MARKET COMMENT: Earnings Drive Mixed UK Stocks, As BOE Stands Pat

LONDON (Alliance News) - UK stocks are putting in a mixed performance Wednesday, with company earnings driving the main stock movers.

Meanwhile, the pound has fallen heavily against other major major currencies after the minutes of the Bank of England's latest monetary policy meeting showed increasing concern amongst rate setters over a slowdown in global growth, particularly in the eurozone.

By mid-morning Wednesday the FTSE 100 is down 0.2% at 6,361.48, while the FTSE 250 is up 0.5% at 15,098.77, and the AIM All-Share is up 0.3% at 706.98.

Major European markets are also mixed, with the French CAC 40 down 0.1%, and the German DAX 30 down 0.2%.

The minutes of the October Monetary Policy Committee meeting earlier this month showed that rate setters for the Bank of England voted 7-2 to keep the UK's base interest rate on hold at 0.5%, in line with expectations. The two members voting for a rate hike were Martin Weale and Ian McCafferty. The MPC members voted unanimously to maintain the BoE's stock of purchased assets at GBP375 billion, also in line with expectations.

There had been very little expectation of a shift in the voting pattern from the September minutes. There has been little reason to turn more hawkish over the last month, given the slowdown in eurozone growth and a pick up in market volatility, but it also seemed unlikely that Weale and McCafferty would retract their votes for a rate hike just one month after sticking their necks out on the issue.

While the vote was therefore in line with expectations, the minutes have been taken as doveish due to the increased concern evident among that rate setters about the global growth slowdown, particularly in the eurozone, and the damaging effect it could have on the UK economy.

"Once again, the news on global activity and inflation had, on balance, been modestly to the downside, particularly in the euro area," the minutes read. "There were increasing indications that the slight slowing in the pace of (UK) expansion towards the end of the year that the Committee had been expecting for some time would indeed occur."

The effect of the cautious tone was felt in the pound, which has fallen to a four-day low against the dollar of USD1.6010. Against the euro the pound also slipped, despite the euro remaining under pressure amid reports of the European Central Bank discussing bond buying in an effort to boost the region's slowing growth. Currently the pound buys EUR1.2630.

The euro, the European banking system, and the wider economy are in focus ahead of the weekend when the results of stress tests on banks within the eurozone are due. According to a report from the Spanish news agency Efe, at least 11 banks of the 130 being tested are set to fail the tests. An ECB spokesperson has since said that the Efe report is entirely speculative at this stage.

On the London equities market, British American Tobacco is the worst FTSE 100 performer, down 4.2% after saying that its profitability has been hit by the relative strength of the pound. The cigarette maker said its nine-month revenue was up 2.4% at constant exchange rates but down 9.6% at actual rates. Imperial Tobacco has followed a little lower, down 0.9%.

The motor insurers Direct Line and Admiral are the best blue chip performers, up 2.7% and 2.5%, respectively, following a report from the AA that said insurance premiums have risen by 1.2% over the three months to September 30, which is reportedly the first rise in premiums in more than two years.

FTSE 250-listed Playtech is the best performer in the index, up 5.8% after reporting faster that expected revenue growth, particularly in Asia, where revenue for the gaming group was up 85%, after being up 72% in the first half.

International Personal Finance is up 4.4% after reporting a 5% rise in pretax profit in the third quarter to GBP34.0 million, up from GBP32.5 million a year earlier. Revenue rose to GBP245.5 million from GBP264.4 million, helped by a 4.8% increase in customer numbers to 2.6 million.

SuperGroup is the worst performing FTSE 250 listing. The fashion retailer said it has appointed Non-Executive Director Euan Sutherland as its new chief executive, with founder Julian Dunkerton moving to the newly created role of founder and product and brand director, a move the company said would assist an accelerated expansion overseas. Analyst also have trimmed full-year estimates for the company due to the warm UK weather that has hit the clothing retail sector in general.

Still to come Wednesday, GlaxoSmithKline is due to report third quarter numbers at midday, with the market expectant to hear of any financial detail around the development of a vaccine against Ebola, after the company said it is working at an "unprecedented rate" on the issue.

US consumer price inflation at 1330 BST will be of keen interest given the heightened concerns over the strength of the economy as monetary stimulus is withdrawn. The expectation is for a slight fall in CPI to 1.6% year-on-year in September, from 1.7% in August. The US, like the UK, targets 2.0% inflation, and anything greater than the expected 0.1-percentage-point fall will likely cause some concern, analysts say.

US third quarter earnings season is in full flow, with a raft of numbers due Wednesday, including from AT&T Inc and Boeing Company.

Futures currently indicate that Wall Street will follow European markets to a mixed open, with the DJIA and the S&P 500 pointing down 0.1%, but the Nasdaq Composite up 0.1%.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

Copyright 2014 Alliance News Limited. All Rights Reserved.