12th Feb 2014 09:59
LONDON (Alliance News) - UK stocks trade mixed Wednesday morning. A positive night in Asia, driven by unexpectedly strong trade growth in China, led to a mildly positive start in London. However, with no additional drivers for the market since, all eyes are on Bank of England Governor Mark Carney at 1030 GMT.
By mid-morning Wednesday the FTSE 100 is up 0.2% at 6,687.00, the FTSE 250 is flat at 16,077.00, and the AIM All-Share is down 0.1% at 867.95.
Major European markets are doing better, with the CAC 40 up 0.4% and the DAX up 0.6%.
"The UK Inflation Report is the primary focus today, with the market eagerly awaiting the UK MPC?s response to the imminent threat of their 7% unemployment threshold being reached", say Lloyds Bank strategists.
Since the central bank guided that UK interest rates will not rise until unemployment reached 7%, the economy has recovered faster than all expectations, bringing unemployment down to 7.1% and leading markets to expect an interest rate hike much sooner than expected. Carney has been under increasing pressure to reassure investors, not to mention home owners with floating rate mortgages, that this is not the case.
The problem faced by the central bank governor is how to manage the market's expectations without spoiling the current positive sentiment in the UK, and without losing credibility for his policy making, as revising down the unemployment target might do.
"The BoE is likely to offer something very much like traditional inflation targeting: fudged guidance", says Berenberg chief UK economist Rob Wood. This means switching from targeting just unemployment to assessing a range of slack measures, especially wage growth, which remains weak, says Wood.
Societe Generale strategist Kit Juckes agrees, saying "the need to look at the labour market through a wider lens than just the unemployment rate was a theme of Janet Yellen?s comments and will be repeated by Mr Carney for the UK today".
Ahead of the inflation report, the pound and the euro are flat against the dollar, currently trading at USD1.6460 and USD1.3640, respectively. Any stronger-than-expected tone in one direction or the other by Carney is likely cause a big reaction in the pound.
Within UK equities, Food & Drug Retailers are the top gaining sector, led higher by Morrison which is up 3.1% on speculation of interest in the retailer going private. According to Bloomberg Business Week, the founding family of the supermarket chain has contacted private-equity funds such as CVC Capital with respect to a privatisation.
All stocks in the sector are higher, with Morrison partner Ocado leading the FTSE 250 gainers, up 1.9%, and Tesco up 1.3%. Booker group is up 1.2% after having its price target raised by Berenberg, and UDG Healthcare is up 0.9% after saying it has agreed the sale of its unlicensed medicines business for GBP23.5 million.
Software & Computer Services stocks lead the falls Wednesday. Telecity Group is dragging the sector and the FTSE 250 index lower, down 10%. The data-centre company raised its dividend, but disappointed investors by announcing 2014 guidance lower than analyst forecasts. Within the sector, Sage Group and Computacenter PLC also are lower, down 1.0% and 0.8%, respectively.
Still to come Wednesday, eurozone industrial production numbers are out at 1000 GMT. Economists expect a slowdown in the growth of production in December to 1.8%, from the 3.0% growth recorded in November.
Also at 1000 GMT, the UK Conference Board leading economic index for December is due for release. The measure of overall economic activity recorder 0.5% in November. The reading may well be largely over looked given that Carney delivers the BoE's quarterly report just 30 minutes later, at 1030 GMT.
By Jon Darby; [email protected]; @jondarby100
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