LONDON MARKET MIDDAY: Pound Rises After Strong UK Core Inflation Print

LONDON (Alliance News) - UK stocks indices were posting broad gains midday Tuesday continuing to show resistance in the aftermath of the Paris attacks.

The pound also jumped higher after UK core consumer price inflation showed a modest improvement in October. Data from the Office for National Statistics showed that UK core inflation, which excludes energy, food, alcoholic beverages and tobacco, accelerated to 1.1% year-on-year in October. It was forecast to match the September reading of a 1.0% rise.

Headline consumer prices decreased 0.1% from a year ago, the same rate of decline as seen in September and in line with expectations. Month-on-month, consumer prices gained 0.1%, offsetting a 0.1% fall in September.

Investec economist Chris Hare said while this was the second consecutive negative inflation reading, it does not necessarily indicate a persistent deflationary episode for the UK.

"That is because low inflation largely reflects transitory factors, namely, falls in oil prices at the turn of this year, and falling import prices caused by strength in trade-weighted sterling (up more than 10% over the past two years)," the analyst said.

"Crucially, falls in energy prices really began to intensify in October 2014, so base effects should allow the annual inflation rate to start rising materially above zero very soon," Hare added.

At midday the pound traded the dollar at USD1.5202 having been priced at USD1.5153 before the UK inflation data.

The FTSE 100 index traded up 1.8% at 6,256.77 points, the midcap FTSE 250 index was up 1.2% at 17,041.51 and the AIM All-Share was up 0.3% at 730.28.

In Europe, the CAC 40 index in Paris was up 2.3% and the DAX 30 in Frankfurt was up 1.9%.

The DAX was helped by a stronger-than-expected economic confidence index reading from the Mannheim-based Centre for European Economic Research, or ZEW.

The investor sentiment index rose notably to 10.4 points in November from 1.9 points in October. It was well above the expected score of 6. The indicator has improved for the first time following seven consecutive declines.

Wall Street was set to continue from the its strong performance on Monday. Ahead of the open Tuesday, futures point the DJIA, S&P 500 and Nasdaq 100 all up 0.4%.

The focus for the US is consumer price inflation readings, which are expected at 1330 GMT, with industrial production and capacity utilization data at 1415 GMT.

US CPI is expected to show an annual increase of 0.1% in October, slightly higher than the flat print recorded in September. Craig Erlam, senior market analyst at Oanda, said that whilst the consumer price index is not the US Federal Reserve's preferred measure of inflation, it should not be underestimated.

"It is still one of the earliest indicators of inflation that we get and could give an important indication of what we can expect from the core personal consumption expenditure price index – the Fed's preferred measure," the analyst said. The next reading of that inflation gauge is on Tuesday next week.

Also in the economic calendar, US Federal Reserve Governor Daniel Tarullo is scheduled to speak after the UK equity market close at 2030 GMT.

In the FTSE 100, Smiths Group was the best performer, up 8.7%. The engineer said it had a resilient first quarter as the diversity of its operations helped to offset some tough trading in the oil and gas markets, which dragged on revenue in its John Crane energy services business.

The company, which has operations spanning energy services, medical devices and security sensors, said underlying, constant currency revenue declined 4.0% in the first quarter to the end of October, though its group operating margin was broadly flat year-on-year.

Accendo Markets' research analyst Augustin Eden suggested the stock also may be supported by the increased global vigilance to fighting terrorism following the Paris attacks last week.

"[Smith Group]'s capability in threat and contraband detection is likely to be in ever increasing demand," Eden said.

EasyJet was the biggest of a small handful of fallers in the FTSE 100, down 4.3%. The budget carrier reported growth in profit in its recently-ended financial year as revenue rose and it carried more passengers than in the prior year, while it said the long-term outlook for the business is positive.

EasyJet said pretax profit in the year ended September 30 grew 18% to GBP686 million from GBP581 million the year before, as revenue rose 4% to GBP4.68 billion from GBP4.52 billion. Profit was in line with the company's guidance of between GBP675 million and GBP700 million, though short of consensus around GBP695 million.

EasyJet said passengers increased 6% in the year to 68.6 million, with a record load factor in August of 94.4%. Annual load factor increased by 0.9 percentage point to 91.5%. easyJet will pay a total dividend of 55.2 pence per share for the year, a 22% increase on the 45.4p it paid the prior year.

KAZ Minerals was one of the best performers in the FTSE 250, up 7.5%. The copper miner said it has reached an agreement with its main construction contractor on the Atkogay project to defer payment of USD300.0 million.

Under the revised terms of its agreement with Non Ferrous China, the USD300.0 million in construction costs that had been due to be paid in 2016 and 2017 will now be settled in 2018. There is no change to the overall budget of the project or the total amount payable to the contractor.

Specialty chemicals company Bodycote maintained its full-year profit guidance but said its markets remain challenging and are likely to stay that way in the near term.

It said group revenue was down 9.7% in the four months to the end of October, with revenue from its aerospace, defence and energy business declining 11% and automotive and general industrial revenue down 8.8%. The group added its restructuring programme is on track and said it will accelerate its greenfield investment programme, which will drive up start-up costs for the company in 2016. Shares in the company traded up 7.7%.

Discount retailer B&M European Value Retail was the biggest faller in the midcap index, down 4.2%. The company said it swung to a profit in the first half of its financial year while growth in revenue was boosted by new store openings.

It made a GBP66.7 million pretax profit in the 26 weeks ended September 26, having suffered a GBP16.5 million pretax loss in the same period the year before as it was hit by higher finance costs which did not repeat in the current year. Revenue rose by more than a quarter to GBP930.3 million from GBP739.8 million. B&M will pay an interim dividend of 1.6 pence per share, a 78% increase on the 0.9p it paid the prior year.

CDialogues was the worst performer in the AIM All-Share index, down 54%, after it said its revenue in the third quarter was hit by weaker performances from certain projects, leaving it set to deliver full-year results below market expectations.

The mobile marketing company said its revenue in the quarter to the end of September was weaker than in the first two quarters of 2015, while monthly revenue in October and November has been broadly flat on the lower September numbers. These trends are likely to continue until the end of 2015, the company said.

Havelock Europa, down 36%, said it has been informed by its largest client in the financial services sector that it will be substantially cutting its refurbishment and development spend in 2016. Due to this anticipated sales reduction, the furniture and interior services company expects revenue from this client to be "negligible" in 2016 and its revenue for next year will take a "material hit" from the changes.

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

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