LONDON (Alliance News) - UK stocks are trading mixed Monday, with UK banks suffering a read across from a profit warning from Deutsche Bank. The International Monetary Fund is said to be on the brink of upgrading its growth forecasts for the UK economy, while gold is adding to recent gains and oil is lower on slowing Chinese production.
By mid-morning Monday, the FTSE 100 is flat at 6,830.40, the FTSE 250 is up 0.1% at 16,199.40, and the AIM All-Share is down 0.1% at 883.94.
Within UK equities, banks are underperforming. The FTSE 350 sector is down 0.8% after Germany's biggest bank announced a surprise fourth-quarter loss because of hefty legal and restructuring costs.
The Frankfurt-based bank posted a pretax loss of EUR1.15 billion in the final three months of 2013 after it was forced to set aside EUR528 million for legal costs - bringing the total bill for the year to EUR2.5 billion.
Deutsche Bank's problems are in its fixed income, currencies and commodities business, and Shore Capital expects FICC income to represent 20% and 15% of Barclays and RBS's total 2013 income, respectively. RBS leads the fallers on the FTSE 100, down 2.3%, while Barclays is the second biggest faller, down 1.6%.
Shore Capital also warns that FICC trading may weigh on the operating performance of interdealer brokers ICAP and Tullet Prebon. " The shares in these companies have performed well in recent weeks and so we would not be surprised to see some weakness in the short-term". ICAP is down 1.9% and Tullet Prebon is down 0.7%.
Stocks markets as a whole are lacking direction, with little in the data calendar, a quiet day for scheduled earnings releases and following a mixed bag of Chinese data released overnight.
China's economy grew by 7.7% year-on-year in the fourth quarter of 2013, following a 7.8% gain in the third quarter. This was slightly better than the 7.6% growth expected but still the lowest level of yearly growth for 14 years. On a quarterly basis GDP expanded by 1.8% in the third-quarter, slower than the 2.0% expected.
Separately, the statistical office reported that China's industrial production grew 9.7% year-on-year in December compared with an expected 9.8% gain and slower than a 10% growth reported in November.
The growth slowdown sent Asian stocks to a lower close and put European equities in a negative mood at the market open. The French CAC40 is down about 0.1% and the DAX is down about 0.3%.
"Unsurprisingly Europe has been very quiet this morning, sticking in a tight range on pretty low volume with the US closed for Martin Luther King Day. Without the US, we are a bit light on fresh data to see the markets want to pull too hard in either direction, with Chinese GDP numbers providing the focal point of the day so far," said CMC Markets senior trader Toby Morris.
Oil prices are down slightly, following the slowdown in industrial output reported from China, the world's second biggest oil consumer. Brent trades at USD106.15 per barrel, while WTI trades at USD93.80.
Gold trades at USD1,255.10 per ounce, continuing its break away from below USD1,200 per ounce that the yellow metal struggled at in late 2013. Gold is "rallying to the highest level in almost six week on signs of increased demand", says Spreadex trader Lee Mumford.
The only UK economic indicator Monday was the latest Rightmove house price survey, which showed prices rising at 1.0% month-on-month in January following two consecutive months of declines heading into the year-end. Year-on-year, prices increased 6.3%, the sharpest rise since November 2007, Rightmove said.
With no more UK data in the calendar Monday, and just the Confederation of British Industry's Industrial Trends survey Tuesday, the economic focus for the UK this week is Wednesday, when markets get an UK unemployment update, along with the minutes from the Bank of England's most recent Monetary Policy Committee meeting.
Economists expect the headline rate of unemployment to have fallen to 7.3% in November. At the last print, the headline rate dropped to 7.4% in October, from 7.6% in September, beating economist forecasts and moving faster than expected to the central bank's self-imposed 7% threshold before which it will not raise interest rates.
Pressure is building on Bank of England Governor Mark Carney to update his forward guidance measures, reassuring the market further than simply saying that the 7% threshold is not a trigger for rates to rise. "We doubt this will be forthcoming, leaving the market disappointed and facing a renewed steepening at the very front-end of the GBP curve," says Lloyds Bank Head of Market Strategy Charles Diebel.
In other words, even after the gains made by the pound last week, following unexpectedly strong UK retail sales data, sterling could receive a further boost if unemployment continues to fall quickly and the BoE doesn't make any change to its guidance.
In a further potential boost to the pound, the International Monetary Fund is on the brink of upgrading its growth forecast for the UK by more than any other economy, according to a Sky News report. The IMF is said to be increasing its projection for UK growth in 2014 from 1.9% to 2.4%.
The pound is currently marginally higher against the dollar Monday morning, trading at USD1.6440. Against the euro, the pound is fairly flat, currently at EUR1.2127. The currency market is likely to remain fairly quiet Monday, with little in the data calendar and the US markets closed.
There are no major data releases still to come Monday.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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Barclays (BARC)