LONDON (Alliance News) - UK stock indices are lower Monday, with defensive stocks performing the best as investors look for quality amid ongoing valuation concerns and increased tension in Ukraine over the weekend.
Military action in eastern Ukraine looks increasingly likely as the deadline laid down by the acting Ukrainian president for pro-Russian activists occupying state institutions there to lay down their arms has passed. "Nobody is prepared to give up," Alexei Chmulenko, a spokesman for the protesters in the Luhansk region told the Russian Interfax news agency.
By mid-morning Monday, the FTSE 100 is down 0.8%, trading at a fresh low for the month of 6,508.00. The FTSE 250 is down 1.9% at 15,593.59, and the AIM All-Share is down 1.0% at 826.71.
The traditionally defensive tobacco and beverage sectors are outperforming, with Imperial Tobacco, British American Tobacco, and Diageo all among the top blue chip gainers. At the other end of the spectrum, the house builders are coming pressure amid continued wider concern that earnings for some stocks don't support valuation multiples.
"The sharp falls in house building shares appears to be driven by the same concerns surrounding over valuations in the technology sector. These companies have also been at the forefront of the current rally higher in the past few months," said CMC Markcts chief market analyst Michael Hewson.
Both FTSE 100 listed housebuilders, Persimmon and Barratt Developments, are among the index's biggest fallers, down 4.4% and 5.2%, respectively. In the FTSE 250, Bovis Homes is down 3.5% and Taylor Wimpey is down 3.5%, with Bovis having had its price target cut by Goldman Sachs Monday.
The poor performance of the housebuilders comes despite the latest Rightmove house price index showing UK house prices hit another record high in April. Asking prices increased at a pace of 7.3% year-on-year in April, the highest since October 2007 and back to pre-credit crunch levels. This follows a 6.8% rise reported for March.
"The recent declines seem to be part of concern about the ability of these companies to generate the rising levels of income, despite predictions of continued house price gains through 2015 and 2016," says Hewson.
Analysts also suggest that the introduction this month of stricter testing for mortgage approvals, due to be implemented on April 26, could be weighing on the housebuilding sector.
Reckitt Benckiser is the stand out individual gainer Monday, leading the small list of FTSE 100 gainers, up 2.3%. The shares have been on a down trend over the past two weeks, but ahead of the group's first quarter results on Wednesday, Bloomberg reported that the consumer goods group is considered the frontrunner to buy US pharmaceutical company Merck & Co's over-the-counter health business. "We see strong industry logic for any deal and think that Reckitt Benkiser can unlock value," says Jefferies analyst Martin Deboo.
European data has been encouraging so far Monday, with eurozone industrial production showing a 1.7% rise year-on-year in February, up from 1.6% in January and beating economists' expectations of a 1.5% rise. Consumer price growth in Italy also remained stable at 0.4% year-on-year in March, after growth fell from 0.5% in February.
The data will be welcomed by the members of the European Central Bank, although they may still be frustrated with the strength of the euro given weekend comments from various members that attempted to talk the single currency lower.
ECB President Mario Draghi Saturday said "a further strengthening of the exchange rate would require further stimulus". Earlier Monday, fellow ECB member Christian Noyer said "the stronger the euro is, the more accommodative policy is needed. Noyer is due to deliver a speech at 1645 GMT.
Expectation is growing that the ECB may introduce further stimulus such as a negative deposit rate, and the euro has fallen from the monthly highs being made towards the end of last week, but still remains fairly well supported against the dollar. It is currently trading at USD1.3825.
The pound is also a little lower against the dollar, which is firmer across the board in the light the Ukraine tensions, currently trading at USD1.6720.
US retail sales are still to come Monday at 1230 GMT, with Citigroup due to release its first quarter earnings ahead of the US market open.
Before those results, futures trading indicates that Wall Street will open fractionally lower.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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British American Tobacco (BATS)
Barratt Developments (BDEV)
Diageo (DGE)
Taylor Wimpey (TW.)