LONDON MARKET COMMENT: Miners Up, Tobacco Stocks Down In Weak Close

LONDON (Alliance News) - The FTSE 100 ended down Tuesday, despite a strong performance from the mining sector, as the pound rose on upbeat UK economic data and the Greek debt negotiations continued to weigh upon investor confidence.

The large-cap UK index ended down 0.4% at 6,928.27. The mid-cap FTSE 250 closed flat at 18,220.31. The AIM All-Share finished down 0.1% at 775.40.

European major indices also failed to close in the green, with the CAC 40 in Paris down 0.4% and the DAX 30 in Frankfurt down 0.9%.

Greece remained top of mind for European and UK markets Tuesday, after Monday's meeting of German Chancellor Angela Merkel, French President Francois Hollande and European Commission President Jean-Claude Juncker to discuss the Greek debt issue, as well as European youth employment and a new energy policy. The meeting came ahead of Greece's looming deadline for a EUR300 million payment to the International Monetary Fund on Friday.

European Central Bank President Mario Draghi and IMF Managing Director Christine Lagarde also took part.

On Tuesday, European Commissioner for Economic and Monetary Affairs Pierre Moscovici told France Inter radio in an interview that serious progress was being made at last in the negotiations between Greece and its creditors to find a solution before the June 5th deadline.

However, Eurogroup Chairman Jeroen Dijsselbloem said it is "not even theoretically possible" for Greece's lenders to resume support this week while discussions on its economic reforms are ongoing, Reuters reported.

Speaking to Dutch broadcaster RTL, Dijsselbloem said Tuesday that "even if the institutions in Greece reach an agreement this week it would have to go through the Eurogroup...So, even theoretically, it isn't possible this week" for payments to resume, Reuters said.

Elsewhere, Greece's state-backed ANA/MPA news agency cited a statement from the government denying the receipt of any draft agreement from the creditors or having any recent contact with them. That was in response to German media reports that claimed a draft of a final proposal had been sent to Athens.

If Greece and its creditors fail to reach a deal this month, it could trigger a Greek default that may result in the imposition of capital controls and pave the way for the exit of the country from the Eurozone.

The euro rose against its major trading partners after a report showed inflation in the eurozone region accelerated faster than expected and turned positive for the first time in six months. The preliminary reading of the harmonized index of consumer prices rose 0.3% year-on-year in May, faster than the 0.2% growth expectation and the flat reading seen in April.

Core consumer prices, which excludes volatile components such as food, energy, alcohol and tobacco, rose 0.9% year-on-year in May from a 0.6% rise in April. Economists had expected core prices to edge up 0.7%.

The euro was trading against the dollar at USD1.1120 when European markets closed.

The pound also rose against the dollar following better-than-expected economic data. UK mortgage approvals increased to a 14-month high in April, the Bank of England said. The number of mortgages approved for house purchases rose by more than expected to 68,076 in April from 61,945 in March. This was the highest level since February 2014. It was forecast to increase to 63,500.

The Markit construction purchasing managers' index for the UK also surprised to the upside, coming in at 55.9 in May, recovering some of the lost momentum in April when the number fell to a 22-month low of 54.2. May's reading surpassed expectations of a rise to 55.0, and was well above the 50.0 level which marks an expansion.

The pound later was given a further boost as the dollar weakened after a report showing US factory orders fell by more than estimated in April. Data from the US Department of Commerce showed that durable goods orders declined 0.4% on month in April, following an upwardly revised increase of 2.2% in March. Economists had been expecting a decline of 0.1%.

When the European markets closed, the pound stood at USD1.5318. Wall Street was lower, with the DJIA, S&P 500, and Nasdaq Composite indices all down 0.2%.

On the London Stock Exchange, miners were the best blue-chip performers. Antofagasta led the FTSE 100 index, up 3.2%, while Anglo American ended up 2.6%, Rio Tinto up 2.4%, and BHP Billiton up 0.7%.

Wolseley shares added 2.0%. The building products company said it expects to meet analysts' expectations for its trading profit in the current financial year after reporting strong growth in the third quarter of the year, driven by like-for-like sales growth, acquisitions, and an exchange rate boost.

Meanwhile, tobacco giants British American Tobacco, down 2.4%, and Imperial Tobacco Group, down 2.9%, were amongst the worst performers in the FTSE 100. BAT confirmed that its Imperial Tobacco Canada subsidiary was amongst three companies ordered to pay CAD15.6 billion in a case that has been running for 10 years in which smokers claimed the companies failed to warn them of the risks associated with smoking.

Imperial Tobacco Group is unconnected to Imperial Tobacco Canada, but its shares suffered from industry-wide read-across from the judgement.

On Wednesday, the FTSE Committee will announce its index review decision based Tuesday's closing prices. Aerospace and defence company Meggitt is likely to drop out of the FTSE 100 after a volatile March and a weak share performance in April and May, while satellite communications service provider Inmarsat is set to return to the blue-chip index following a strong run in its shares since the previous index review.

Often, the likely moves become apparent in the days ahead of the index review. However, this time the changes to the FTSE 100, outside of Inmarsat and Meggitt, are too close to call. Wm Morrison Supermarkets, Sports Direct International and Aggreko are amongst the other potential candidates for demotion from the FTSE 100.

In the corporate calendar Wednesday, International Consolidated Airlines Group releases its May traffic statistics, while Dixons Carphone issues a fourth-quarter trading statement. WH Smith also provides a trading statement, and Workspace Group, Quindell, Advanced Oncotherapy, Caffyns and Shires Income publish full-year results. Alternative Networks and EasyHotel release half-year results.

In the economic calendar, Japan's Markit Services Purchase Manager's Index is due at 0235 BST while China's HSBC Services PMI is at 0245 BST. Markit Services PMI readings from Italy is due at 0845 BST, as the likes of Germany, the eurozone and the UK are due at 0855 BST and 0900 BST and 0930 BST, respectively. Eurozone's retail sales are due at 1000 BST, while the European Central Bank decision is expected at 1245 BST. In the US, Markit Services and Composite PMI is due at 1445 BST, while EIA crude oil stocks is due at 1530 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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