LONDON MARKET CLOSE: Stocks Up As Dollar Hit By Weak US Economic Data

LONDON (Alliance News) - Having fluctuated between gains and losses, the FTSE 100 closed higher Friday, with corporate earnings in focus, while the dollar fell against other major currencies after some weak economic data.

The FTSE 100 closed up 0.4% at 6,696.28 and up 2.7% on the month following a heavy fall in June. The FTSE 250 ended up 0.9% at 17,677.40 and the AIM All-Share closed up 0.1% at 751.16.

European indices also closed higher. The CAC 40 in Paris closed up 0.7% and the DAX 30 in Frankfurt ended up 0.5%.

On Wall Street at the London close, the DJIA was trading up 0.1%, the S&P 500 was up 0.2% while the Nasdaq Composite was up 0.4%.

The dollar fell sharply against other major currencies after US employment cost index, which measures the change in the price of labour, defined as compensation per employee hour worked, grew by only 0.2% in the second quarter, missing expectations of a 0.6% increase. The index grew 0.7% in the first quarter.

Further weighing on the dollar was lower-than-expected consumer sentiment in July, according to a report released by the University of Michigan. The report said the consumer sentiment index for July was downwardly revised to 93.1 from the mid-month reading of 93.3. With the downward revision, the index was even further below the final June reading of 96.1. It also came as surprise to economists, who had expected the index to be upwardly revised to 94.1.

Richard Curtin, the survey's chief economist, said, "A disappointing pace of economic growth was the main reason for the small decline in consumer confidence."

"Nonetheless, the data provide no indication of a break in the prevailing positive trend," he added. "Indeed, the Sentiment Index has averaged 94.5 since December 2014, the highest eight month average since 2004."

The Chicago purchasing managers' index provided the only piece of positive news for the dollar, after showing better than expected growth following two months of contraction. MNI Indicators said the PMI reading jumped to 54.7 in July from 49.4 in June, with a reading above 50 indicating growth in regional business activity. Economists had expected the index to show a more modest increase to 50.5.

Before the data the pound traded the dollar at USD1.5573, but then after shot up to a high of USD1.5678. The euro was similarly supported against the greenback, going from USD1.0971 to a high of USD1.1114.

The dollar's fall boded well for commodity prices, particularly the price of gold, which leapt from USD1,083.30 an ounce to a high of USD1,103.30 an ounce.

However, oil prices remained under pressure after a Reuters survey found that the Organisation of the Petroleum Exporting Countries oil output reached the highest monthly level in recent history in July, as key members continue to focus on defending market share instead of prices.

The latest boost from OPEC led to excess supply in the market. Hence OPEC believes the significant rise in demand will happen in the second half of the year and in 2016.

Brent oil hit a low of USD52.47 a barrel, while West Texas Intermediate fell to a low of USD47.38 a barrel. BP closed as one of the worst performers in the FTSE 100, down 1.4%, while travel stocks Carnival, up 5.2% and TUI Group, up 2.9% were amongst the best.

Rolls-Royce closed as the biggest gainer on the FTSE 100, up 5.9%. This builds on a 2.6% gain Thursday after it reported well-received interim results. The Financial Times reported Friday that San Francisco-based activist hedge fund ValueAct has become the Rolls-Royce's top shareholder. According to the FT, the activist hedge fund said in a regulatory filing that it has built a 5.4% stake in Rolls Royce.

ValueAct is known for pressing management teams from behind the scenes to refocus their companies, the paper reports, adding that Rolls Royce said it would be meeting with the hedge fund in the coming weeks.

Also amongst the gainers was ITV, which closed up 3.4% after Liberty Global increased its stake in the broadcaster. Liberty acquired a further 138.7 million shares in ITV, increasing its total holding to 398.5 million shares or 9.9%.

Lloyds Banking Group ended as the worst performer, down 2.4% as the payment protection insurance scandal continues to cost the bank. Lloyds said it took a "disappointing" GBP1.4 billion provision for PPI in its first half, bringing the bank's total provision to GBP13.4 billion, as PPI complaint volumes were above expectations in the half, Lloyds said, with claims management blamed for encouraging the continuing claims.

Although customers are able to make PPI claims, a number of companies have sprung up to guide them through the process, taking a cut of any compensation paid.

Lloyds said it may have to top up its PPI provision in future quarters, as its current provision covers its "best estimate" of future costs. The bank said it is assuming that complaint volumes will significantly decrease over the next year and a half, and warned it would take an additional GBP1.0 billion provision at the end of 2015 if that decline is delayed by six months and complaints remain at levels seen in the first half of 2015. It would then take a "similar level" for each six months of flat complaint volumes in 2016.

Aside from PPI provisions the bank declared its second dividend since the financial crisis as it reported higher profit in the first half, raised its guidance for 2015, and said it will consider returning surplus capital to shareholders in future.

InterContinental Hotels Group ended down 1.6%. The company late Thursday said it is not in talks with US hotel group Starwood Hotels & Resorts Worldwide Inc about a merger, in a statement after the market close in response to recent market speculation. "The board of directors of IHG states that it is not in talks with Starwood with a view to a combination of the businesses," IHG said.

The two companies have been the subject of frequent rumours in recent months, with IHG thought to be facing investor pressure to consider a tie-up. Jefferies, in an April note, said IHG, with its brands and geographic mix, would fill a strategic gap for Starwood.

JD Sports Fashion ended up 7.8%, the best performer in the FTSE 250. The retailer said it anticipates beating market expectations for the full year, after the group said trading remained strong in its business in the first half of the year.

JD said like-for-like sales in the half year to August 1 have been ahead of its expectations, though the group has seen its margins squeezed by the weakness of the euro. But assuming its current performance continues, JD Sports said it expects its headline pretax profit for the full year will be around 10% ahead of the current market consensus of GBP110 million.

Essentra ended as the worst performer in the FTSE 250, down 5.1%. The plastic and fibre products company said its pretax profit fell in the first half of 2015 thanks to exceptional costs it booked in the period, but revenue surged on the back of the acquisition of Clondalkin Specialist Packaging.

Pretax profit for the company fell to GBP45 million from GBP49 million a year earlier, thanks to one-off costs Essentra booked, primarily related to the acquisition of Clondalkin. Revenue rose to GBP550.4 million in the half, up from GBP431.1 million, because of the Clondalkin acquisition, as like-for-like revenue growth came in at 1.1%.

In the economic calendar on Saturday there is Chinese manufacturing PMI at 0100 BST and non-manufacturing PMI at 0200 BST. On Monday China is in focus again with the Caixin manufacturing PMI at 0245 BST, just after Nomura/JMMA manufacturing PMI for Japan. After the London open, there are Markit manufacturing PMI readings from France at 0850 BST, Germany at 0855 BST, the eurozone at 0900 BST the UK at 0930 BST and the US at 1445 BST. There is US personal income, consumption and expenditure data at 1330 BST. There is also Institute for Supply Management manufacturing PMI at 1500 BST, alongside US construction spend.

In the UK corporate calendar, the only scheduled FTSE 100 release comes from HSBC Holdings, which releases half-year results at 0500 BST on Monday. At 0700 BST, there are half-year results from Trinity Mirror, Intertek Group, Esure Group, Keller Group, Fidessa Group, Ultra Electronic Holdings, and Telit Communications.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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