LONDON (Alliance News) - Stocks across Europe are recouping some of the heavy losses made over the past two days midday Thursday, with investors relieved that the Chinese central bank expects no further depreciation in the yuan following its third consecutive devaluation of the currency.
The People's Bank of China adjusted its daily reference exchange rate by a further 1.1% on Thursday, setting it at 6.4010 to the US dollar. On Tuesday, the bank had cut the rate by 1.9%, followed by a 1.6% drop on Wednesday.
At a press conference held Thursday morning in Beijing, the People's Bank of China Governor Zhang Xiaohui said that the currency would strengthen again and there was no basis for continued depreciation in the yuan. While pledging to improve the yuan's pricing mechanism, central bank officials dismissed speculation of a possible yuan drop of 10% as "groundless".
The soothing comments by Chinese authorities, coupled with a rebound in commodity prices and speculation that the US Federal Reserve may delay raising interest rates due to the yuan devaluation, drove investors towards equities once again.
"With the Chinese yuan fixing a little firmer today, near-term market tensions have eased a little after sharp adjustment in the markets over the last few days," say economists at Lloyds Bank. "Expectations for a September move in US rates have been reduced somewhat in the last few days, a strong data set here today will bring that sentiment back up and see a turnaround in the bond and USD sell off we have witnessed this week."
Investors will be looking at US retail sales and initial and continuing jobless claims, both at 1330 BST, for indications about a September rate hike. The dollar currently trades the yuan at CNY6.3889, dropping back from an intraday high of CNY6.4345.
The oil price also has seen a rebound, with Brent oil now back above the USD50 a barrel mark at USD50.20, while West Texas Intermediate is at USD43.41 a barrel. Bjarne Schieldrop, chief commodities analyst at Skandinaviska Enskilda Banken, says the Chinese devaluation of the yuan is merely in line with the International Monetary Fund's demand for a more market-based yuan exchange rate and will not materially impact the country's demand for commodities.
"It is very unlikely that China will consume less oil and commodities as a results of a weaker yuan," Schieldrop says. "Rather than being a sign of China weakness, the devaluation will be positive for the Chinese economy on the margin and thus positive for commodity demand in general and oil demand specifically."
The FTSE 100 trades up 0.7% at 6,621.59, the FTSE 250 is up 0.9% at 17,592.81, and the AIM All-Share is up 0.2% at 750.12.
European indices also are rallying, with the CAC 40 in Paris up 1.9% and the DAX 30 in Frankfurt up 1.8%.
Futures indicate a higher open on Wall Street, with the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 all pointed up 0.3%.
On the corporate front. Coca Cola HBC shares are trading up 8.5%. The soft drinks bottling company reported a rise in profit in the first half of its financial year as it benefited from growth in volumes and margins, although its revenue was hit by adverse foreign exchange rates.
The company reported a pretax profit in the six months ended July 3 of EUR164.7 million, up from the EUR129.2 million profit it made in the same period the year before, although revenue did slip to EUR3.15 billion from EUR3.18 billion.
Coca-Cola HBC said that underlying volume growth gained momentum in the second quarter, leading to a 3.8% rise in the first half, an improvement on the 3.4% decline it suffered in the first half of the prior year. The half year also benefited from four extra selling days in the first quarter, which added 2.5% to volume across the business, it said.
TUI Group shares are the second best performer in the blue-chip index trading up 7.2%. The tourism and travel operator posted higher revenue for the third quarter and for the first nine months of its financial year, despite the recent quarter being clouded by the terrorist attack in Tunisia, and said it is confident it will achieve further earnings growth in the full year and beyond, even though it will take a further hit in the fourth quarter from the Tunisian tragedy.
TUI said its earnings before interest, taxation and amortisation rose to EUR130 million from EUR92 million in the third quarter to the end of June and its loss for the first nine months of the year narrowed to EUR239 million from EUR242 million.
It added it is currently confident of delivering underlying earnings growth of 12.5% to 15.0% for its current financial year and at least 10% over each of the next three years, with trading in the summer months so far proving solid.
Outsourcing company G4S is the worst FTSE 100 performer down 4.4% after being downgraded by Goldman Sachs to Sell from Neutral, and by Exane BNP to Neutral from Outperform. On Wednesday the company said its pretax profit fell in the first six months of 2015 due to restructuring and impairment charges, but its revenue edged higher despite a decline in the UK and Ireland.
In the FTSE 250, Ophir Energy is the worst performer, down 3.9%. The oil and gas company increased its full-year production guidance and reported a large reduction in spending, as the company tries to restructure itself for a USD50 per barrel of oil environment, after swinging to a substantial pretax loss in the first half of 2015.
Ophir said it swung to a USD123.3 million pretax loss in the first half of 2015 from a USD589.4 million profit a year before, when it had booked a one-off gain. Revenue came in at USD86.5 million compared to nil a year earlier.
Cineworld Group is up 3.8% after the cinema operator posted a big jump in pretax profit in the 26 weeks ended July 2 to GBP46.8 million from GBP13.9 million in the same period the year before. Revenue grew 22.5% to GBP329.1 million from GBP268.6 million.
Cineworld said that it saw a "satisfactory" increase in admissions, box office revenue and retail sales, with the most successful titles released being 'Fifty Shades of Grey', 'Fast and Furious 7', and 'Jurassic World', all of which broke box office records. It added the second half release slate looks strong, with 'Star Wars: Episode VII', 'Hunger Games: Mockingjay Part' and the next Bond film 'Spectre' coming up.
In AIM, Independent Oil & Gas is up 7.8% after it said it has been given extra time to try to pull together a financing package to allow the company to complete its acquisition of a stake in, and to fund the work programme for, the Skipper licence offshore the Shetland Islands in the UK.
Aside from the US data, still ahead in the economic calendar is the release of the European Central Bank's minutes of last month’s monetary policy meeting at 1230 BST. Greece's parliament also is expected to vote on the terms of its third bailout later Thursday.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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29 Jan 2016 08:32
