpectedly to 50.2 from 51 in September. Germany's manufacturing PMI came in at 51.5 for October, up from 51.1 in September and in line with expectations, while the services PMI missed expectations, coming in at 52.3 for October, down from 53.7 in September. The expectation has been for an increase to 53.9.
However, initial disappointment "appears to have been offset by optimism that central banks the world over will keep monetary policy lose to counteract any risks of a slowdown in growth prospects," Hewson added.
US jobless claims were largely dismissed by the market. The Labor Department released a report showing that initial jobless claims fell by less-than-expected in the week ended October 19, although the data continued to be distorted. The report said initial jobless claims dropped to 350,000, a decrease of 12,000 from the previous week's revised figure of 362,000. Economists had expected claims to fall to 340,000 from the 358,000 originally reported for the previous week.
The FTSE 100 closed up 0.6% at 6,713.18, the FTSE 250 closed up 0.2% at 15,526.93, while the AIM All-Share index closed up 0.1% at 800.27. At the close of the UK equity markets, Wall Street was also trading higher. The Nasdaq was up 0.5% at 3,926.1, the DJIA was up 0.5% at 15,494.5, while the S&P was up 0.3% at 1,750.71.
Pharmaceuticals and biotechnology, closing up 2.1%, was the biggest rising FTSE 350 sector index, lifted by Shire's third quarter results which came in ahead of expectations. Shire, up 5.2% at 2,654.9151 pence, was one of the biggest gainers on the FTSE 100 after it posted third-quarter revenues, on a non-GAAP basis of USD1.24 billion, up from USD1.1 billion in the previous year, with Non-GAAP operating income rising to USD422 million from USD325 million in the previous year, both coming in ahead of Jefferies expectations. Alongside this, the biopharmaceutical company's earnings per share is 9% ahead of consensus, "driven by 1% higher revenues and much lower spend," the investment bank says.
Jefferies is also encouraged by Shire's hiked outlook. The company's guidance for the full-year 2013 non-GAAP earnings has been increased to mid-to-high teens, from double-digit growth. More important for Jefferies, however, is the fact that operational expenditure is now expected to be between USD250 million and USD300 million lower than the current consensus.
Aberdeen Asset Management, closing up 6% at 450.9324p, was also a big gainer on the blue-chip index. The company said it was in discussions with Lloyds Banking Group over a possible acquisition of the bank's Scottish Widows Investment Partnership. Assuming Aberdeen pays GBP400 million to GBP500 million and extracts GBP18 million of cost synergies, there could be about 5% of value enhancement to be made, says Numis analyst David McCann.
Scottish Widows Investment Partnership is a subsidiary Scottish Widows insurance, which wouldn't be included the sale being discussed. Aberdeen said an acquisition would be funded by the issuance of new shares to Lloyds, with additional deferred payments in cash, conditional on the performance of the asset manager over a period of years. It's hoping for a strategic partnership with the lender.
It was a day to cash in for Mike Ashley at Sports Direct and the top managers at ASOS. Ashley sold GBP106 million worth of shares Wednesday, on the day the newly promoted FTSE 100 company saw its stock rise in the wake of strong results from the sports retailer. That's a 2.7% stake, leaving him with 61.7%. ASOS Chief Executive Nick Robertson and Chief Financial Officer Nick Beighton, meanwhile, sold GBP94.1 million worth of shares between them in the wake of the AIM-listed company's strong results. Robertson will use some of his return from the placing to award staff a total GBP2.8 million special bonus. Shares in Sports Direct ended down 4% at 683.6065p and AIM-listed ASOS closed down 1.9% at 5,104.9p the sales were discounted, setting a new benchmark for the market.
On a busy FTSE 250, Ophir Energy, closing up 3% at 308.277p, was a big riser. The company said it is looking to sell down its interests in the Pweza-3 well in Tanzania. The sale makes sense for the company as the Tanzania project is expensive to develop from a capital exposure point of view, said Liberum Capital analyst Kate Sloan, but she thinks the market is too optimistic. The market's view of the value of East African gas assets have been influenced by recent merger and acquisition activity in Mozambique, but achieving the same price in Tanzania demands optimism on cost of capital or early delivery, she says.
Debenhams, closing down 6.8% at 103.14p, was the biggest faller on the index. The company reported that its full-year pretax profit was down as a recovery in the second half failed to offset the first-half weakness. The department-store chain reported a pretax profit of GBP154.0 million for the 53 weeks to August 31, down 2.7% from GBP158.3 million a year before, and said that its group gross margin was flat when compared with the prior year. The company also said it remains cautious about the pace of any UK consumer recovery and a highly competitive marketplace.
In Friday's data calendar, Japanese CPI data is released overnight at 0030 BST, while French consumer spending and Italian retail sales are scheduled for 0900 BST. UK third quarter GDP data is due to be released at 0930 BST in which, "the market expects a robust 0.8% quarterly growth rate, up from 0.7% in the second quarter. The annual rate is expected to rise to 1.5% from 1.3%. If these expectations are correct, it would be the best two consecutive quarters of growth since the first half of 2010," says Kathleen Brooks, research director at FOREX.com.
In the US, durable goods figures are released at 1330 BST, ahead of the Reuters/Michigan consumer sentiment index expected at 1455 BST.
In a much lighter corporate calendar, Phoenix Group Holdings, SVG Capital and Vesuvius all give interim management statement's Friday.
A European Council meeting is set to run throughout the day, and claims of US intelligence listening in on mobile calls made by German Chancellor Angela Merkel amid allegations of wide monitoring of calls and internet in Europe is set to be discussed. The issue hasn't affected markets so far, but analysts say it could start to have an impact if it escalates.
Outraged German authorities were taking steps Thursday to address claims that US intelligence services had monitored Merkel's mobile phone. Germany is to send a delegation to the US next week, Berlin politician Hartfrid Wolff said Thursday. The mounting revelations about spying activities of the US National Security Agency - much of it released by whistleblower Edward Snowden - have strained relations between the US and Europe.
Alex Conroy, a financial sales trader at Speadex does not expect this issue to go away quietly, he warns that there is a chance that it "could lead to volatility in the markets as tensions rise."
By James Kemp; [email protected]; @jamespkemp
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