LONDON MARKET COMMENT: Stocks Lower As UK GDP Misses Expectations

Tue, 28th Apr 2015 09:42

LONDON (Alliance News) - UK shares are lower mid-morning Tuesday, giving up Monday's gains, as Standard Chartered reported a drop in pretax profit and the last GDP reading ahead of the UK General Election missed expectations.

The FTSE 100 is down 0.8% at 7,046.84, with only 13 stocks in the green, after reaching a new intraday high at 7,122.37 on Monday. The FTSE 250 is down 0.5% at 17,694.09, while the AIM All-Share is down 0.1% at 754.77.

European indices also are trading lower, with the CAC 40 in Paris down 0.9% and the DAX 30 in Frankfurt down 0.6%.

UK economic growth slowed more than expected in the first quarter, preliminary estimate published by the Office for National Statistics revealed Tuesday.

Gross domestic product expanded 0.3% sequentially during January to March period, the slowest growth since the fourth quarter of 2012. The growth rate was forecast to slow to 0.5% from 0.6% logged in the fourth quarter of 2014. Output of the dominant service sector gained 0.5%, while construction and production declined 1.6% and 0.1%, respectively. Agriculture output was down 0.2%.

Year-on-year, GDP advanced 2.4% in the first quarter, slower than the expected increase of 2.6%.

The pound declined to USD1.5172 following the UK GDP release, but recovered shortly after. The sterling currently trades at USD1.5228.

Standard Chartered shares are trading down 0.9% after the emerging markets bank reported a 22% drop in first quarter pretax profit, due to pressure on operating income and higher charges for bad loans.

The bank, which is focused on Asia, Africa and the Middle East, said it made a USD1.47 billion pretax profit in the quarter ended March 31, compared with USD1.88 billion in the corresponding quarter of the prior year. The income statement excludes own-credit adjustments.

Operating income fell to USD4.40 billion from USD4.57 billion, while operating expenses edged up to USD2.47 billion from USD2.45 billion. More importantly, charges for loan impairments increased to USD476 million from USD265 million.

Pharmaceutical stocks are amongst the biggest fallers Tuesday, with Shire down 2.5%, AstraZeneca down 2.1%, GlaxoSmithKline down 1.4%, Indivior down 1.3%.

However, Dechra Pharmaceuticals is up 0.6% after it said Tuesday it remains confident of meeting market expectations for its 2015 financial year following strong trading in the third quarter, though it noted sales have benefited from the phasing of pre-Easter ordering in Europe and competitor stock shortages in the US market.

BP is amongst the biggest gainers in the FTSE 100, up 1.1%, even though it said its pretax profit for the first quarter of 2015 was substantially lower than a year ago after its upstream division was hit by the lowest quarterly oil price since the start of 2009, and reduced activity, partially offset by the downstream division which experienced a lift in earnings.

The oil and gas major reported a pretax profit of USD2.27 billion in the first quarter of 2015, significantly down from USD5.27 billion a year earlier as revenue tumbled to USD54.92 billion from USD92.98 billion as its upstream division took a substantial hit, partially due to lower oil prices and reduced activity. BP said its quarterly dividend will be 10.00 cents per share.

Liberum says BP results beat consensus expectations, and it expects small positive changes to consensus to follow.

Societe Generale intitiated International Consolidated Airlines Group with a Buy recommendation and a price target of 750 pence. However, the British Airways owner is trading down 1.0% at 578.82p.

In the FTSE 250, Kier Group is amongst the biggest gainers, up 1.2%, after the property and construction services company said it has struck a deal to acquire UK-based infrastructure repair and maintenance services company Mouchel in a GBP265 million deal, to be backed by a rights issue.

Allied Minds is one of the worst performers in the mid-cap index, down 1.9%. The US-focused science and technology development and commercialisation company reported a net loss of USD45.5 million for 2014, compared with a loss of USD34.5 million a year earlier, as a rise in both R&D and selling, general and administrative expenses more than offset a rise in revenue to USD7.7 million from USD2.9 million. It also said its founder will step down as chairman and later leave the board.

Outside individual stocks, analysts say investors are already focusing on the US Federal Reserve meeting starting on Wednesday.

"Markets are becoming increasingly cautious as the key Federal Open Market Committee meeting begins to dominate the thoughts of traders. It is notable this time around though that in the past few trading sessions as we approach the meeting, the US dollar has been under a little more pressure this time around," says Hantec Markets analyst Richard Perry.

On Monday, Wall Street failed to sustain an early upward move, which had sent the S&P 500 and the Nasdaq Composite to reach new intraday highs, and closed lower.

US futures point to a lower opening Tuedsay, with the DJIA and the S&P 500 pointed down 0.2% and the Nasdaq 100 seen down 0.1%.

Still in the economic calendar, in the US, the Redbook index is due at 1355 BST and consumer confidence is at 1500 BST.

By Daniel Ruiz; danielruiz@alliancenews.com