MARKET COMMENT: London Stocks Knocked By Disappointing Services PMI

LONDON (Alliance News) - London stocks are trading lower mid-morning Wednesday after worse-than-expected services Purchasing Managers' Index readings from the eurozone and the UK.

The FTSE 100 is down 0.2% at 6,875.46 and the FTSE 250 down 0.3% at 17,099.42. However, the AIM All-Share is up 0.2% at 710.50.

European stocks are mixed with the CAC 40 in Paris trading flat and the DAX 30 in Frankfurt off 0.5%.

The Eurozone private sector expanded at a slower than initially estimated pace, according to data from Markit Economics. The composite output index rose to 53.3 in February from 52.6 in January. The reading was slightly below the flash score of 53.5. Nonetheless, it signalled an expansion for the twentieth month in a row and the growth rate of economic output accelerated for the third straight month, rising to its highest since last July.

The services PMI rose to a seven-month high of 53.7 in February from 52.7 in January. It was also below 53.9 estimated on February 20.

Germany's private sector expanded at the fastest pace in four months. The composite PMI came in at 53.8 in February, compared to 53.5 in January and below the 54.3 flash reading. The final services PMI rose to a 5-month high of 54.7 in February from 54 in January, but well below the flash score of 55.5.

The pound declined against other major currencies after UK service sector expansion slowed unexpectedly in February. The PMI for the service sector decreased to 56.7 in February from 57.2 in January. The score was forecast to rise to 57.5. The pound trades at USD1.5337 mid-morning Wednesday.

On the corporate front, Standard Chartered and ITV lead blue-chip gainers.

The emerging markets focused bank, trading up 5.6%, reiterated that it has no plans to turn to the market to bolster its capital position, instead setting out plans to cut capital-intensive risk assets and to sell and exit under-performing businesses, as the emerging markets bank maintained its dividend despite a 30% drop in pretax profit in 2014.

Finance Director Andrew Halford said Wednesday the group is prioritising "organic capital accretion" by selling assets and exiting some of its businesses. It expects to release between USD25 billion and USD30 billion of risk-weighted assets, which are more capital intensive, in the next two years.

To protect returns, Halford said, the bank is targeting USD1.8 billion of sustainable cost savings over the next three years.

Meanwhile, ITV shares are up 5.9%. The broadcaster proposed a GBP250 million special dividend at 6.25 pence per share, and raised its total ordinary dividend, as it posted a rise in pretax profit for 2014.

The company proposed a final dividend of 3.3 pence, taking its total dividend for the year up to 4.7 pence from 3.5 pence. The company has committed to grow its full-year ordinary dividends by at least 20% per year over the three years to 2016.

Fresnillo is the worst performer in the FTSE 100, down 5.1%. The precious metals miner reported a steep drop in profits in 2014, as it was hit by a drop in gold production, falling precious metals prices, higher production costs, and the strengthening of the US dollar against the Mexican peso. The company forecast that its production would improve in 2015 and pledged to continue investing in growth products, even though its focus this year will be on improving efficiency and productivity and maintaining its cost position and margins.

Legal & General Group is the another big faller in the index, down 3.5%. The life insurance and investments group reported an 8% increase in annual pretax profit, bolstered by double-digit operating profit growth in its retirement, capital and investment management divisions. The company said it made a GBP1.24 billion pretax profit in 2014, up 8.8% from GBP1.14 billion in 2013. According to consensus estimates published by the company, analysts had been forecasting a pretax profit of GBP1.29 billion.

In the FTSE 250, Afren is the worst performing stock, down 23%. The oil explorer, which is set to be demoted from the FTSE 250 following a sharp decline in its share price since the middle of 2014, said it has decided it will not pay the USD15 million interest due on February 1 on its 2016 notes. It said it has received assurance from its ad hoc committee of bondholders that they have no intention to take enforcement action against the company, meaning Afren will have no obligation to repay the 2016 notes.

Melrose Industries is also one of the weakest mid-cap stock performers, down 3.9%. The manufacturing investment company reported a fall in pretax profit in 2014 as sterling headwinds exacerbated a fall in revenue. Pretax profit fell to GBP128.9 million from GBP144 million, held back significantly by the strength of sterling as pretax profit with currency effects stripped out rose 21%.

Greggs is one of the best performers in the FTSE 250 index, up 3.7%. The bakery chain reported a higher profit for its last financial year, buoyed by revenue growth following its successful push into the food-to-go market and better market conditions, alongside strong returns on its shop refurbishments and cost control.

Still ahead in the economic calendar is US Markit Services and Composite PMI at 1445 GMT and US ISM non-manufacturing PMI at 1500 GMT. The results of the FTSE quarterly index review will be announced after the close of London stock trading.

US futures point to a lower opening, with the DJIA, S&P 500 and Nasdaq 100 all pointed down 0.3%.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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