MARKET COMMENT: FTSE 100 Closes At Two-Week High

LONDON (Alliance News) - The FTSE 100 closed at its highest level for two weeks Thursday, and less than 80 points shy of its all-time high, led higher by another strong performance by medical technology company Smith & Nephew.

However, trading volumes were extremely light with several European stock markets closed for the Ascension Day holiday, and as investors remained on the side-lines ahead of the European Central Bank's interest rate decision next week.

"M&A is still the key driver of the FTSE, with Smith & Nephew under the microscope today as Stryker keeps the world guessing over whether it will launch an attempt on the company," said Chris Beauchamp, a market analyst at IG.

Smith & Nephew was once again the biggest gainer in the FTSE 100 Thursday, closing up 3.6%.

Shares in the company jumped for the second day after the publication of an article by The Financial Times on Wednesday suggested that 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 was quick to deny the rumours, but Smith & Nephew's shares continued to benefit from the speculation, having closed up 4.3% on Wednesday on the news.

However, "trading has been a bit muted this week as traders are sitting on their hands in anticipation of the expected announcement of monetary easing from the ECB next week, said Jasper Lawler, a market analyst at CMC Markets.

Indeed, trading volume on the FTSE 100 Thursday was around 400 million, compared with April's daily average of approximately 755.5 million.

"It is not often that markets will pause for a whole two weeks in anticipation of an announcement. However Mario Draghi?s stance on monetary policy will be closely watched, and any hint of a change will be jumped on by traders who are nervous that next week?s numbers could cause volatility no matter what the outcome," said James Hughes, chief market analyst at Alpari.

The FTSE 100 closed up 0.3% at 6,871.29, its highest closing level since May 14, while the FTSE 250 closed up 0.1% at 15,954.82, and the AIM All-Share index closed up 0.8% at 811.48.

There was similar muted sentiment in Europe, where the CAC 40 in Paris and the DAX 30 in Frankfurt both closed fractionally lower.

On Wall Street, at the UK stock market close, the DJIA is up 0.1%, the NASDAQ Composite is up 0.3%, and the S&P 500 is up 0.2%, having hit an all-time high of 1,915.78 in early trading.

At the individual UK equity level, and away from Smith & Nephew, Kingfisher, closing down 4.9%, was the FTSE 100's biggest loser Thursday. The home improvement retailer's shares slumped after it warned that it expects tougher trading in the second quarter against stronger comparatives, and said its margins had been hit by discounts in its kitchens and bathrooms department.

The B&Q and Screwfix parent reported a strong increase in its retail profit in the first quarter, as better spring weather sent customers scurrying for barbecue products and helped trading in the UK.

However, Chief Executive Ian Cheshire warned that the weather effect would reverse in the second quarter, meaning trading would be a lot tougher, while gross margins were also under pressure as it pushed kitchen and bathroom sales with discounts and sold more lower-margin outdoor products.

Shares in FTSE 250-listed Homebase owner Home Retail Group also fell on the back of Kingfisher's warning, closing down 1.5%.

Centrica and Aggreko moved in different directions Thursday, closing up 1.7% and down 4.6%, respectively.

Aggreko ended the day as one of the heaviest blue-chip fallers after it said that Centrica's Chris Weston will take over as the company's Chief Executive next year and that Angus Cockburn will continue his role as interim CEO in the short term, before stepping down from the group later in the year. It also said it has confirmed Carole Cran, its current interim Chief Financial Officer, in the CFO position with immediate effect.

Liberum Capital believes that Weston's experience in energy lends some support to his competency to run Aggreko, and that the appointment of Cran provides important continuity to the group's finance function, but notes that the departure of Cockburn represents a "significant loss for the business."

The news appeared to lift Centrica, however, which ended the day as one of the leading gainers in the FTSE 100.

In the FTSE 250, Man Group closed up 5%, placing it amongst the index's biggest risers. The hedge fund manager jumped after it confirmed that it is in talks to buy quantitative hedge fund specialist Numeric Holdings LLC.

Mitchells & Butlers was another stand out mid-cap winner, closing up 2.5%, after it said that it had entered into exclusive talks to acquire the majority of pub and restaurant operator Orchid Group.

Mitchells & Butlers, which is itself a pub and restaurant operator, is offering GBP266 million to acquire around 170 of Orchid's more than 240 pub and restaurant estate in the UK, a person familiar with the deal told Alliance News, although the price will be around GBP256 million after adjusting for working capital in the business.

Numis analyst Douglas Jack said that the "likely" acquisition should be an "excellent transaction" for the company. "Offering material synergies, a minimal cost of financing and attractive returns from brand conversions, the deal should be strongly earnings enhancing," the analyst said. "Our only concern is that the resultant capital expenditure commitment to the Orchid estate could be used as an excuse to postpone a resumption in the dividend," Jack added.

In the forex market, the pound fell to a six-week low against the dollar in early trade Thursday, dropping to USD1.6689.

"GBPUSD fell below its 50 day moving average yesterday which helped to prompt additional selling of the pound," said Brenda Kelly, chief market strategist at IG.

The currency quickly moved off its low, however, and was supported by a weaker-than-expected US gross domestic product reading.

The US Commerce Department released revised data showing that US GDP decreased by 1.0% in the first quarter, compared with the initial estimate for a 0.1% up tick. The revised data had been expected to show a smaller contraction of about 0.2%.

"The aftermath of freak weather conditions continues to be felt in the US with the economy well below first quarter expectations," says Dennis de Jong, managing director at UFXMarkets. "The US is expected to recover slightly as 2014 progresses but it has lost considerable momentum in recent months and this year could well turn out to be one to forget."

However, some stronger-than-expected US jobless data limited sterling's gains against the US currency.

The US Labor Department revealed that initial jobless claims dropped to 300,000 in the week ended May 23, a decrease of 27,000 from the previous week's revised level of 327,000. Economists had been expecting jobless claims to dip to 318,000 from the 326,000 originally reported for the previous week.

At the close of the UK equity market, the pound trades at USD1.6718, EUR1.2280, CHF1.4994, and JPY169.814, while the euro trades at USD1.3607.

In the data calendar Friday, Japanese consumer price inflation and unemployment data are released at 0030 BST. Japanese industrial production figures are published shortly after at 0050 BST, with vehicle production information at 0500 BST, and construction orders and housing starts data due at 0600 BST.

German retail sales data are released at 0700 BST, with Italian producer price and consumer price inflation readings at 0900 BST and 1000 BST, respectively.

In the US, personal income and personal spending numbers are published at 1330 BST. The Chicago purchasing managers' index is released at 1445 BST, with the Reuters/University of Michigan consumer sentiment index at 1455 BST.

Later on, Richmond Federal Reserve Bank President Jeffrey Lacker gives a speech at 1900 BST. Federal Open Market Committee member John Williams and the Federal Reserve Bank of Philadelphia's President Charles Plosser both speak at 2200 BST.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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