MARKET COMMENT: FTSE 100 Led Higher By Mining Constituents

LONDON (Alliance News) - The FTSE 100 started the month on the front foot Monday, closing higher, after a gauge of China's factory activity rose to a five-month high in May, suggesting the world's second-largest economy is stabilising after a subdued start to the year.

China's official manufacturing purchasing managers' index posted its third straight month of improvement in May, rising to 50.8 from 50.4 in April.

"Despite all of the concerns regarding Chinese growth this year, this number has not crossed the line into contraction territory once which may suggest the slowdown hasn't been as bad as first thought," said Craig Erlam, a market analyst at Alpari. "Alternatively, it may just highlight the fact that the survey predominantly covers the larger firms that are supported by the Chinese government, rather than the overall sector right now," he added.

"Whilst this does not completely dispel concerns over the Chinese economy, it is a step in the right direction," said Richard Perry, a market analyst at Hantec Markets.

Anglo American, closing up 2.3%, Rio Tinto, closing up 2.1%, Glencore, closing up 1.4%, and BHP Billiton, closing up 1%, were all big winners in the FTSE 100, while the FTSE 350 mining sector index ended the day up 1.6%.

Overall, the FTSE 100 closed up 0.3% at 6,864.1, the FTSE 250 closed up 0.5% at 16,084.4, while the AIM All-Share index closed down 0.4% at 812.5.

In Europe, stocks closed mixed.

The manufacturing industry across Europe performed slightly worse in May than first thought, as the final Markit service sector PMI's were broadly revised lower. The only major economy to have its economy revised higher was France, but with a reading of 49.6, the French manufacturing sector has been confirmed to be contracting after the initial print of 49.3.

"The disappointing data paints a picture of a sector struggling to generate any sort of traction in recovery," said Markit senior economist Jack Kennedy.

In Germany, the manufacturing sector PMI was a more healthy 52.3 in May, although still lower than the flash estimate of 52.9, and a drop from April's 54.1. The eurozone wide print was also revised slightly lower to 52.2, from the flash estimate of 52.5.

"On balance, newsflow from the Eurozone has proven increasingly disappointing relative to economists’ forecasts over recent months," said DailyFX currency strategist Ilya Spivak. "Such outcomes may amplify speculation about an expansion of European Central Bank stimulus at this week’s policy meeting," he added.

Shortly after the disappointing PMI data, the preliminary reading of German consumer price inflation fell short of economists' forecasts. Europe's largest economy's CPI fell to 0.9% year-on-year in May, down from 1.3% in April and missing the expected rate of 1.1%.

The CAC 40 in Paris closed down 0.1%, while the DAX 30 in Frankfurt closed up 0.1%.

On Wall Street, after a strong start, stocks plummeted following a report by the Institute for Supply Management that showed an unexpected decrease in its reading on US manufacturing activity. The ISM said its manufacturing index dipped to 53.2 in May, down from 54.9 posted in April, and missing economists' estimates for an increase to 55.4.

However, they have since recovered and currently trade close to flat, after the ISM later issued a correction saying that a software error applied last month's seasonal adjustment factor to this month's data. It clarified that the index should have risen to 56.0 in May, which would have come in above the 55.4 expected by economists.

"Overall, based on the corrected survey, it appears that manufacturing activity is still gathering momentum after the winter slowdown," said Paul Ashworth, chief economist at Capital economics.

Meanwhile, the US Markit manufacturing PMI reading for May came in at 56.4, which comfortably beat the 55.4 posted in April and the 55.5 that had been expected by economists.

At the UK equity market close, the DJIA is up 0.1%, the S&P 500 is fractionally higher, while the NASDAQ Composite is down 0.2%.

At the individual UK equity level, but away from the mining sector, pharmaceutical company Shire was among the leading risers in the blue-chip index Monday, closing up 2%. Shares in the company rose after The Times reported that it had secured a USD5 billion credit facility from banks including Citigroup to finance a takeover offer for the US's NPS Pharmaceuticals. Shire is believed to have arranged the deal to buttress its takeover offer for NPS, a developer of drugs for sufferers of a debilitating bowel condition.

Smith & Nephew, closing down 1.9%, was among the index's biggest losers. The medical technology company fell sharply following an extremely strong share price run, which had seen it close the previous three session as the FTSE 100's biggest riser.

The group jumped 9.8% in three days after the Financial Times published an article last Wednesday that suggested that Stryker, a US maker of hip implants and knee replacements, was about to make an unquantified takeover bid for the company. While Stryker quickly denied the rumours, Smith & Nephew's shares still benefited from the speculation.

GlaxoSmithKline was another big loser Monday, ending the day down 0.5%.

The pharmaceutical company has signed a collaboration and licensing agreement with UK-based biotechnology company Adaptimmune Ltd for its cancer programme, a move that comes just weeks after it agreed to sell its own cancer drug business to Novartis as part of a broader asset swap.

Glaxo's deal with the biotechnology company will see the two companies develop and commercialise Adaptimmune's NY-ESO-1 cancer treatment, as well as Adaptimmune's other treatments using its T-cell receptor engineering technology. Adapitmmune said the deal would be worth a potential USD350 million to it over the next seven years.

Still, Glaxo ended the day lower after it said on Sunday that a late stage study of two potential early breast cancer treatments used in combination, lapatinib and trastuzumab, suggested there was no improvement in disease free survival compared to using just trastuzumab.

In the FTSE 250, St Modwen Properties was a big winner, closing up 2.5%. The property company's shares rose after it said that it still expects to report pretax profit for the first half of its financial year significantly up on the year-earlier period, after it continued to perform "strongly" over the past two months.

It said it expects its asset management and added value activities to be reflected positively in half-year valuations, while initial indications point to a rise in market valuations for the first-half of the year compared with November 2013, reflecting improvements in the residential and commercial property markets across the UK.

AIM All-Share listed Bglobal ended the day up 60%. Shares in the company rocketed after it said that it had agreed to sell its Utiligroup Ltd subsidiary for GBP16.1 million in cash to private equity company NorthEdge Capital LLP, and that it plans to return money to shareholders and de-list from AIM once the deal completes.

Bglobal said it expects to have cash balances of GBP16.8 million after the deal completes, and is already talking with its advisors about the most effective way of returning this money to its shareholders. However, it said the deal will have to be approved by its shareholders.

In the forex market, the pound edged lower against its major rivals Monday morning following the release of some weaker-than-expected UK macro economic data, before reclaiming its losses as the day wore on.

Lending data released by the Bank of England shortly after the UK equity market open showed that mortgage approvals dropped to a nine-month low in April, with 62,918 loans approved, down from 66,563 in March and missing economist expectations for 64,750. Mortgage approvals have declined every month this year so far, with the Bank of England unsure as to the exact reason, although there are suggestions that banks began to rein in lending early ahead of the stricter lending rules introduced recently as part of the Mortgage Market Review.

While there are calls from some to the BoE to act to stem the rising UK house prices, they may be less likely to introduce any new measure in light of the already falling mortgage approvals, analysts say.

At the same time, the BoE revealed that the amount borrowed by individuals in the UK dropped to GBP0.67 billion in April from GBP1.03 billion in March, missing economists expectations of a more modest decrease to GBP0.8 billion.

Meanwhile, the UK Markit manufacturing PMI came in as expected at 57.0 in May, slightly lower than the 57.3 recorded in April but still indicating strong growth in the sector.

The euro experienced a similar day Monday. The single currency ticked lower in early trading following the mixed European PMI data, before recovering as the day wore on.

At the UK equity market close, the pound trades at USD1.6752, EUR1.2312, CHF1.5048, and JPY171.380, while the euro trades at USD1.3604, CHF1.2218, and JPY139.160.

In the data calendar Tuesday, Chinese non-manufacturing purchasing managers' index information is released at 0200 BST, with the latest reading of Chinese HSBC manufacturing PMI released at 0245 BST.

UK Nationwide house price data are published at 0700 BST, shortly before the Bank of England credit conditions survey and UK construction PMI information at 0930 BST. Consumer price inflation and unemployment data for the euro zone is released at 1000 BST.

In the US, the ISM New York index is released at 1445 BST, with factory orders data due at 1500 BST.

In the corporate calendar, blue-chip Wolseley releases a trading update, while FTSE 250-listed LondonMetric Property and Pennon Group release full-year results.


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

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