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LONDON (Alliance News) - UK stock indices are trading mixed Friday, buoyed by the confirmation that the UK economy has now grown above its pre-recession peak, but held back by a disappointing drop in German business confidence.
The banks lead the gainers in the London market after Royal Bank of Scotland unexpectedly released its results a week early, while merger and acquisition activity in the media and construction sectors is creating some stand-out movers.
The UK economy grew by 0.8% in the second quarter, according the initial estimate from the Office for National Statistics. That officially puts the UK's economic output at a higher level than its previous peak back in the first quarter of 2008. Year-on-year, GDP growth was estimated at 3.1%, in line with expectations.
Added to Thursday's IMF upgrade of its UK 2014 GDP growth forecast, to 3.2%, the confirmation that the UK economy has finally emerged from its lengthy downturn is providing a boost to domestic sentiment Friday.
By mid-morning Friday, the FTSE 100 is fractionally lower at 6,820.40, the FTSE 250 is up 0.2% at 15,772.81, and the AIM All-share is fractionally lower at 772.98.
Sentiment is notably less positive amongst major European markets on Friday, in part due to a disappointing German IFO survey. By mid-morning, the German DAX 30 is down 0.3%, and the French CAC 40 is down 0.7%.
German business confidence slipped to its lowest level since October last year in July, according to the IFO survey that recorded 108.0, down from 109.7 in June, and missing expectations for a print of 109.4. The expectations survey, which tracks business leaders confidence of the coming six-months, fell to 103.4, its lowest level since August last year as concern.
The drop in business sentiment comes ahead of expected further EU sanctions against Russian individuals and companies for its part in the conflict on the Ukrainian border, and is a particular disappointment after Thursday's strong eurozone PMI data.
Royal Bank of Scotland caught the market off guard by releasing its results a week early. The largely state-owned bank said its pretax profit jumped to GBP2.3 billion in the first half of the year from GBP1.4 billion in 2013. RBS said it's unexpectedly good performance was largely driven by more favourable credit conditions, as well as good results from RBS Capital Resolution, or its "bad bank".
RBS shares jumped as much as 14% in early trade, dragging the other banks higher with it. Lloyds, which Friday said it is close to agreeing a settlement with regulators over Libor rigging, is up 1.9%, and Barclays is up 1.7%.
Vodafone is also providing significant support to the FTSE 100, trading up 3.0% after confirming its outlook for the 2015 financial year. Although revenue fell by 4.4% on an organic basis, the world's second largest mobile provider said that its GBP19 billion Project Spring investment programme had taken off quickly and its 4G coverage in Europe rose to 52% from 20% in the past nine months.
Merger and acquisition activity is also providing some stand-out movers Friday. British Sky Broadcasting has confirmed that it will acquire 21st Century Fox Inc's holdings in Sky Italia and Sky Deutschland for a total of GBP4.9 billion in cash, plus BSkyB's 21% stake in the National Geographic Channel, to form a new enlarged business, as it also reported a fall in pretax profit in the year to end-June.
The acquisitions were widely expected and come amid increased activity in the global media sector, with 21st Century Fox' Rupert Murdoch expected to use the proceeds of the sale to make an increased takeover offer for Time Warner in the US, following the rejection of an initial USD80 billion offer. BSkyB financial results have disappointed, however, and BSkyB sits at the bottom of the FTSE 100, down 2.7%.
The outperformance of the FTSE 250 is due to the confirmation of takeover talk between construction companies Carillion and Balfour Beatty. Both stocks are up about 10% on the news, with analysts broadly positive about the potential for cost savings between the two groups. Liberum Capital estimates that GBP250 million of cash synergies could be achieved. Carillion has fared the best of the two names of late, so its chief executive, Richard Howson, is widely expected to become the new group CEO following any deal.
Spectris leads the FTSE 250 fallers, down 5.3%, after the company reported a 10% drop in pretax profit to GBP67.3 million from GBP75.0 million last year, while revenue fell 5% to GBP539.8 million from GBP566.2 million.
The pound had remained little changed following the in-line UK GDP reading, continuing to hold at a one-month low against the dollar, currently USD1.6968. The euro slipped a little in the wake of the disappointing IFO data and currently trades at USD1.3443. The cross between the pound and the euro is therefore slightly higher at EUR1.2620.
US durable goods data is still to come Friday, with analyst expecting growth of 0.5% in June, reversing some of May's 1.0% fall.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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