easyJet Share News (EZJ)

LONDON (Alliance News) - London stocks were mixed midday Friday, with investors still responding positively to Bank of England Governor Mark Carney's hints of looser UK monetary policy.

In remarks to business leaders late Thursday, Carney said the deteriorating economic outlook in reaction to the Brexit vote last week will likely require some monetary policy easing over the summer.

"The near-term challenges facing the UK economy can’t be wished away. But they can be addressed. A clear plan is needed, and its measures must be implemented with resolute determination," the central bank governor said.

"The [Monetary Policy] Committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report," Carney said.

However, Carney admitted there are limits to what the Bank of England can do, and that monetary policy cannot "immediately or fully offset the economic implications of a large, negative shock".

"The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers."

Chris Scicluna, head of economic research at Daiwa Capital Markets said Carney's indication of easing is not surprising given the policy-setting body's warnings about the economic risks of a Brexit before the referendum.

"Certainly, the MPC looks set to cut bank rate aggressively (but possibly not quite to zero), probably as soon as the next scheduled meeting on 14 July. And Carney also indicated that in August, when the MPC will have a new full set of forecasts, further policy action could occur then, presumably via an increase in asset purchases," Scicluna said.

The governor's comments sparked a rally in equities late Thursday and a drop in the pound. The FTSE 100 continued modestly higher on Friday at midday, up 0.5%, or 30.36 points, at 6,534.69. The mid-cap FTSE 250 index lagged behind, down 0.1% at 16,257.32. The AIM All-Share was up 0.5% at 711.25.

Also at midday, the pound traded at USD1.3265 and below the USD1.3294 seen at the London stock market close on Thursday.

In other Brexit news, budget airline easyJet has opened talks with aviation regulators in European Union member states about relocating its headquarters outside of the UK following the UK's vote to leave the EU, Sky News reported.

Carolyn McCall, easyJet's chief executive, is understood to have signalled during private meetings this week that moving easyJet's base outside the UK was almost inevitable after the referendum result, Sky News said.

Sources close to the company told Sky News that easyJet already has held preliminary talks with a handful of unidentified EU member states about being issued with an air operator's certificate which would allow it to move its headquarters. easyJet shares were up 1.5%.

In European equities markets, the CAC 40 index in Paris was up 0.1% and the DAX 30 in Frankfurt was up 0.2%.

The recovery in the euro area manufacturing sector gathered momentum in June, survey results from Markit showed. The final manufacturing purchasing managers' index rose more than initially estimated to 52.8 in June from 51.5 in May. This was the fastest growth in six months and slightly above the flash score was 52.6.

The UK manufacturing sector revealed a modest improvement in June, on the back of output and new order growth, results of a survey.

The Markit/CIPS PMI rose to 52.1 from a revised reading of 50.4 in May, its highest level since January. Economists had expected a score of 50.1

However, both surveys were conducted before the result of the UK's referendum on EU membership, so the real impact of the vote will be seen in next month's survey.

Speaking about the UK PMI reading, Rob Dobson, senior economist at Markit, said that whether the recovery in the manufacturing index will continue depends heavily on whether the current financial and political volatility spills over to the real economy.

"While the Bank of England remains poised to act if needed and the UK's trading relationships are unchanged during the two-year negotiation period, there’s a clear risk that ongoing uncertainty will have at least some short term impact on manufacturing during the coming quarters," Dobson said, adding that the negative impact could be offset by the boost from the fall in the pound.

US stocks are indicated to open lower. Futures point the Dow Jones Industrial Average and Nasdaq 100 down 0.2% and the S&P 500 index down 0.3%.

Broker ratings changes were responsible for some of the biggest movers in the mid-cap FTSE 250 Friday. Berenberg upgraded funeral services provider Dignity to Buy from Hold.

"Despite last week's referendum heralding a period of uncertainty in the UK economy, we believe the fundamental story at Dignity remains unchanged," said Berenberg analyst Sam England. "With strong pricing power, steady, non-cyclical demand and high margins, we believe the business offers investors steadily growing profits with scope for cash returns."

The analyst said that while Dignity is "100% exposed to the UK, its end-markets are not cyclical and it imports very little". The stock traded up 5.7%.

Genus was up 6.7% after Liberum upgraded the animal genetics company to Buy from Hold, arguing that while the UK's vote to leave the EU has hit the company's shares, Genus's business should be "fairly immune" to the challenges.

Liberum said only 10% of Genus sales come from the UK and a weaker pound should drive at least at 7.0% translation benefit to profit. In addition, current trading at the company looks solid, with robust hog markets in the US and China offsetting weaker conditions in Latin America and dairy markets.

Transport operator Stagecoach was the biggest mid-cap faller, down 9.8% at 208.40p, after it was downgraded to Underweight from Neutral by JPMorgan Cazenove, which also cut its price target on the stock to 180 pence from 256p.

On Wednesday, Stagecoach had reported a decline in annual pretax profit due to higher finance charges and weaker margins, which offset revenue growth, and it announced the sale of the retail operations of its Megabus Europe coach business.

Still ahead in the economic calendar, the US Markit manufacturing PMI is at 1445 BST, and the ISM manufacturing PMI is at 1500 BST. Also at 1500 BST is at construction spending. US markets are closed on Monday for Independence Day.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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