MARKET COMMENT: FTSE Touches 14-Year High But Falters On German Data

LONDON (Alliance News) - The UK's main stock indices are higher Tuesday, with the FTSE 100 having reached its highest level in fourteen years, as markets continue to leave geopolitical concerns on the back-burner and focus instead on the potential for further central bank stimulus from both China and Europe.

Equity buying has moderated since mid-morning, however, after the latest German ZEW survey showed confidence amongst German business leaders has fallen much faster than expected over the last month.

The forward-looking ZEW economic sentiment survey fell faster than expected in May, recording 33.1, down from 43.2 in in April and missing economists expectations for a reading of 41.0. Similarly, the eurozone economic sentiment survey also missed expectations, coming in at 55.2 in May, down from 61.2 in April, well below the rise to 63.5 that had been expected.

The FTSE 100, having reached its highest level since January 2000 in early trade, has retraced back to flat, at 6,852.10. The FTSE 250 is up 0.4% at 16,037.50, and the AIM All-Share is up 0.2% at 809.85.

The outperformance of the mid-cap FTSE 250 index comes as one if its largest constituents, housebuilder Taylor Wimpey, tells investors that they can expect higher returns than previously expected due to the unexpected strength of the UK housing market. Taylor Wimpey is holding an analyst and investor event Tuesday afternoon at which it will raise its targets for the next three years.

Rather than a change of strategy, the update indicates that the housebuilder's current strategy is working, but beating all expectations due to the housing boom. "The UK housing market is performing much more strongly in 2014 than we believed possible back in 2011 and the medium-term guidance provided today would have seemed like a fairy tale in 2011," said Jefferies analyst Anthony Codling.

While the stock provides a significant boost to the FTSE 250, the read-across also sees Barratt Developments lead the FTSE 100 gainers, while blue-chip peer Persimmon is up 1.8%.

Equity sentiment in general remains positive despite the ongoing situation in Ukraine, where the self-declared People's Republic of Donetsk on Monday asked to leave Ukraine and join the Russian Federation, a day after a hastily-arranged secession referendum that has been declared illegal by Kiev and by Western governments.

The market has continued to brush this to one side, particularly as the world continues to wait for a response from Russian president Vladimir Putin, and has focused instead on a weaker-than-expected round of Chinese economic data released overnight, expecting it to have increased the chance of the Chinese central bank introducing further monetary stimulus.

"This morning?s Chinese data was very much on the weak side, and whether or not I believe Chinese authorities will add further stimulus, which I don?t, it is pretty clear markets think they will," says CMC Markets chief market analyst Michael Hewson. "For that reason, combined with expectations of extended loose monetary policy from both the Fed and the ECB, the momentum continues to favour further gains for equity markets," the analyst says.

Major European equity markets are also higher Tuesday, with the French CAC 40 up 0.2%, and the German DAX 30 up 0.6%.

Within the UK equity movers, Miners are performing well on the back of Chinese stimulus hopes and account for two thirds of the FTSE 100 morning gains, according to Accendo Markets. Glencore Xstrata and BHP Billiton are both up 1.6%.

Melrose industries is up 1.9% after expressing confidence in meeting full-year expectations, as it saw order intake up 3% in the year to date. The industrial investment company said that its two largest businesses, Elster Gas and Brush, both had good visibility with their current order books supporting full year expectations.

Easyjet has given what appears to be a solid update, narrowing its pretax loss in the six month to the end of March, as total revenue rose and the mild winter reduced the need for costly de-icing of its planes and reduced disruption. Despite this, the airline leads the FTSE 100 fallers Tuesday, down 4.2%.

Easyjet shares have enjoyed good gains over the past two years, says CMC's Hewson. While losses came in much better than expected, revenue growth could well slow over the next six months as a result of the upcoming World Cup, as people might be more inclined to stay at home to watch the football on television, the analyst says.

Similarly, Travel & Leisure sector peer TUI Travel trades lower, down 1.7%, despite also narrowing its pretax loss in the first half of the year. The owner of Thomson and First Choice reported a statutory pretax loss of GBP386 million for the six months ended March 31, compared with a GBP410 million loss the prior year.

Brewin Dolphin shares are down 1.7% after the investment management company said it expects to take an "exceptional" pretax impairment charge of about GBP32.0 million in the second-half of the year after deciding against implementing the Figaro software system into its discretionary wealth management business.

The UK economic data calendar remains empty until Wednesday. Still to come Tuesday, US retail sales data will provide the afternoon economic focus. Due at 1230 GMT, sales are expected to have increased by 0.4% month-on-month in April, slowing from the 1.1% growth recorded in March.

Currently, US futures trading indicated another higher open can be expected on Wall Street, with all major markets set to open about 0.2% higher.

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

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