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LONDON (Alliance News) - UK stocks are trading mixed Wednesday, with the FTSE 100 failing to push above the fourteen-year high made on Tuesday, although there are a number of stand-out stock movers as investors focus on corporate earnings over the early trading session as attention switches to the Bank of England for the quarterly inflation report.
By mid-morning Wednesday the FTSE 100 is down 0.1% at 6,864.81, the FTSE 250 is down 0.2% at 16,009.95, and the AIM All-Share is up 0.1% at 809.70.
The pound had been making gains against the dollar over the morning ahead of the latest economic forecasts, peaking at USD1.6874, but fell back to a session low of USD1.6801 after the latest UK unemployment data showed a smaller drop in the number of people claiming unemployment benefits than expected.
The headline rate of unemployment in the UK ticked down to 6.8% in March after having fallen to 6.9% in February. While the headline rate was in line with expectations, the number of people claiming unemployment benefits fell by just 25,100 in April, less than the 30,000 expected by economists.
Average earnings data, released at the same time, was more disappointing to the market. Including bonuses, average earnings growth remained stable at 1.7% in March, after having jumped to that level in February. Last month was the first time in more than two years that wage growth was seen to outstrip inflation, which currently runs at 1.6%. Economists has expected this growth to accelerate to 2.1% this month. Moreover, excluding bonuses, wage growth slipped back to 1.3% in March from 1.4% in February, missing economists expectations of further growth to 1.5%.
"UK unemployment figures have provided good news for both the government and the opposition, as the headline figure has fallen once again, but real wage growth is still flat from March, implying a weakening of inflationary pressures," said IG market strategist Brenda Kelly. "Sterling?s reaction has been profoundly negative, dropping through yesterday?s lows as investors pare back an early interest rate hike."
While the pound was expecting more from the data, at 6.8% the UK unemployment rate is now at a five-year low and comfortably below the 7.0% level above which the Bank of England originally said it wouldn't look at interest rate rises, leading many to expect a more hawkish tone from the bank's governor Mark Carney when he delivers the quarterly inflation report at 0930 GMT.
"The labour market is booming as strong UK economic growth rapidly erodes economic slack. It means the BoE will, in our view, have to hike interest rates sooner rather than later," said Berenberg chief UK economist Rob Wood.
Following the German inflation data released early Wednesday that showed consumer prices falling at 0.2% month-on-month in Europe's largest economy, the same numbers from France have shown prices remained flat in April, while in Spain prices rose by 0.9%.
The eurozone wide print, which will be closely watched by the European Central Bank ahead of its next policy meeting, is due Thursday and is expected to show prices across the single currency block rising at just 0.2% over the month of April. It seems that any slip below this expectation could be due to falling prices in its biggest economy, while the support is coming from the more troubles economies of Spain and France.
According to a report published by Reuters Wednesday, the ECB is currently working on a package of support measures to be announced next month, including a cut in all of its interest rates. Citing five unnamed sources, the report suggests that an interest rate cut in June is "more or less a done deal." This comes after ECB President Mario Draghi said last week that the ECB Governing Council was "comfortable with acting next time," but wanted to wait for the bank's updated economic projections first.
The euro has remained relatively well supported against the dollar so far Wednesday however, currently trading slightly higher over the session at USD1.3720.
Major European equity markets are also a little lower Wednesday, with the French CAC 40 down 0.2% while the German DAX is just fractionally lower.
Back within UK equity movers, ITV leads the blue chip fallers, down 4.7% after releasing an interim management statement that looks unlikely to lead to any forecast upgrades. The upcoming football World Cup is a key driver for the ITV growth model. While this should provide a big boost, it is a one-off event and the market may be looking for more drivers ahead, say analysts. Moreover, the stock traded fairly strongly into the update, having risen more than 7% over the past two weeks.
Sainsbury's shares are down 3.8% after the stock went ex-dividend at 12.3 pence for the full-year dividend.
Compass Group leads the FTSE 100 gainers and trades at an all-time high Wednesday after announcing a GBP1 billion special dividend. The food support and services company also raised its normal interim dividend by 10%, along with reporting pretax profit of GBP595 million for the six months to March 31, compared with GBP575 million the prior year. Shore Capital estimates the special dividend to equate to about 57 pence per share.
Packaging and paper company Mondi's shares are also higher, up 4.1% after saying its underlying operating profit rose in the first quarter, as restructuring benefits and price increases for some products more than offset higher input costs and lower selling prices for paper in Europe. "This morning?s update from Mondi is certainly worth the paper it is written on as investors look pleased," said Accendo Markets trader Tom Robertson.
3i Group leads the gainers in the FTSE 250, up 3.2% after posting a rise in total assets under management. At the other end of the mid-cap index, Renishaw leads the falls, down 5.0% after its pretax profit was down 9% in its third quarter.
Still to come Wednesday, all eyes are on Mark Carney as he sits to deliver the BoE's latest economic forecasts.
"The market is hoping that this morning?s release of the BoE?s Inflation Report will bring a little clarity to the debate as to whether the Bank would consider a pre-election rate hike," said Rabobank senior currency strategist Jane Foley.
Currently, US futures trading indicates a slightly softer open on Wall street. There is little notable economic data in the US calendar Wednesday, with just MBA mortgage applications at 1100 GMT, followed by US PPI at 1230 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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