MARKET COMMENT: Equities Markets Stall Amid Disappointing Data

Wed, 28th May 2014 15:50

LONDON (Alliance News) - Stocks have traded in tight ranges and in relatively low volumes across the UK and Europe Wednesday, as some disappointing eurozone economic data prevented indices pushing towards their recent highs.

Investors are particularly reticent to add to positions in the run up to next week's European Central Bank meeting, which market watchers say is shaping up to be one of the most important events of the year. Ahead of that, the second reading of US first quarter GDP data is released Thursday amid expectations it will be revised down.

The FTSE 100 closed up 0.1% at 6,851.22, while the FTSE 250 mid-cap index has outperformed for the seventh consecutive day, closing up 0.6% at 15,935.43. The AIM All-Share has lost 0.1% to close at 805.71.

In Europe, the French CAC 40 and the German DAX both closed down 0.1%, while on Wall Street, the DJIA and the S&P 500 were both down about 0.1% when the European markets closed.

The DAX and the S&P 500 both reached fresh all-time highs on Tuesday, with the DAX nearing the psychological barrier of 10,000 points. The DAX hit a new high Wednesday, but then dropped back after the weak data.

"Going forward, investors will be keen to observe the reaction of any further announcement from the ECB with regards to steps to combat low inflation, such as interest rate changes or asset purchases," said Spreadex trader David White. "It could be said that a great deal of what has powered Eurozone equities to new highs has been that expectation".

The disappointing European economic data may have made further easing by the ECB next week more likely.

German unemployment unexpectedly rose by 24,000 in May, when economists has been expecting the number to fall by 15,000, following the healthy 25,000 drop in the previous month. The headline rate of unemployment remained unchanged at 6.7%.

Consumer spending in France declined by 0.3% month-on-month in April, missing economists' expectations for a rise of 0.3%, and reversing some of the 0.6% expansion recorded in March.

The eurozone M3 money supply, the broadest measure of money in an economy, grew at a slower rate than expected, rising at just 0.8% year-on-year in April, compared with the expectation of 1.1% growth.

"Some form of easing is already priced in, so today?s data will reinforce that perception," said CMC Markets chief market analyst Michael Hewson. "The only unknown remains as to what form it will take."

The currency markets have been pricing in action by the central bank, as the euro is having its worst month of the year so far. The single currency has fallen more than 2.5% against the dollar to its current level of USD1.36, from almost USD1.40 before ECB President Mario Draghi said earlier this month that he was "comfortable with acting" at the next meeting. Against the pound, the euro has lost about 1.5% over the same period to currently trade at GBP0.8130.

The dollar was broadly stronger Wednesday, gaining particularly against the pound. Sterling came under sustained pressure throughout the day, dropping almost a cent to USD1.6702 in the wake of a disappointing Confederation of British Industry distributive trades survey reading of 16 in May, down from 30 in April and missing economists' expectations for a rise to 35.

In the FTSE 100, Smith & Nephew provided the afternoon focus, rocketing to the top of the blue-chip index and gaining as much as 14% following the publication of an article by The Financial Times that suggested Stryker, a US maker of hip implants and knee replacements, was about to make an unquantified takeover bid for the UK medical equipment company. Stryker quickly denied the rumour and the stock fell back, but still managed to close the day as the top blue chip gainer, up 3.8%.

London Stock Exchange closed up 2.6% after being added to a "focus list" by Credit Suisse. Analysts are reportedly encouraged by the possibility of the deal to acquire Russell Investments.

GlaxoSmithKline proved a drag on the leading index, opening lower and closing down 1.6%, following the announcement late Tuesday that it is under investigation by the UK's Serious Fraud Office, the latest in a string of probes to be launched in various countries following initial allegations about the company's previous sales practices in China.

A number of stocks going ex-dividend also held the FTSE back Wednesday. Marks & Spencer closed down 1.6% after going ex a 10.8p full-year dividend, Whitbread closed down 0.7% after going ex a 47p full-year dividend, Britvic lost 1.3% after going ex a 6.1p interim dividend, and Bwin.Party was one of the heaviest FTSE 250 fallers, closing down 3.2% after going ex a 1.8p full-year dividend.

De La Rue was the best performer in the mid-cap index, gaining 7.9% after the bank note producer reported a rise in pretax profit to GBP59.8 million in the year to March 29, up from GBP43.7 million a year earlier, as revenue rose to GBP513.3 million, from GBP483.7 million.

There's no economic data from the UK due on Thursday, and little scheduled from Europe, where some markets will remain closed for Ascension Day, meaning volumes may continue to be light in morning trade.

The US first-quarter GDP figures at 1330 BST will be the main data event Thursday. Following the initial print at the end of the quarter that indicated just 0.1% growth, corporate earnings, particularly in the retail sector, came in poorly, leading analysts to believe that the winter freeze actually had a greater impact than that. Economists now expect the economy to have shrunk by 0.2% over the first-quarter.

US initial jobless claims and personal consumption numbers are due at the same time as the GDP data, with a small fall in weekly claims expected, along with an unchanged level of consumption.

In the UK corporate calendar Thursday, full-year results are due from sugar maker Tate & Lyle, with analysts expecting few fireworks given the tight company guidance provided last quarter. However, the company's 2015 guidance, including any update on Sucralose, will be closely scrutinised, says Jefferies analyst Martin Deboo.

Full-year numbers are also due from Severn Trent, Helical Bar, and PayPoint, along with a first-quarter trading statement from Kingfisher Group, and interim results from Medicx Fund.

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