LONDON MARKET COMMENT: Stocks Close Higher As Pound Gains On Dollar

LONDON (Alliance News) - UK equities closed higher Wednesday, while the pound swayed between gains and losses against the dollar following mixed economic data from the UK and US.

The FTSE 100 closed up 0.2% at 6,949.63 points, the FTSE 250 ended up 1.0% at 17,861.53, and the AIM All-Share closed up 0.4% at 759.91.

In Europe, the French CAC 40 closed down 0.3% and the German DAX 30 closed down 1.1%. GDP and inflation data from the eurozone on Wednesday was mixed, with French GDP beating expectations while German economic growth fell just short.

On Wall Street at the London close, the DJIA was down 0.1%, the S&P 500 was marginally lower, and the Nasdaq Composite was up 0.1%.

The pound oscillated against the dollar throughout the London equities trading day, first rising on better-than-expected UK wage and unemployment data, then falling on the Bank of England's quarterly inflation report, before finally rising again as US retail sales missed expectations. At the London close, the pound traded higher at USD1.5726.

Data from the Office for National Statistics showed that UK unemployment declined to the lowest since 2008 during the first quarter of 2015 and average earnings increased by more than expected. The ILO jobless rate came in at 5.5% during January to March period compared to 5.7% in October to December quarter. The rate was in line with expectations.

Furthermore, average earnings including bonuses increased 1.9%, faster than the expected increase of 1.7% during the quarter. Excluding bonuses, pay for employees climbed 2.2%.

However, the pound's gains from the strong jobs data were quickly wiped out after the Bank of England downgraded its UK growth forecast for this year and signalled interest rates will stay at their current record low until next year. The central bank forecasts the UK economy will expand 2.5% in 2015, down from the prior projection of 2.9%.

"This appears to endorse the very doveish positioning already held by investors. Of course, what we know about central bank forecasting is that it has been temperamental at best. Investors and businesses should expect further forecast changes in August's report and, we suspect, a more hawkish tone," said Guy Foster, head of research at Brewin Dolphin.

Bank of England Governor Mark Carney also said he expects inflation to pick up towards the end of the year, and go back to bank's 2% goal within two years.

The dollar later fell against the pound, and other major currencies, as US retail sales came in below expectations in April. The report from the Commerce Department showed that retail sales were flat in April following an upwardly revised 1.1% increase in March. Economists had expected retail sales to edge up by 0.2%. Excluding a modest decrease in auto sales, retail sales inched up by 0.1% in April after climbing by 0.7% in March. Ex-auto sales had been expected to rise by 0.5%.

US stock initially rose on hopes the retail sales miss will encourage the Federal Reserve to delay raising US interest rates, but later gave up those gains on disappointment in the figures themselves, noted Connor Campbell, financial analyst at Spreadex.

"The ol' 'good news as bad news, bad news as good news' conundrum the US markets are operating under shows no signs of letting up any time soon and is contributing to the overall erratic nature of the markets, making it hard for investors to trade effectively," Campbell said.

In London, Mondi closed easily as the best performer in the FTSE 100, up 8.9%. The Anglo-South African paper and packaging company reported a 29% increase in operating profit excluding exceptional items in the first quarter of 2015, driven by higher volumes and lower input costs across most of Europe, strong contributions from capital projects and acquisitions, and higher selling prices in Russia and South Africa.

It said its underlying operating profit in the three months to end-March, which excludes what it terms as special items, was EUR236 million, up from EUR183 million a year earlier, and up 9% from EUR216 million in the fourth quarter of 2014.

Housebuilder Barratt Developments, closing up 3.4%, said it remains on track to report a significant improvement in its results in the year to end-June, as it expects housing completions to be ahead of previous guidance and as it reported an 18% increase in total forward sales by May 10.

It said it now expects housing completions for the year to June 30 to be about 16,100, up from 14,838 in its last financial year, and it said forward sales including joint ventures stood at GBP2.59 billion as of May 10, up from GBP2.20 billion on May 11, 2014.

Jefferies analyst Anthony Codling said Barratt's strong trading statements will provide a strong read across to the rest of the UK housebuilders.

"We suspect that 'Help to Buy' has given the new build sector a comparative advantage as we note that overall housing transactions have fallen so far in 2015 reflecting a more normal election year pattern," Codling said.

Fellow housebuilders Persimmon, up 3.6%, Taylor Wimpey, up 2.3%, and Crest Nicholson Holdings, up 3.9% were amongst Wednesday's gainers.

Compass Group, down 3.8% closed as the worst FTSE 100 performer. The catering company reported a rise in profit in the first half of its financial year, boosted by strong sales in North America and the emerging markets. It reported a 4.9% rise in pretax profit for the six months to March 31 to GBP621 million, while its organic revenue grew 5.7% to GBP8.9 billion. However, Chief Executive Richard Cousins warned about the economic environment in some of its emerging markets.

Precious metals miners saw their share prices rise as the price of gold surpassed the USD1,200 an ounce line amid the fall in the dollar. The yellow metal price spiked in late London trade to USD1,218.50 an ounce.

Fresnillo, up 5.1%, and Randgold Resources up 3.0% were amongst the best performers in the FTSE 100. In the FTSE 250, Acacia Mining closed up 6.0%, and Centamin rose 5.5%.

Centamin also posted Wednesday a year-on-year rise in revenue, earnings, pretax profit and production in the first quarter of 2015, although all the measures were down quarter-on-quarter. The company reported a pretax profit of USD28.6 million in the three months to end-March, up from USD20.6 million a year earlier.

On AIM, PeerTV shares closed up 6.7%, having rise by more than 50% at one point, after it said it is partnering with a "major streaming media platform service provider". PeerTV said the partner tested its quad core 4.4 Android based Set Top Box for more than three months before deciding to offer it as its preferred set top box choice to its customers.

In a lighter economic calendar Thursday, the US producer price index is at 1330 BST, along with initial and continuing jobless claims. US EIA Natural Gas stocks are at 1530 BST.

In a busy UK corporate calendar Thursday, there are full-year results from FTSE 100 constituents 3i Group and British Land Co, while Aggreko, ITV, Old Mutual, and Merlin Entertainments release interim management statements. Vedanta Resources and TalkTalk Telecom Group report full-year results, while Mitchells & Butlers, Grainger, Marston's and Euromoney Institutional Investor provide half-year results.

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

Copyright 2015 Alliance News Limited. All Rights Reserved.