Taylor Wimpey Share News (TW.)

LONDON (Alliance News) - Stock indices are lower across the UK and Europe Tuesday, with the fallers being led by the airlines after Air France-KLM became the latest in the sector to issue a profit warning.

Investors are also exercising caution given that the economic data released so far this week has been disappointing. Most recently, data Tuesday has shown that UK manufacturing and industrial production fell in May, which doesn't bode well for hopes of a strong improvement in second-quarter UK GDP.

By mid-morning Tuesday, the FTSE 100 is down 0.5% at 6,788.83.52, the FTSE 250 is down 1.1% at 15,713.75, and the AIM All-Share is down 0.5% at 784.53.

UK industrial production fell by 0.7% month-on-month in May, significantly missing economist expectations for a 0.2% rise, while on a yearly basis production grew by 2.3%, missing expectations for growth of 3.1%. Manufacturing production fell by 1.3% on a monthly basis, also missing the expected 0.4% rise, while on an annual basis manufacturing grew by just 3.7%, compared to the expectation of 5.6% growth.

Berenberg chief UK economist Rob Wood points out that industrial production only accounts for about 15% of the UK economy, but even so, the weaker reading than anticipated poses a downside risk to the bank's second-quarter growth forecasts, which currently stands at 0.9%.

The pound has taken a dip against other major currencies following the disappointing data. Against the dollar the pound has slipped from almost USD1.7150 to a six day low of USD1.7081, while against the euro the pound has slipped from above EUR1.26 to a low of EUR1.2559.

Stock markets in Europe are also lower, with the German DAX 30 down 0.5%, and the French CAC 40 down 0.4%.

Following disappointing German industrial production data on Monday, and recent drops in the ZEW and IFO investor confidence surveys, German trade data was also weaker-than-expected Tuesday, with a drop in both imports and exports recorded in May.

"The German economy is a worrying point for Europe," said Alpari chief market analyst James Hughes. "To put it bluntly, without a strong Germany there is no Eurozone."

As well as worrying about a potential slowdown in Europe's engine of growth, as well as the disappointing UK data, investors are remaining cautious given that the US earnings season is about to kick off in earnest, with the release of second-quarter numbers from one of the worlds biggest aluminium producers Alcoa Inc, later Tuesday. Moreover, markets are awaiting the release of the minutes of the June Federal Reserve policy meeting, due on Wednesday.

Within UK equities, the airlines are leading the fallers, in the wake of a profit warning from Air France-KLM. The Franco-Dutch airline reported a 2.9% improvement in traffic, with a 1.8% increase in capacity for the month of June 2014, but warned that its pretax earnings for the year as a whole could be as much as 12% lower than previously anticipated due to overcapacity on some long-haul routes.

The warning comes just weeks after a similar negative update from the German flay-carrier Lufthansa, and has sent the UK-listed airlines tumbling. Owner of British Airways, International Consolidated Airlines leads the FTSE 100 fallers, down 5.0%, with easyJet not far behind, down 3.4%.

The housebuilders are also underperforming, for the second day in a row. On Monday a relatively positive update from Taylor Wimpey sent the sector lower, and on Tuesday a strong update from Bovis Homes has done the same. Bovis has outperformed the booming UK housing market in the first-half of the year, improving its average selling price by 11%, compared to underlying UK house prices which have gone up by 4% over the same period.

Even so, the market has become used constant forecast upgrades from the housebuilders in recent months, given the supportive underlying market and the government's Help to Buy scheme, and the most recent updates have failed to boost sector sentiment any further. Bovis is down 2.5%, while Crest Nicholson is down 2.9%, Taylor Wimpey is down 1.7%, and FTSE 100-listed Persimmon is down 2.1%.

"The housebuilders are happy to look back at this stage of the year," says Shore Capital analyst Robin Hardy, "although it might be a different story later in the year."

Any support for the UK stock indices is mostly coming from a number of broker upgrades. Barclays has turned positive on the European miners, upgrading its view on the whole sector to Positive from Negative Tuesday. The bank cites China's commitment to a 7.5% growth target, that potentially leading to more stimulus measure, as well as an improving picture in the US economy as catalysts for the sector.

Glencore leads the FTSE 100 gainers, up 0.7%, with Rio Tinto up 0.7%, and Fresnillo up 0.5%.

Aberdeen Asset Management is performing well, up 0.6% after receiving an upgrade to Overweight from Neutral from HSBC.

Still to come Tuesday, although some may now be looking for a negative adjustment following the disappointing UK production data, the National Institute of Economic and Social research is due to release its estimate of UK GDP in the three months to June at 1500 BST. In the three months to May, the NIESR estimated the UK economy to have grown by 0.9%.

From the US Tuesday, the NFBI business optimism index for June is due at 1230 BST, in which analysts are expecting an improvement to 97.3 from 96.6 in May.

After the European market close, Minneapolis Federal Reserve president Narayana Kocherlakota is due to give a speech at 1845 BST, and investors will have a close eye on the start of the US earnings season, market by the release of results from Alcoa Inc.

Futures trading currently indicates that US stocks will open marginally lower, with the DJIA and the S&P 500 both pointing about 0.1% lower.


By Jon Darby; jondarby@alliancenews.com; @jondarby100

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