1st Jul 2014 16:04
LONDON (Alliance News) - UK stocks closed firmly higher Tuesday, kicking off the second half of the year in positive fashion, with mining stocks leading the gains on the back of some upbeat manufacturing data from China.
Meanwhile, the pound jumped to multi-year high against the dollar following a better-than-expected reading of UK manufacturing PMI and some weaker-than-expected US data.
The results of a survey conducted by the China Federation Of Logistics And Purchasing and the National Bureau of Statistics revealed that the Chinese manufacturing managers' index rose to a six-month high in June, after a weak start to the year. The manufacturing PMI rose to 51.0 in June, in-line with economists' expectations, from 50.8 in May.
Meanwhile, revised estimates released by Markit and HSBC bank confirmed that Chinese manufacturing activity rebounded in June. The HSBC manufacturing PMI rose to 50.7 in June, from May's 49.4, marking the first signs of improvement since December 2013.
China provides a large market for the UK's FTSE 100 mining companies, which jumped on the data. Anglo American closed up 4% as the biggest riser in the blue-chip index, Rio Tinto closed up 3%, BHP Billiton closed up 2.9%, Glencore closed up 1.4%, and Antofagasta closed up 0.5%.
Rio Tinto was also lifted by a positive recommendation and price target revision by Bank of America Merrill Lynch. The bank upgraded Rio to Buy, from Neutral, increasing its price target to 4,000 pence, from 3,400p, saying that the company's share price is now "compelling" following recent weakness, and that it believes that iron ore, which is a key driver for Rio, is "bottoming".
The FTSE 350 mining sector index closed up 2.9% as the biggest sector gainer.
"Good news from China is always an ideal way to shake the FTSE 100 into life, thanks to the heavy mining component in the index," said Alastair McCaig, a market analyst at IG. "The tiny rise in the manufacturing PMI was hardly a major improvement, but it has been eagerly seized upon by traders evidently desperate for a positive news story," he added.
The FTSE 100 closed up 0.9% at 6,802.92, while the FTSE 250 closed up 0.8% at 15,840.87, and the AIM All-Share index closed up 0.3% at 787.32.
It was a similarly positive day in Europe, with the CAC 40 in Paris ending up 0.9% and the DAX 30 in Frankfurt up 0.7%.
Meanwhile, on Wall Street, at the close of the UK equity market, the DJIA is up 0.8%, close to a new all-time high, the NASDAQ Composite is up 1.2% to a 14-year high, and the S&P 500 is up 0.7%, hitting a new all-time high.
"There’s been a lot of data released over the last 24 hours leaving investors with a lot of information to digest," said Craig Erlam, a market analyst at Alpari. "Looking at the markets though, it would appear that they largely approve," he added.
Markit Economics said that the UK manufacturing PMI rose to its highest level since November 2013 at 57.5 in June, compared with 57.0 in May, beating economists' estimates that the index would dip to 56.8.
"The economy is firing on all cylinders right now," said Robert Wood, chief UK economist at Berenberg. "Manufacturing employment is booming, incoming new business is rising at one of the fastest rates in 20 years and new export orders are picking up. There is no nuance to the message," he said.
Conversely, data from Europe was largely disappointing Tuesday.
French manufacturing PMI came in above the preliminary estimate of 47.8, but still fell sharply to 48.2 in June, from 49.6 in May, signalling the fastest deterioration in manufacturing activity so far this year. Meanwhile, the German reading dropped to an eight-month low of 52.0 in June, from 52.3 in May, and the Italian reading dropped to 52.6 in June, from 53.2 in May.
The manufacturing PMI for the wider eurozone as a whole dipped to a seven-month low of 51.8 in June, down from 52.2 in the previous month and below the preliminary estimate of 51.9
"The slowdown will put pressure on policymakers at the ECB (European Central Bank) to do more to prevent the recovery from stalling, and we will no doubt see more calls for full-scale quantitative easing to be implemented," said Chris Williamson, chief economist at Markit.
German unemployment data was similarly disappointing, increasing unexpectedly for the second month in a row. While the jobless rate remained unchanged at a seasonally adjusted 6.7% in June, as widely anticipated, the number of Germans out of work increased by around 9,000, missing expectations for a decrease of 10,000.
The unemployment rate for the wider eurozone remained unchanged in May. The jobless rate held steady at a seasonally adjusted 11.6% in May after April's figure was revised down to 11.6% from 11.7%. Economists had forecast the unemployment rate to come in at 11.7%.
In the US, the Institute for Supply Management revealed that its purchasing managers index edged down to 55.3 in June, from 55.4 in May, missing economists' expectations for the index to come in at 55.8. Meanwhile, Markit Economic's manufacturing PMI came in at 57.3 in June, up from the 57.5 posted in May.
US construction spending inched up 0.1% in May, following a 0.2% increase in the prior month, missing expectations for a rise of 0.5%.
In the forex market, the pound jumped against its major rivals in the immediate aftermath of the better-than-expected UK manufacturing data, and pushed even higher against the dollar following the largely disappointing US data.
At the UK stock market close, sterling trades at USD1.7143, its highest level since October 2008, EUR1.2523, CHF1.5199, and JPY173.963.
At the individual UK equity level, and away from mining companies, food retailers Tesco, WM Morrison Supermarkets, and J Sainsbury ended the day among the heaviest fallers in the FTSE 100.
Tesco and Morrisons have lost more market share to discounters like Aldi and to upmarket supermarket Waitrose, according to the latest grocery share figures from Kantar Worldpanel.
Among the UK's four biggest supermarket chains, Tesco and Morrison's saw drops in both market share and sales in the 12 weeks ended June 22, Kantar said, while Wal-Mart Stores-owned Asda and Sainsbury's increased both market share and sales. Morrisons' market share fell to 10.9% from 11.7% last year, while Tesco's market share declined to 28.9% from 30.3%.
Waitrose, part of the John Lewis Partnership, continued to see growth in sales and market share, while Aldi and Lidl continue their growth streaks, holding onto their all-time record market share of 4.7% and 3.6%, respectively.
Morrisons ended the day as the biggest loser in the FTSE 100, closing down 1.7%, Tesco closed down 1%, while Sainsbury's closed down 0.4%.
Ocado Group, closing down 5%, ended the day as the heaviest faller in the FTSE 250.
After rising sharply at the open, Ocado's shares quickly fell sharply, even though it said it swung to a pretax profit in the first half of its financial year, driven by strong sales growth boosted by its delivery tie-up with WM Morrison Supermarkets and the growth of its online pet store Fetch.
The online retailer posted a pretax profit of GBP7.5 million for the 24 weeks to May 18, compared with a GBP3.8 million loss a year earlier. Gross retail sales in the first half of the year rose 16%, driven by an increase in average orders per week and in the number of customers, which more than offset a slight decline in the average order size.
Whilst strong, sales growth slowed in the second quarter from the first quarter.
"After this set of interim results, where we've had the chance to re-appraise our long standing caution on the Ocado business model, the risks still more than match the rewards at the current share price," said Mike Stewart, an analyst at Shore Capital, which has retained its Sell recommendation on the stock.
At the other end of the spectrum, St Modwen Properties, closing up 3.5%, was among the leading risers in the mid-cap index.
The company, which specialises in regenerating brownfield land across the UK, reported an increase in profit and revenue for the first-half, underpinned by the recovery in the UK property market. It posted a pretax profit of GBP61.0 million for the six months to end-May, up from GB45.6 million a year earlier. Profit was boosted by a GBP27.7 million valuation gain on investment properties compared with a GBP16.7 million gain a year earlier. Revenue, meanwhile, rose to GBP110.1 million from GBP63.8 million.
In the data calendar Wednesday, Nationwide house price data for the UK are scheduled to be released at 0700 BST, ahead of UK construction PMI at 0930 BST. Gross domestic product and producer price inflation data for the eurozone are released at 1000 BST.
In the US, the Mortgage Bankers Association releases its MBA mortgage applications data at 1200 BST. Employment change data is released by the Automatic Data Processing Inc at 1315 BST, ahead of the ISM New York index at 1445 BST and factory orders information at 1500 BST.
Federal Reserve Chair Janet Yellen is due to give a speech at 1600 BST.
In corporate news, FTSE 100-contituents Tullow Oil and Persimmon are joined by mid-cap Carillion in releasing trading updates Wednesday.
By James Kemp; [email protected]; @jamespkemp
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