LONDON MARKET MIDDAY: Banks Lead Gains Amid Flurry Of PMIs Readings

LONDON (Alliance News) - UK stocks were higher Tuesday midday, with banks leading the gainers following successful stress tests, while Wall Street was called for a positive open, taking back the losses seen on Monday.

The FTSE 100 index was up 0.5% at 6,390.66 points, the FTSE 250 up 0.5% at 17,504.87 and the AIM All-Share up 0.1% at 737.94.

In New York, the Dow 30 and the Nasdaq 100 indices were both seen up 0.5%, while the S&P 500 was pointed up 0.4%.

The pound lost some ground after survey data from Markit showed Tuesday that the UK manufacturing sector growth eased in November from the recent peak achieved in the prior month.

The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index for manufacturing fell by more than expected to 52.7 in November from October's 16-month high of 55.2. The score was expected to decline to 53.5. Nonetheless, a reading above 50 indicates expansion in the sector.

"UK manufacturing is moving back into expansion mode during quarter four, as it starts to reverse the losses sustained in the prior quarter. Although the pace of growth so far is only very modest, it positions manufacturing as less of a drag on the broader economy," said Rob Dobson, senior economist at Markit.

"Robust service sector growth will nevertheless be needed to achieve the 0.6% fourth quarter gross domestic product expansion still required to meet the 2015 growth target outlined in the Chancellor's Autumn Statement," Dobson added.

The pound was quoted at USD1.5094 at midday, having stood at USD1.5122 just before the data.

The euro strengthened to USD1.0597 after data from Markit showed that Eurozone's final manufacturing Purchasing Managers' Index rose to a 19-month high in November of 52.8 from 52.3 in October. The final PMI of 52.8 was in line with an earlier flash reading.

The eurozone unemployment rate declined to its lowest level since early 2012, data from Eurostat showed, dropping marginally to 10.7% in October from 10.8% in September.

France's manufacturing PMI missed economists expectations, coming in at 50.6 in November, after being forecast to remain flat from a previous reading of 50.8. The same from Germany came in slightly better than expected at 52.9 in November after October's 52.6, with economist having expected a reading of 52.6.

Meanwhile, the Federal Labor Agency said Germany's unemployment rate decreased to a record low in November. The jobless rate dipped to 6.3% in November from 6.4% in October. It was forecast to remain unchanged at 6.4%.

The CAC 40 index in Paris and the DAX 30 in Frankfurt were flat, both having closed higher in the last four trading sessions, with investor confidence boosted by expectations of more stimulus from the European Central Bank to be announced in its next meeting on Thursday.

Still in the economic calendar, US manufacturing PMI separate readings from Markit and the Institute of Supply Management are expected at 1445 GMT and 1500 GMT, respectively. Before that, the Redbook index is due at 1355 GMT, while construction spending data are expected at 1500 GMT.

The Bank of England said the UK banking system is strong enough to continue lending in the event of a global economic downturn, although its stress tests showed that Royal Bank of Scotland Group and Standard Chartered had capital inadequacies at the end of 2014.

However, because of actions taken to raise capital since the end of 2014, the BoE's Prudential Regulation Authority did not require either RBS or Standard Chartered to submit revised capital plans. The stress tests did not show capital inadequacies for Barclays, HSBC Holdings, Lloyds Banking Group, Nationwide Building Society, or Santander UK.

The stress tests, which assessed banks' capital strength at the end of 2014, considered the effect of a big slowdown in growth in China and across the globe, as well as plunging commodity prices, deflation in the eurozone and heightened volatility in financial markets.

Barclays was the best blue-chip performer, up 4.0%, while RBS was up 3.3%. Lloyds and HSBC were adding 2.6% and 1.8%, respectively, and Standard Chartered was up 0.7%.

BHP Billiton was up 1.7%, having lost 8% since last Wednesday after a tailings dam owned by its Brazilian joint venture burst, causing 13 deaths. The miner said Tuesday its copper business will gain momentum over the next two years leading to higher production and lower costs across all of its major copper assets, as the company still has a positive outlook on the long-term market despite near-term oversupply issues.

BHP's president of its copper business, Daniel Malchuk, said he plans on lowering BHP's copper unit costs to support strong margin "even at today's prices" whilst also increasing production. Malchuk plans to lower BHP's copper unit costs to USD1.08 per pound of copper in the 2017 financial year and said he aims to grow group copper production to 1.7 million tonnes per year "at very low cost".

To put that into context, BHP received an average price of USD2.78 per pound of copper in the financial year ended June 30, which had fallen from USD3.22 per pound a year earlier - demonstrating the steep drop in copper prices.

Merlin Entertainments shares were up 1.8%. The theme park and attractions operator said trading has remained in line with its expectations and it is on track for the year to December 27, despite continued tough trading in its Resort Theme Parks operating division.

The group, which runs attractions and parks ranging from Legoland to Madame Tussauds and the London Eye, said like-for-like revenue growth for its Legoland Parks division has remained robust in the 47 weeks to November 21, while its Midway Attractions business has seen growth, albeit at lower levels due to challenging markets in London and Hong Kong, which has been offset by strength elsewhere in Asia.

For the Resort Theme Parks operating arm, however, trading at Alton Towers has remained significantly weaker year-on-year, though the year-on-year declines have eased in recent weeks. This comes after the Smiler ride at the park crashed in June, injuring 16 people in total and four seriously.

In the FTSE 250, Petra Diamonds was up 12% after it said it has bought an interest in the Kimberley Mines in South Africa from De Beers Consolidated Mines, in consortium with Ekapa Mining, for around USD7.2 million. Ekapa Mining will have a 50.1% stake in Kimberley Mines, whilst Petra will have a 49.9% stake. Petra will pay around USD3.6 million for its portion of the venture.

Home Retail Group was adding 5.3% after the Financial Times reported that the retail executive responsible for turning around the Garden Centre Group is understood to be preparing a bid to buy the Homebase DIY and garden centre business from Home Retail, the Financial Times reported.

Nicholas Marshall told the FT he has been looking at Homebase for the past couple of years and was holding talks with private equity companies, though no approach has yet been made to Home Retail, which also owns the Argos retail chain.

In the FTSE 250, Sophos Group was down 7.9% to 261.28 pence, making it the worst performer in the index. Pentagon Lock said it sold 60 million shares in Sophos, or around a 13.3% stake, at a price of 265 pence each Tuesday, or a total of GBP159.0 million.

This was a discount to the IT security and software company' closing price on Monday of 283.60 pence. Following the sale the sellers, Pentagon Lock Sarl, Pentagon Lock 7-A Sarl, Pentagon Lock US Sarl, and Pentagon Lock 6-A Sarl, hold an around 21.8% stake in Sophos.

In AIM, Sovereign Mines of Africa saw its shares plunge 70% after the company said talks with a potential partner for the redevelopment of its Mandiana project in Guinea have been suspended. The company said the talks collapsed after approval from the potential partner's board had not been forthcoming in a timely manner.

Sovereign Mines also said it will be undertaking a capital raise which will be done at a price significantly below its current market price. It added, however, that without a capital raise, it will not be able to continue operating

By Daniel Ruiz; danielruiz@alliancenews.com

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