MARKET COMMENT: Miners Lift FTSE As Investors Look Past Ukraine

Mon, 12th May 2014 09:50

LONDON (Alliance News) - The UK's major stock indices are firmer across the board Monday, as investors focus more on the possibility of further central bank stimulus, both from China and Europe, than the ongoing developments in Ukraine, where eastern cities have voted for independence from Kiev in an unauthorised referendum.

Security forces and pro-Russian separatists have been clashing once again in eastern Ukraine Monday, after the vote showed overwhelming support of more than 90% for independence from the pro-Western government in Kiev.

"But the market seems a little more comfortable with risk at this point, needing more to induce fierce selling than when the crisis first took hold," said Spreadex Trader David White. "Indeed, worry over this issue failed to dampen optimism for Asian stocks, as hopes for government stimulus last night helped inflate China-listed stocks."

Hopes of increased stimulus from the European Central Bank may also be helping stocks, with many investors now expecting a cut in European interest rates at next month's policy meeting following strong hints from ECB President Mario Draghi last week.

By mid-morning Monday the FTSE 100 is up 0.3% at 6,833.91, the FTSE 250 is up 0.3% at 15,929.37, and the AIM All-Share is up 0.2% at 807.59.

Within major European markets, the German DAX is up 0.3%, while the French CAC 40 is underperforming, down 0.1%.

The mining sector leads UK stocks higher after analysts at JPMorgan broke a two-and-a-half-year underweight call to upgrade the European mining sector by two notches to Overweight. "We continue to believe the second half of 2014 will see the sector?s free-cash flow improvement, capital returns potential and attractive relative valuation begin to be appreciated more fully," said JPMorgan in a morning note to clients.

The positive shift in sentiment sees the FTSE 350 mining sector up 2.0% Monday, led higher by FTSE 250-listed Vedanta, up 3.8%. Rio Tinto leads the blue chip gainers, up 3.2%, while BHP Billion is up 2.1%, Glencore Xstrata is up 1.3%, and Anglo American is up 1.3%.

At the other end of the spectrum, British Sky Broadcasting leads the FTSE 100 fallers after it confirmed press speculation that it is working on the potential acquisition of 21st Century Fox's interests in Sky Deutschland and Sky Italia.

Investors and analysts appear initially concerned by the talks, sending the stock 2.3% lower. There are limited synergies among the UK, German and Italian businesses, which means that any transaction would, at least in the medium term, be very dilutive to BSkyB's earnings per share, says Berenberg analyst Sarah Simon.

Barclays shares are also lower, down 1.5% Monday following a report in the weekend Financial Times that the UK's Serious Fraud Office has stepped up its probe into Barclays PLC's dealings with Qatar in 2008. According to the FT, former chief executives Bob Diamond and John Varley are set to be questioned under caution by the SFO.

Furthermore, following last week's strategic update from Barclays, which included 7,000 job cuts from its investment bank, the group has received a downgrade to Neutral from Outperform by Exane BNB Monday.

AIM-listed blur Group is down 37% Monday, leading the index fallers after warning investors, for the second time within a month, that its revenue will be lower than expected. The group now expects 2013 revenues in the region of USD4.8 million, a further 10% reduction from the numbers that were already almost cut in half less than a month ago.

The Confederation of British Industry on Monday upgraded the UK economic outlook as the recovery continues to take hold. The business lobby forecast 3% economic growth this year, up from the prior estimate of 2.6%. Likewise, growth for 2015 was lifted to 2.7% from 2.5%.

"Prospects are bright and we expect the recovery to broaden out this year, with greater support from business investment in particular," CBI Director-General John Cridland said.

The pound is performing well, up about half a cent against the dollar Monday, currently making session highs at USD1.6895.

There's very little left in the data calendar Monday, and the next piece of major UK economic data isn't until Wednesday, when the latest unemployment numbers are due from the UK Office for National Statistics.

Currently, US futures markets indicate that stocks on Wall Street will open marginally higher.

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