19th Feb 2014 10:58
LONDON (Alliance News) - UK stocks are mixed Wednesday, while the pound had taken a hit after UK unemployment rose to 7.2% in in December, from 7.1% in November.
Following a rally that has seen the UK's leading share index gain about 1% each day so far this week, the FTSE 100 broke above 6,800 points in early trade before the rally lost momentum.
By mid-morning Wednesday, the FTSE 100 is down 0.2% at 6,708.00, the FTSE 250 is down 0.4% at 16,275.20, and the AIM All-Share is flat at 880.19.
Major European equity markets are also struggling for direction Wednesday, with the CAC 40 and the DAX both down 0.1%.
The major focus of the morning has been UK unemployment. Official data showed the headline rate of unemployment increased in December to 7.2%, from 7.1% in November.
There had been a range of expectations ahead of the numbers, with some expecting a drop in unemployment to 7.0% and some expecting an increase to as much as 7.4%. Following the changes made to the Bank of England's forward guidance policy last week, the release has caused less market volatility than in recent months.
The pound dropped about 0.6 cents against the dollar to a session low of USD1.6658, but has since recovered slightly and continues to trade broadly flat at USD1.6685. Against the euro, the pound is marginally higher Wednesday, currently trading at EUR1.2130.
With the central bank moving away from targeting unemployment alone as a measure of when to raise interest rates, the market has been more encouraged Wednesday by an increase in average earnings of 1% in December, an acceleration from 0.9% in November and higher than the 0.9% expected by economists.
The minutes of the Monetary Policy Committee's last meeting were released at the same time as the unemployment numbers, and showed the nine MPC members were unanimous on the decision to hold interest rates unchanged, as expected. Members were not even invited to vote on the recent change to the bank's so-called forward guidance on when interest rates might rise.
However, the committee did indicate that even when rates do rise, the new "norm" for rates may well be lower than was perceived before the financial crisis.
"Even when the economy had returned to normal levels of capacity, and inflation was close to target, the appropriate level of Bank Rate was likely to be materially below the 5% level set on average by the Committee prior to the financial crisis," the minutes say.
Within UK equity movers, Sports Direct International is the stand out gainer by mid-morning Wednesday. The retailer leads the gainers in the FTSE 100, up 5.7%, after saying its gross profit grew by 14.6% in its fiscal third quarter, buoyed by double-digit revenue growth which was fuelled by strong growth in retail and online sales. Liberum Capital said it is impressed by the retailer's margin expansion in a tough trading environment.
BAE Systems is leading the Aerospace & Defense sector higher after saying that the governments of the UK and Saudi Arabia have finally reached a deal on higher prices for the Typhoon jets that Saudi Arabia ordered back in 2005. BAE Systems shares are up 0.6%.
Rolls-Royce, which makes the engines for the Typhoon jets, is also higher on the back of the news. Rolls-Royce shares have slumped in recent sessions following warnings over defense spending cuts, but the positive news pushed its shares up 1.9% Wednesday.
Still to come Wednesday, US housing starts data and producer price inflation at 1330 GMT.
Many analysts are expecting the bad weather in the US that has been blamed for much of the poor recent macro data to hit the housing starts. "After all, who builds houses in a blizzard," says CMC Markets chief analyst Michael Hewson.
By Jon Darby; [email protected]; @jondarby100
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