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LONDON (Alliance News) - UK stocks closed mixed Wednesday, with a late rally in the FTSE 100 edging the index closer towards its all-time high, having spent the vast majority of the day trading within tight ranges.
Meanwhile, the pound plummeted as investors digested some UK unemployment and earnings data, and as Bank of England Governor Mark Carney moved to dispel speculation over an early interest rate hike, saying that it was necessary to absorb the slack in the economy before tightening policy rates.
UK equities had spent large parts of Wednesday in the red, with the FTSE 100 struggling to push above the fourteen year high made on Tuesday, but a late rally saw the UK's blue-chip index end the day fractionally higher.
The FTSE 100 closed up 0.1% at 6,878.49, just shy of its all-time high, while the FTSE 250 closed down 0.4% at 15,974.61, and the AIM All-Share closed down 0.1% at 807.97.
In Europe, the CAC 40 in Paris closed down 0.1%, while the DAX 30 in Frankfurt closed almost perfectly flat.
"A weak reaction to ITV's figures and a slew of ex-dividend stocks has prevented the FTSE 100 from rampaging higher," said Brenda Kelly, chief market strategist at IG.
ITV's shares closed firmly lower, ending the day down 6.2%, despite reporting higher revenue for the first quarter of 2014 thanks to a continued recovery in advertising revenue, and saying that it expects to get a further boost from its coverage of the football World Cup in June, as well as the launch of new TV channels.
The upcoming football World Cup is "quite rock'n'roll," said Jefferies analyst David Reynolds, but it is a one-off event and the market may be looking for more drivers ahead. Moreover, the stock traded fairly strongly into the update, having risen more than 7% over the past two weeks.
J Sainsbury, Barclays, Aberdeen Asset Management, Kingfisher, Royal Dutch Shell, and Glencore Xstrata also weighed on the blue-chip index, closing down 3.3%, 1.6%, 1.4%, 2.2%, 1.1%, and 1%, respectively. The companies all closed firmly lower after going ex-dividend, meaning that new buyers no longer qualify for the latest dividend payout.
At the other end of the spectrum, Compass Group, closing up 1.6%, was the index's biggest riser for most of the day. The food and support services company's shares rose to an all-time high after it reported a higher pretax profit for the first-half of its financial year, boosted by new business wins and a continued strong performance in North America and in its emerging markets.
It also raised its interim dividend by 10% to 8.8 pence, and proposed capital return of GBP1 billion to shareholders via a special dividend and ongoing GBP500 million share buyback.
Mondi, ending the day up 2.5%, was another stand out riser after it said 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.
The group said its underlying operating profit, which excludes items including restructuring costs and asset impairments, was EUR183 million in the three months to end-March, up from EUR162 million a year earlier and up from EUR161 million in the fourth quarter of 2013. It said sales volumes were broadly in line with the first quarter of 2013, but up from fourth quarter which was impacted by scheduled maintenance shut downs at its plants.
Mondi also was positive about its outlook, citing its investment programme and discussions it is having about some more product price increases.
In the FTSE 250, 3i Group ended the day as the one of the biggest risers Wednesday, up 5.8%. Shares in the firm jumped after it reported that fiscal year profit rose by almost a third, driven by higher gains on its investments and narrowed operating expenses achieved under cost cuts set out in its strategic plan two years ago.
The company said it made a GBP470.0 million pretax profit in the year ended to end-March, compared with GBP358.0 million a year earlier. Gross investment return rose to GBP665.0 million, from GBP598.0 million a year earlier, while operating expenses narrowed to GBP136.0 million, from GBP170.0 million.
Renishaw was the mid-cap index's heaviest faller, closing down 7.5%. The engineering company reported a lower pretax profit for its fiscal third quarter, even though revenue increased thanks to demand for its additive manufacturing, encoder and measurement automation product lines.
It reported a pretax profit, excluding exceptional credits, of GBP14.4 million for the three months to the end of March, down from GBP15.9 million a year earlier, even though revenue rose to GBP84.5 million from GBP81.9 million.
The company did not give a reason for the profit fall in its statement, but the profit decline it reported in the first-half of the year had largely been down to higher costs.
In the forex market, sterling was hit hard on Wednesday.
"The market is getting used to better-than-expected economic news out of the UK, which may be one reason why the pound sold off even though the UK's unemployment rate for March fell to its lowest level since early 2009," said Kathleen Brooks, research director at Forex.com.
The headline rate of unemployment in the UK edged 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 25,100 in April, less that the 30,000 that economists had forecast.
However, "the most disappointing part of the report was wages," said Brooks.
Including bonuses, average earnings growth remained stable at 1.7% in March, after having jumped to that level in February, missing economists' estimates for 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%.
Shortly after, the pound slumped further as BoE Chief Mark Carney reassured markets that the UK's headline interest rate will remain at its current historic low rate of 0.5% "for some time to come."
In its May Inflation Report, the bank said that, while the margin of spare capacity has narrowed marginally since February, policymakers see more scope to make greater inroads into slack before raising the interest rate.
Given the strength of the UK economic recovery, there had been a rising expectation that the BoE would sound notably more hawkish on its timeline for raising interest rates.
The BoE did upgrade its growth forecast for the UK economy for next year, raising its GDP estimate for 2015 to 2.9% from the 2.7% it predicted back in February, while the 2014 forecast remained unchanged at 3.4%. However, the central bank also lowered its estimate of the equilibrium jobless rate.
The unemployment rate that the BoE thinks will be normal for the UK in the future, without causing inflation, was moved down to between 5.25% to 5.75%, from the previous guidance of 6.0% to 6.5%. Therefore, despite UK unemployment already running comfortably below the BoE's original threshold of 7.0%, before which it would not look at raising interest rates, it now has further to fall than previously thought before returning to "normal."
The BoE now forecasts unemployment to fall to 6.1% in the second quarter of 2015, then to 5.9% in the second quarter of 2016. The central bank's measure of economic slack, which it is now targeting before raising interest rates, remained unchanged at between 1.0% to 1.5%. Carney said he expects this slack to be broadly gone within three years time.
"The wording in the statement and following press conference has clearly been carefully chosen and was very cautious from the MPC (Monetary Policy Committee)," said Craig Erlam, a market analyst at Alpari. "I expect this will become a habit for most central banks going forward, making these events less eventful, as they attempt to return to normal monetary policy," he added.
At the close of the UK equity market the pound trades at EUR1.2234 and CHF1.4929, and at a near-one-month lows against the dollar and the yen, at USD1.6777 and JPY170.752.
In the data calendar Thursday, the latest reading of the Japanese consumer confidence index is released at 0500 GMT. Shortly after, the preliminary reading of French first quarter gross domestic product is released at 0530 GMT, with the German and Italian readings published at 0600 GMT and 0800 GMT, respectively. The European Central Bank provides its monthly report at 0800 GMT, before eurozone consumer price inflation data and the preliminary reading of eurozone GDP at 0900 GMT.
In the afternoon, US consumer price inflation data, US jobless claims data, and the New York empire state manufacturing index are all released at 1230 GMT. US industrial production information is published at 1315 GMT, with the National Association of Home Builders' housing market index and the latest Philadelphia Federal Reserve manufacturing survey at 1400 GMT.
Federal Reserve Chair Janet Yellen gives a speech at 2300 GMT.
In the corporate calendar, FTSE 100-constituents London Stock Exchange Group and Land Securities Group release full-year results, while National Grid, Aviva, and Old Mutual provide trading updates.
In the FTSE 250, Euromoney Institutional Investor, Vedanta Resources, and TalkTalk Telecom Group release full-year results, with Marston's and Thomas Cook Group releasing half-year results. Dixons Retail, Rank Group, Premier Farnell, Kier Group, Restaurant Group, Vesuvius, and Merlin Entertainments all release trading updates.
Centamin publishes first quarter results.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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