16th Jul 2014 09:52
LONDON (Alliance News) - UK stocks are pushing higher Wednesday, supported by a number of positive company updates and a broader boost to market sentiment from some better-than-expected Chinese economic data released overnight that showed the world's second biggest economy reached its growth target in the second quarter.
By mid-morning Wednesday the FTSE 100 is up 0.9% at 6,769.65, the FTSE 250 is up 1.0% at 15,590.05, and the AIM All-Share is up 0.3% at 775.25.
European majors are performing even better, with the French CAC 40 up 1.4% and the German DAX up 1.2%.
Meanwhile the pound fell from its best levels after the release of the latest UK unemployment and average earnings data, which reinforced the view that subdued wage growth is the weak-link in the UK economic recovery and may allow the Bank of England to keep interest rates at their historic low level into next year.
The headline rate of UK unemployment fell to 6.5% in May from 6.6% in April, putting unemployment at it lowest level since January 2009. The headline rate is a three-month rolling average, while the momentum of job creation is evidenced by the unemployment rate in the month of May alone falling to 6.2%. Indeed 36,300 fewer people claimed unemployment benefits in the UK in May, beating expectations for a fall of 27,000 claims.
However, the pound fell against against other major currencies to lows of USD1.7111 and EUR1.2624 on release of the data, as investors know that the Bank of England is now more concerned by sluggish wage growth than improving employment.
Moreover, even though the headline unemployment rate is now well below the UK central bank's original 7.0% forward guidance threshold, BoE Governor Mark Carney told the Treasury Select Committee on Tuesday that he now believes the equilibrium rate of UK unemployment, or the rate that won't cause inflation, to have fallen to about 6.0% from 6.5%.
Average earnings growth fell for the third consecutive time in the three months to May, to 0.7% from 0.9% in the three months to April, missing economists expectations for 0.8% growth. Average earnings including bonuses were even more disappointing, growing by just 0.3% in the three months to May, slipping from 0.8% growth in the three months to April.
"The labour market may be in recovery but, until wages begin to rise in tandem, this will mean very little to the majority of hard-working UK employees," said UFX Managing Director Dennis de Jong.
The Aerospace & Defense sector is leading UK stocks higher, boosted by Meggitt, which is more than 10% higher as rumours circulate of a potential takeover offer form US-based United Technologies Corp. According to speculation heard at the annual Farnborough Air Show, Meggitt could be about the receive a GBP5 billion, or 625 pence per share takeover offer, the Daily Mail.
A spokesperson for Meggitt couldn't be reached for comment by Alliance News early Wednesday.
The Technology Hardware & Equipment sector is also outperforming, despite Federal Reserve Chair Janet Yellen warning Tuesday over "stretched valuations" within technology stocks during her testimony to Congress.
UK chip makers ARM Holdings and Imagination Technologies are performing particularly well, up 2.5% and 2.8% respectively, following the surge in profits reported by US competitor Intel on Tuesday. The world's biggest chip-maker announced a 40% increase in earnings compared to the previous year. With US earnings season in full-flow, the chip makers are likely to be in focus again next week when technology giant Apple, to which both ARM and Imagination Technologies are suppliers, releases second quarter numbers.
The overnight data that showed China reached its 7.5% GDP growth target in the second-quarter has also provided support to the technology stocks that have priced in a certain amount of demand from the world's second largest economy.
The same can be said for the mining sector, which is also higher Wednesday, with the exception of Fresnillo which is down 1.0% after saying that its silver production remained flat in the second quarter, while its gold production also continues to be subdued as a result of explosion permit problems and stoppages earlier in the year.
Rio Tinto is up 1.7% after it released a strong production report, saying that global iron ore production for the second quarter grew 11% from last year, and that its own production matched that growth. Rio Tinto is the world's second largest producer of iron-ore, from which the company generates about 90% of its profits.
The real estate investment trusts also are performing well, with British Land leading the sector higher, up 2.5% after announcing a positive start to its financial year. The company said it signed 334,000 square feet of retail lettings and renewals during the quarter, and completed 112,000 square feet of office lettings and renewals. The interest-rate sensitive sector also received a boost following the release of the latest UK economic data that added to the argument to keep rates low.
US earnings will come back into focus in the afternoon, with the world's biggest asset manager, Blackrock, due to release its figures, along with another closely watched technology stock, eBay.
US industrial production data is also due at 1415 BST, before the attention shifts back to Janet Yellen as the Fed chair continues her testimony to Congress at 1500 BST.
By Jon Darby; [email protected]; @jondarby100
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