15th Jul 2014 09:54
LONDON (Alliance News) - UK stocks are trading lower Tuesday morning, giving up slim early gains as equity investors await some important US company earnings later in the session, as well as the appearance of US Federal Reserve Chair Janet Yellen, who will take centre stage at 1300 BST when she appears in front of Congress for her semi-annual testimony.
By mid-morning Tuesday, the FTSE 100 is down 0.2% at 6,733.83, the FTSE 250 is down 0.6% at 15,488.11, and the AIM All-Share is fractionally higher at 775.46.
"Yesterday's bargain hunting has been replaced by broad uncertainty, as Janet Yellen?s latest appearance before US lawmakers looms," said IG analyst Chris Beauchamp.
Meanwhile, the pound has jumped to a session high against other major currencies after UK inflation data showed an unexpected jump in consumer prices in June. UK CPI rose by 0.2% month-on-month in June, reversing the 0.1% fall recorded in May and exceeding economists expectations for another 0.1% fall. On an annual basis, prices rose by 1.9%, jumping from 1.5% in May and also exceeding the expected 1.6% rise. The core index, which excludes volatile items such as food and energy, rose by 2.0%.
The data gives more weight to the argument for an early interest rate rise in the UK and the pound reacted accordingly, jumping almost a cent against the dollar to a session high of USD1.7146, and multi-day high against the euro of EUR1.2612.
The DCLG house price index, released by the Office for National Statistics at the same time as the inflation data, showed UK house price inflation running at an annual rate of 10.5% in June. That's up from 9.9% in May, ahead of the expected 10.2% rise, and marking the first double-digit rise in the index for more than four-years. In London alone, the data shows prices rose at an annual rate of 20% in June.
The data may make for an uncomfortable few hours for Bank of England Governor Mark Carney, who is currently sitting in front of the Treasury Select Committee to face question over the decisions made by the Financial Policy Committee in the June 26 Financial Stability Report. While the committee did use the report to usher in some stricter mortgage market and lending rules aimed at cooling the housing market, the MPs will likely want to be sure that Carney is confident he has done enough to avoid an asset bubble forming.
The German ZEW economic sentiment survey has slipped to its lowest level since December 2012, coming in at 27.1 in June, down from 29.8 in July, and missing economists expectations for a smaller drop to 28.0. The measure of institutional investor sentiment has bean on a steady decline since the end of last year when the index was as high as 62.0. The combination of the unrest in Ukraine, the introduction of negative interest rates in the eurozone, and recent disappointing economic data has clearly taken its toll on investor confidence.
Within major European markets, the French CAC 40 is down 0.2%, and the German DAX is down 0.1%.
Within the UK stock movers, retailers are underperforming after the British Retail Consortium said that like-for-like retail sales in the UK were down 0.8% on year in June. That was well shy of forecasts for an increase of 1.0% following the 0.5% annual gain in May.
Sports Direct is a big FTSE 100 faller, down 2.9%, retracing much of the strong gain it made on Monday on news that it is set to expand to the Australian market.
Luxury clothing retailer Burberry is down 1.0%, underperforming for the fourth-consecutive day in the wake of a shareholder revolt over executive pay, as well as recent first quarter results that showed profits were impacted by the strength of the pound. On the slide again Tuesday, the stock has now fallen more than 5% since releasing its results last week.
Associated British Foods, owners of the Primark discount clothing chain, also had warned about the strength of sterling last week, posting a 3% decline in total sales in its third quarter, but saying sales were up by 3% on a constant currency basis. The stock is down Tuesday at 1.4%.
The housebuilders have taken a dip following the UK economic data and ahead of any potential comments from Carney. Barratt Developments sits at the bottom of the FTSE 100, down 3.3%, with Persimmon following lower, down 2.2%
It's a busy day economically and politically Tuesday. UK Prime Minister David Cameron announced a cabinet reshuffle, with some commentators already calling it "ladies day", as the Conservatives attempt to make their front bench more representative and voter-friendly ahead of the 2015 election. The most surprising moves so far have been the removal of William Hague as foreign secretary and Michael Gove as education secretary. Gove will be replaced by Nicky Morgan and Hague by Philip Hammond.
There's plenty still to come Tuesday, with earnings from US banks JP Morgan and Goldman Sachs ahead, as well as technology bellwether Yahoo! and pharmaceutical group Johnson & Johnson.
The main event will be Yellen's testimony at 1500 BST, with investors looking for any shift in her recent doveish rhetoric to give a clue as to the timing of a US interest rate rise, now that the end of the Fed's asset buying is in sight.
US retail sales data is also due at 1330 BST, with analysts expecting growth of 0.6% month-on-month in June, accelerating from the 0.3% growth recorded in April.
Ahead of Yellen and the data, futures trading currently indicates a slightly softer open on Wall Street, with the S&P 500 and the DJIA both pointing down about 0.1%.
By Jon Darby; [email protected]; @jondarby100
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