MARKET COMMENT: FTSE 100 Sharply Lower As Food Retailers And BT Fall

LONDON (Alliance News) - The FTSE 100 trades firmly lower Friday, with BT Group and food retailers weighing heavily upon the blue-chip index.

By mid-morning, the FTSE 100 is down 0.6% at 6,770.63, and the FTSE 250 is down 0.2% at 16,332.26, while the AIM All-Share index is up 0.3% at 688.66.

In Europe, the CAC 40 in Paris is down 0.3%, while the DAX 30 in Frankfurt is close to flat.

In data released Friday morning, consumer prices decreased in the eurozone for the second straight month in January and marked the biggest fall since 2009. The harmonized index of consumer prices fell 0.6% year-on-year in January, a similar rate of decline was last seen in July 2009.

This was the second consecutive fall in prices and exceeded a 0.5% drop forecast by economists. Prices were down 0.2% in December, which was the first decline since October 2009.

Still, "Mario Draghi has many worries at the moment, not least the implementation of his bond buying programme, but he won't be too concerned by a further slide into deflation as shown by ECB figures today," says Dennis de Jong, managing director at UFX.com.

"Core inflation has remained largely stable, with falling energy prices the main reason for poor results," de Jong adds. "However, the crunch meetings with the new Greek government means the future of the eurozone economies is far from certain."

On a slightly more positive note, the eurozone's jobless rate fell unexpectedly in December to the lowest rate since August 2012, data from Eurostat showed. The unemployment rate came in at 11.4% in December, slightly down from 11.5% in November. It was expected to remain at 11.5% in December.

In corporate news, BT Group is one of the biggest fallers in the FTSE 100, even though it reaffirmed its outlook for the full year, as it posted pretax profit ahead of analyst expectations in its third quarter and said that it is making "good progress" on its due diligence in relation to the potential acquisition of EE Ltd. The company also said that it has agreed a 16 year recovery plan with the trustee of the BT Pension Scheme.

BT posted a pretax profit of GBP694 million for quarter to end-December 2014, up from GBP617 million a year before, and ahead of consensus analyst expectations of GBP658 million, although revenue came in lower at GBP4.48 billion, down from GBP4.60 billion, just missing analyst expectations of GBP4.49 billion.

Still, shares in the telecommunications company have fallen 2%, placing it amongst the leading fallers in the blue-chip index.

"Regardless of the fact it has seen pretax profits jump...the looming costs of bidding for football rights, acquiring EE and having to pump a further GBP2 billion into the company's pension fund have dominated traders thinking, squeezing the share down," says Alastair McCaig, market analyst at IG.

Away from BT, food retailers J Sainsbury, WM Morrison Supermarkets and Tesco are also among the biggest losers in the blue-chip index, down 1.7%, 1.1%, and 0.7%, respectively. The falls come after UK Business Secretary Vince Cable on Thursday tabled measures in Parliament which will give the Groceries Code Adjudicator powers to fine supermarkets in the UK that breach the Groceries Code in their relationships with their suppliers.

Under the plans, the adjudicator will be able to imposed penalties on the UK's biggest supermarkets of up to 1% of their annual UK turnover.

The code imposes on the supermarkets an over-arching principle of fair dealing with their direct suppliers and includes specific provisions governing terms of supply, timing of payments, marketing and promotional costs, and payments as a condition of being a supplier, according to the Department for Business, Innovation and Skills. The code does not govern issues relating to pricing, it added.

"This important final step will give the Groceries Code Adjudicator the power it needs to address the most serious disputes between the large supermarkets and their direct suppliers," Cable said.

At the other end of the spectrum, International Consolidated Airlines Group SA, up 0.4%, is a notable rise in the FTSE 100. Shares in the company have risen after it said that Qatar Airways has acquired a 9.99% stake in the company.

"We're delighted to have Qatar Airways, one of the world's premier airlines, as a long term supportive shareholder. We will talk to them about what opportunities exist to work more closely together and further IAG's ambitions as the leading global airline group," said IAG Chief Executive Willie Walsh.

No financial details were given on the acquisition of the stake. IAG itself is in the process of trying to acquire Irish flag carrier Aer Lingus.

FTSE 250-listed Afren has seen its shares jump 35% Friday. The sharp increase comes after a period of sustained weakness for the oil and gas explorer, which has seen its share price fall by approximately 20% since the end of last week, and around 88% since the beginning of 2015.

Vedanta Resources, up 1.4%, is another big riser in the mid-cap index. The company's share price has risen even though it said earnings fell in the third quarter from a year earlier, despite revenue rising, due to lower oil and commodity prices and said production increased quarter on quarter across the board.

For the third quarter ended December 31, the company reported earnings before interest, tax, depreciation and amortisation of USD1.02 billion, down 11% from a year earlier when it reported an EBITDA of USD1.14 billion. Revenue during the quarter totalled USD3.35 billion, compared to USD3.33 billion a year earlier.

Gross daily production averaged 218,900 barrels of oil equivalent per day during the quarter from its oil and gas production following production at Rajasthan resuming normal levels after a planned maintenance shut-down carried out in the second quarter. This is a 13% increase quarter on quarter.

Still to come in the data calendar Friday, the preliminary reading of fourth quarter US gross domestic product is released at 1330 GMT. Economists' expectations are for an increase of 3.3% year-on-year in the fourth quarter, following the 5.0% growth recorded in the third quarter.

That said, "expectations for this afternoon?s reading have come down somewhat after this week?s really poor durable goods numbers and revisions, which could well see a disappointing number this afternoon," says CMC Markets' Hewson. "The recent drop in oil prices could also start to see some evidence of a manufacturing slowdown," he adds.

Investors will also be keeping a close eye on US personal consumption expenditure data, which is released at the same time. Later on, the Chicago purchasing managers' index for January is published at 1445 GMT, while the Reuters/Michigan consumer sentiment index for January is due shortly after at 1500 GMT.

Ahead of the data, US futures trading currently indicates that US equities will follow their UK counterparts lower Friday. The DJIA, S&P 500, and NASDAQ Composite are all called to open down between 0.4% and 0.8%.

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

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