LONDON (Alliance News) - The FTSE 100 closed modestly higher Tuesday, adding to the significant gains posted on Monday, as investors remain cautiously optimistic that a positive outcome can and will be reached by Greece and its international creditors.
The UK's blue-chip index rose significantly on Monday after investor sentiment was boosted by a positive outcome from the Eurogroup meeting held in Brussels, and this positive sentiment rolled into Tuesday's session, albeit somewhat tempered.
Eurozone leaders sought Monday to jump-start stalled bailout negotiations with Greece, but warned that still more efforts are needed to bridge differences with Athens and pull it back from the brink of bankruptcy.
"I'm convinced that we will come to a final agreement in the course of this week, for the simple reason that we have to find an agreement this week," said European Commission President Jean-Claude Juncker, following the emergency summit in Brussels on Monday.
Greece has been negotiating since February with the Commission, the European Central Bank and the International Monetary Fund on reforms needed to unlock EUR7.2 billion in bailout aid. The talks have entered crunch time, with just days left for Greece to access funds before the European share of its rescue package expires on June 30.
"Given the drama of Monday, Tuesday has continued at a rather more sedate pace, with the behind-the-scenes technical work ahead of tomorrow’s Eurogroup meeting yielding little in the way of histrionics, and leaving the usual (overly) frequent sound-bites from the region few and far between," said Connor Campbell, a financial analyst at Spreadex.
The FTSE 100 closed up 0.1% at 6,834.87 points, having closed up 1.7% on Monday. The mid-cap FTSE 250 closed up 0.5% at 17,997.62, while the AIM All-Share index ended the day up 0.1% at 770.32.
"The feeling of not knowing is the worst, and dealers don’t know whether to bank their profits or to keep going long in the hope that a deal will be hammered out towards the end of the week," said David Madden, a market analyst at IG. "In scenarios like this, traders can be fickle, and if they are not fed positive news in quick succession they can lose interest very fast," he said.
Still, "investors shouldn’t be drawn into trading this market which gaps higher and lower in the short run on sound-bites alone," said Guy Foster, head of research at Brewin Dolphin. "A benign outcome to the crisis is the most likely outcome and as today’s eurozone purchasing managers’ index figures reiterated, the underlying story of the eurozone economy remains one of an entrenched recovery with plenty of headroom to grow into," he added.
In preliminary data released by Markit Economics Tuesday, eurozone private sector growth hit a four-year high in June, reflecting a broad-based upturn in services and manufacturing sectors.
The composite PMI index came in at 54.1 in June, beating expectations of 53.5, having come in at 53.6 in May.
IHS Global Insight Economist Howard Archer said that the data provides reassurance that the eurozone's cyclical upturn is holding up despite the Greek crisis and reduced stimulus resulting from the firming in the euro, oil prices and bond yields from their early-2015 lows.
The services PMI for the single-currency area climbed to 54.4 from 53.8 in May, while the manufacturing PMI rose to 52.5 from the previous month's reading of 52.2.
Following the data, the CAC 40 in Paris closed up 1.2%, while the DAX 30 in Frankfurt ended the day up 0.7%. The strong gains come after both indices added an impressive 3.8% on Monday.
Sentiment was less positive in the US, however, where stocks were trading close to flat at the European close. The Dow Jones Industrial Average was up 0.1%, while the S&P 500 was flat, and the NASDAQ Composite down 0.1%.
The somewhat lacklustre performance of Wall Street came after the US Commerce Department released a report showing that new orders for manufactured durable goods fell by more than expected in May. The report said durable goods orders tumbled by 1.8% in May, following a revised 1.5% decrease in April. Economists had expected orders to dip by 0.6% compared to the 1.0% drop that had been reported for the previous month.
Meanwhile, Markit Economics' flash reading of US manufacturing PMI fell to 53.4 in June, down from the 54.0 posted in May and below economists' estimates for a slight rise to 54.2.
In the forex market, following the data and at the UK stock market close, the pound traded at EUR1.4076 and USD1.5752, while the euro traded at USD1.1190.
"The US dollar gained across the board on Tuesday thanks to relief selling in the euro and hawkish comments from the Federal Reserve's [Jerome] Powell," said Jasper Lawler, a market analyst at CMC Markets. "Having gained on expectations a deal will finally be reached, as it looked more likely, the euro fell on a combination of profit-taking and fears the plan would struggle to win approval in Greek parliament," he said.
In UK corporate news, Sports Direct International ended the day as the biggest riser in the FTSE 100. The sporting goods retailer's shares closed up 3.2% at 725.00 pence after RBC Capital Markets upgraded its recommendation on the company to Outperform from Sector Perform and raised its price target to 800 pence from 650p.
"We think Sports Direct has retained its structural advantages of its own brand portfolio, strong logistics and a dominant position in UK sportswear retailing," said Richard Chamberlain, an analyst at RBC. "Near-term growth should be enhanced by online initiatives, several key risks have eased and Sports Direct's strong balance sheet gives it the potential to boost shareholder returns," he added.
Medical devices company Smith & Nephew, closing up 2.2% at 1,111.00 pence, was another big blue-chip riser. UBS upgraded the company to Buy from Neutral, lifting its price target to 1,275p from 1,175p, saying that it believes the company's wound division is currently operating below its potential.
UBS analyst Ian Douglas-Pennant believes Smith & Nephew has been losing share in its core wound care products for the past decade as management has focused on the higher-growth negative pressure wound therapy segment opportunity. However, with a renewed focus on the US, the company could regain share and benefit from the "significant operating leverage" UBS sees in this business.
At the other end of the spectrum, Bunzl was the biggest loser in the FTSE 100 Tuesday, closing down 2.1%.
The company said that trading in the first half of the year has been in line with its expectations, as it announced the acquisition of four businesses in the US, Colombia, Canada and France, but shares in the distribution and outsourcing company fell as its organic growth in the first half was dragged back by soft market conditions in North America.
Bunzl said overall trading in the first half of 2015 has been in line with its expectations, with revenue in the first half set to grow by around 6%, including a one-percentage-point benefit from positive exchange rate movements.
But the total growth in the half has been driven primarily by acquisitions, with organic revenue rising by only 1%, compared to 2% growth in the first quarter of the year. The lower organic growth rate year-on-year, Bunzl said, is down to slower growth in North America due to some lost business and pricing pressures on plastic resin-based products.
Associated British Foods closed down 1.0% at 3,064.00 pence after RBC downgraded the company to Sector Perform from Outperform.
"We continue to think Primark offers investors a relatively rare early-stage international roll-out story," said RBC analyst Chamberlain. "However, ABF is lacking earnings momentum, the US apparel market remains very competitive, and we see more valuation upside for some other stocks in the sector," he added.
RBC has a 3,200 pence price target on the company.
In the FTSE 250, Ladbrokes closed up a massive 15%, making it by far the biggest riser in the mid-cap index. The betting company's shares soared after it confirmed late on Monday that it is holding talks with unlisted rival Gala Coral Group.
The talks involve a proposed merger of Ladbrokes and Coral Retail, Eurobet Retail, and Gala Coral's Online businesses. Gala Coral Group also includes the Gala Bingo brand.
Ladbrokes said there is no certainty a deal will be done between the two or on the timing of any agreement. Ladbrokes also said that, should the deal proceed, it may undertake an equity placing in order to strengthen the balance sheet of the combined business. It also said that the results of its Business Review, due to be published on June 30, may be rescheduled dependent on how talks with Gala Coral progress.
Petrofac, closing up 6.2%, was another big FTSE 250 winner. The oil services company said its engineering, construction, operations and maintenance division has had a good start to the year and said its order backlog has hit a record level, even as it booked more costs on the Laggan-Tormore project, said profit will be heavily second half-weighted and as its net debt position ballooned in the first half of 2015.
Evraz, meanwhile, was the mid-cap index's heaviest faller, closing down 4.8% at 139.70 pence. UBS cut its price target on the steel maker and miner to 130 pence from 170 pence, retaining its Sell recommendation, saying that the company's renewed sales projections for the remainder of 2015 are disappointing.
Focus on Wednesday will be fixed on a Eurogroup meeting, as investors look for the latest twist in the ongoing Grexit saga.
In the economic calendar, French gross domestic product data for the first quarter are expected at 0630 BST, with German IFO readings for June due shortly after at 0900 BST. UK mortgage approvals information for May is scheduled to be published by the British Bankers' Association at 0930 BST.
In the afternoon, US mortgage applications data are set to be released by the Mortgage Bankers Association at 1200 BST. US GDP data for the first quarter are due to be published at 1330 BST, at the same time as US personal consumption expenditure data.
According to FXStreet.com, economists' estimates are for the world's largest economy's GDP to have contracted by 0.2% year-on-year in the first quarter, having grown by 2.2% in the fourth quarter of last year. Preliminary readings released in April and May had suggested growth of 0.2% and a contraction of 0.7%, respectively.
In Wednesday's corporate calendar, FTSE 250-listed Stagecoach Group is due to release full-year results. Barclays analyst Rishika Savjani said there should be "few surprises" in the company's earnings, given the company's April 29 trading update, in which it said there was "no change" to its anticipated earnings per share.
Mid-cap Ultra Electronics Holdings, meanwhile, is scheduled to release a trading update.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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31 Oct 2016 09:39
