LONDON MARKET CLOSE: Stocks End Up, Pace Surges After Agreeing Deal

LONDON (Alliance News) - London's main stock indices ended higher Thursday, shrugging off more weak economic data from China, while Pace was the standout performer as it agreed to be acquired by US broadband network equipment maker Arris Group Inc for GBP1.4 billion in a cash and shares, the latest so-called inversion deal that will see Arris domicile in the UK to take advantage of lower taxes.

The FTSE 100 closed up 0.4% at 7,053.67, while the FTSE 250 ended up 0.3% at 17,682.73 and the AIM All-Share index finished up 0.2% at 750.98.

Both the FTSE indices opened higher, but quickly moved into negative territory as Purchasing Managers' Index readings from Europe missed expectations. However, the London market moved higher once more after UK public sector net borrowing data showed a decrease.

"Markets were initially happy to shake off the decline in the HSBC manufacturing Purchasing Managers' Index from China because despite falling to a one year low and deeper into contraction territory, the People’s Bank of China remains very active and this will only encourage it to cut interest rates and the reserve requirement ratio further in the coming months," said Craig Erlam, senior market analyst at Oanda.

The manufacturing sector in China continued to contract in April, at an accelerated pace, the latest flash estimate from HSBC revealed, with a 12-month low PMI score of 49.2. That was in line with forecasts, and it's down from 49.6 in March. The flash manufacturing output index came in at 50.4, down from 51.3 in March. This was the lowest reading in three months.

Asian stocks ended mixed, with the Japanese Nikkei up 0.3% after hitting fresh 15-year highs as a weaker yen continued to boost its exporters, while the Hang Seng was down 0.4% and the Shanghai Composite up 0.4%.

Europe's main stock indices ended lower, with the CAC 40 in Paris down 0.6% and the DAX 30 in Frankfurt down 1.2%.

Germany's private sector growth moderated at the start of the second quarter, survey data from Markit Economics showed, due to slower growth at both manufacturers and service providers that was attributed to a weaker rise in new orders and increased prices. The flash composite output index fell to 54.2 in April from an eight-month high of 55.4 in March, although the latest reading was still the second-strongest since last September. The services PMI dropped to 54.4 in April from 55.4 in March, below the expected score of 55.5, while the manufacturing PMI fell to 51.9 from 52.8 in March, below economists' forecasts for a rise to 53.

Overall eurozone private sector growth pulled back from March's 11-month high in April. The slowdown reflected weaker rates of expansion in France and Germany, which offset accelerating growth in the rest of the region to the fastest since August 2007. The Eurozone services PMI declined to 53.7 in April from 54.2 in March, missing forecasts for a rise to 54.5, while the manufacturing PMI dropped to 51.9, from 52.2 a month ago and missing expectations for an improvement to 52.6.

Meanwhile, two weeks ahead of the UK General Election, public sector net borrowing showed a year-on-year decrease. In the financial year to the end of March 2015, borrowing totalled GBP87.3 billion, a decrease of GBP11.1 billion compared with the previous financial year. This was below the Office for Budget Responsibility's budget forecast of GBP90.2 billion and the GBP98.5 billion shortfall seen in 2013-14.

"The improving economy is the Conservative's key message in this year's general election, and today's public sector net borrowing figures have given the Tories a boost with just two weeks to go," said Dennis de Jong, managing director at UFX.com.

UK retail sales declined for the first time in six months in March on petrol sales. Data from the Office for National Statistics showed an unexpected drop of 0.5% month-on-month in March, missing expectations of a 0.4% rise and February's growth of 0.7%. Year-on-year sales grew 4.2% but also fell short of the forecast for a 5.4% rise and February's growth of 5.7%.

The pound initially dropped against the dollar following the release of the UK retail sales data, hitting a low of USD1.4958, but sterling recovered after disappointing economic data from the US then weighed on the dollar. When the European equity markets closed, the pound was trading at USD1.50252

First-time claims for US unemployment benefits modestly increased in the week ended April 18, according to a report released by the Labor Department. The report said initial jobless claims edged up to 295,000, an increase of 1,000 from the previous week's unrevised level of 294,000. The modest uptick came as a surprise to economists, who had expected jobless claims to dip to 290,000.

Separately, US new home sales pulled back by much more than expected in March, data from the Commerce Department showed. The report said new home sales plunged 11.4% to an annual rate of 481,000 in March after jumping 5.6% to a revised rate of 543,000 in February. Economists had expected new home sales to drop to an annual rate of 518,000 from the 539,000 originally reported for the previous month.

When the European equity markets closed, Wall Street was flat to lower, with the DJIA down 0.1%, and the S&P 500 and Nasdaq Composite both flat.

Mining stocks were the amongst the best performers in London, with the FTSE 350 mining sector index up 2.6%. Antofagasta, up 1.8%, Anglo American, up 4.7%, Rio Tinto, up 3.3%, BHP Billiton, up 2.3%, were four of the best six performers in the FTSE 100.

Antofagasta Thursday afternoon said it sold its water division, Aguas de Antofagasta, to Empresas Públicas de Medellín for CLP596 billion, or about USD960 million, in a move that sharpens the company's focus on its mining activities and on development projects it wants to advance.

Meanwhile, Anglo American reported a rise in iron ore, platinum and diamond production in the first quarter and reiterated its full-year guidance across all of its segments bar diamonds, despite copper and nickel production falling and coal giving mixed results.

In the FTSE 250, shares in TV set-top box maker Pace rocketed 37% after the company agreed to be acquired by Arris Group, the latest so-called inversion deal that will see Arris domicile in the UK to take advantage of lower taxes.

Under the terms of the deal, Pace shareholders will receive GBP1.325 in cash and 0.1455 of a Arris share for each Pace share, making a total consideration of GBP4.265 per share, a 28% premium to Pace's closing price on Tuesday. Shares in Pace ended at 455.65p after hitting a 13 month high.

Analysts had expressed some concern about Pace's future, as TV viewers start increasingly switching to online streaming of programmes and films rather than watching via set-top boxes.

"Pace's core consumer premise equipment business faces an uncertain outlook around the longevity of set-top boxes and more intelligence going to the cloud, reducing in-home capex. This offer crystallizes value for Pace shareholders," said Liberum analyst Eoin Lambe.

William Hill ended down 3.0% after it reported a drop in operating profit in the first quarter of 2015 during what the company said has been a slow start to the year, following its largest-ever loss-making week in sports betting in January. The bookmaker reported a 19% decline in operating profit to GBP16 million in the quarter ended March 31, which it said was also hit by a GBP20 million cost from the point of consumption tax and an increased rate of Machines Games Duty.

In the corporate calendar Friday, AstraZeneca releases first quarter results, while Pearson and Phoenix Group Holdings issue first quarter interim management statements. Reckitt Benckiser Group publishes a first quarter interim statement, while Record and Spectris issue trading statements.

In the economic calendar, the Eurogroup meeting starts in Riga, Latvia, while the German IFO business climate index is due at 0900 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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