LONDON MARKET OPEN: Commodity Stocks Drive Shares Higher Ahead Of PMIs

Wed, 04th Nov 2015 08:30

LONDON (Alliance News) - UK shares opened up Wednesday, tracking the gains seen in Asian and US stocks with mining and oil companies pushing higher, ahead of a raft of services and composite PMI readings from several European countries and the US.

The FTSE 100 index opened up 0.5% at 6,415.08 points, the FTSE 250 was up 0.3% at 17,238.34, while the AIM All-Share was up 0.2% at 745.88. In Europe, the French CAC 40 index opened up 0.2% but the German DAX 30 was down 0.2%.

Miners were at the top of the blue-chip index, with Glencore up 6.2%, Anglo American up 5.1%, Antofagasta up 2.9 and BHP Billiton up 2.7%.

Multi-commodities miner and trading house Glencore reiterated its full-year earnings guidance and said it aims to have reduced its net debt by up to 15% before the end of the year. Glencore said it aims to have its net debt down to below USD25.00 billion before the end of 2015 and to have net funding of around USD40.00 billion.

The miner has been trying to reduce its USD30.0 billion debt pile in an attempt to make the company more competitive in light of lower commodity prices and tougher trading conditions. It announced debt reduction plans in September to save more than USD10.00 billion in cost savings through a capital raising, asset disposals, suspending its dividend, working capital reductions and other measures.

The company also reiterated its full-year guidance to produce earnings before interest and tax of USD2.50 to USD2.60 billion from its marketing division for the full year. Its marketing division is its huge trading arm for commodities around the globe.

Meanwhile, Marks & Spencer was another riser, up 3.7%. The clothing, food and homewares retailer reported a drop in profit in the first half of its financial year, but a slight rise in sales at its food business once again outperformed the weaker general merchandise division.

M&S said pretax profit in the 26 weeks ended September 26 fell 23% to GBP216.0 million from GBP279.4 million the year before, although revenue grew 1.0% to GBP4.95 billion from GBP4.90 billion. It said its food business delivered sales growth of 3.3%, offsetting a 0.4% decline in general merchandise, but profit was hit by a GBP68.0 million net charge, having benefited from a GBP11.8 million net credit the prior year.

Shop prices in the UK were down 1.8% on year in October, the British Retail Consortium and Nielsen said on Wednesday, following the 1.9% contraction in September. Food prices were down 0.4% on year in October, spurred by a 1.0% decline in fresh food prices, after dipping 0.5% in September. Non-food prices tumbled an annual 2.7%.

Oil-related stocks were also in the green, after Brent oil prices rose above the USD50 line. Brent oil was at USD50.20 a barrel Wednesday morning after it started a rally on Tuesday, standing at USD49.75 at the London close.

Royal Dutch Shell 'B' was up 1.1%, BG Group up 1.0% and BP was up 0.8%. In the FTSE 250, Ophir Energy was up 2.5%, Carin Energy was up 2.2% and Premier Oil up 2.1%.

On the economic front, services and composite Purchasing Manager's Index readings for October from several European countries and the US are likely to grab market attention.

The French services and composite PMIs are due at 0850 GMT, with the German equivalent at 0855 GMT and the eurozone readings follow at 0900 GMT.

After that, the latest UK services PMI reading is expected at 0930 GMT. According to FXStreet.com, economists' expectations are for the reading to increase to 54.5 in October, having come in at 53.3 in September.

Jonathan Thomas, senior economist at Lloyds Bank, said that, though the services index and most of its underlying components softened sharply in the third quarter on the back of global growth fears, its 53.3 September reading remained consistent with a solid pace of activity.

He added that the "relatively strong employment balance suggested that firms remained upbeat about medium-term prospects," saying he has forecast the UK services PMI index to come in at 54.0.

Meanwhile, CMC Markets chief market analyst Michael Hewson said he believes that, "given some of the resilience seen in some of the retail data for October, we could well see an improvement in October to 54.6 from 53.3 [in the services PMI]".

Asian stocks reacted positively after services PMI readings from China and Japan released overnight. The Nikkei 225 index in Tokyo closed up 1.3%, after being closed on Tuesday for a holiday. Meanwhile, the Shanghai Composite index ended up 4.3%, while the Hang Seng in Hong Kong closed up 2.2%.

China's services PMI rose to 52 in October from a 14-month low of 50.5 in September. Meanwhile, the services sector in Japan continued to expand in October, with a PMI score of 52.2, above the previous reading of 51.4 seen in September.

Besides, Japan's consumer confidence index rose to 41.5 in October from 40.6 in September, while economists had expected the index to increase slightly to 40.8.

Wall Street ended higher Tuesday, with the Dow 30 up 0.5%, the S&P 500 up 0.3% and the Nasdaq Composite up 0.4%.

Also in the economic calendar, Producer Price Index data for the eurozone is set to be published at 1000 GMT. The European Central Bank's non-monetary policy meeting started in Frankfurt at 0800 GMT.

In the US, the Mortgage Bankers Association releases its MBA mortgage applications data at 1200 GMT, with employment data from Automatic Data Processing due shortly after at 1315 GMT. Trade balance data is scheduled to be released at 1330 GMT, with Markit services and composite PMI readings at 1445 GMT. The ISM non-manufacturing PMI is published at 1500 GMT.

Investors will also be keeping a close eye on a number of speeches from central bankers from the US. US Federal Reserve Chair Janet Yellen is scheduled to give a speech at 1500 GMT, while US Fed Vice-Chairman Stanley Fisher is due to speak at 2200 GMT.

After the UK equity market close, the Bank of Japan is set to release its monetary policy meeting minutes at 2350 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com