MARKET COMMENT: UK Shares End Flat As Pound Rises On Jobs Report

LONDON (Alliance News) - UK shares ended flat to higher Wednesday, with mid-cap stocks outperforming blue-chips, after Greece said it will ask for an extension of its loan agreement with the eurozone, while the pound was bolstered by a strong UK jobs report.

The FTSE 100 closed flat at 6,898.08, while the FTSE 250 ended up 0.7% at 17,002.14. The mid-cap index touched a new intraday high of 17,015.85 points Wednesday. The AIM All-Share index closed up 0.3% at 708.56.

European stocks closed higher, with the CAC 40 in Paris up 1.0%, and the DAX 30 in Frankfurt up 0.6%.

The Greek government will ask the Eurogroup on Thursday for a six-month extension to its loan agreement, a senior Greek lawmaker said, following days of standoff between Athens and it creditors over the country's debt bailout.

Stavros Theodorakis, the head of the opposition party To Potami, said Prime Minister Alexis Tsipras informed him of the request during a meeting on Wednesday. Greece's new leftist government wants an extension of the loans but not the austerity programme that came tied to its EUR240 billion international bailout. The eurozone-provided loans are due to expire at the end of the month.

The focus now is on the European Central Bank's decision on providing emergency liquidity assistance to Greek banks.

The European Central Bank is facing resistance from Germany to allowing any extra emergency funding for Greek banks, putting pressure on the new government in Athens to accept an extended aid-for-reform programme, Reuters reported Wednesday. Though the ECB is unlikely to lower the ceiling on emergency lending assistance by the Greek central bank, currently at EUR65 billion, a refusal to increase the ceiling could be negative for Greek banks, which are close to using up the amount allotted so far, Reuters said.

"Athens is angling for emergency funding for its banking system and should the ECB deny it, it would effectively be turning its back on the debt-laden country", said IG Markets analyst David Madden. "Europe doesn’t want to let Greece go as it has too much at stake, given the popular discontent in countries like Spain, but at the same time it wants to save face, and this is why markets believe a roundabout rescue package will be reached in the end."

Meanwhile, there was more good economic news for the UK, as unemployment fell unexpectedly, data from the Office for National Statistics showed. The jobless rate fell to 5.7% during the October to December period from 5.8% in the September to November period. Economists had forecast the rate to remain at 5.8%.

Average earnings rose 2.1% annually after the 1.8% increase in November, more than the 1.7% consensus estimate. However average earnings excluding bonuses grew 1.7% in the same period, down on the forecast and November's figure of a 1.8% growth.

"Overall this is a solid report that will give the Bank of England faith that it is pursuing the correct path by not being too worried about the prospect of deflation. This report is pound positive even if there are a couple of points that are worth noting," said Kathleen Brooks, research director at Forex.com, citing the number of people who are economically inactive and the influence of January bonuses on the wage figures.

The pound rose against its counterparts in response to the jobs report, quoted at USD1.5431 and EUR1.3600 at the London close.

Minutes released Wednesday showed policy-makers for the Bank of England unanimously voted earlier this month to keep the key UK interest rate at a record low 0.50% and the asset purchase programme unchanged at GBP375 billion. All nine committee members agreed that it was appropriate to leave the stance of monetary policy unchanged, the minutes of the monetary policy committee meeting held on February 4 and 5 showed.

"As expected, the Bank of England voted unanimously to keep interest rates unchanged, although there does appear to be differences over when it will be necessary to raise them," said Dennis de Jong, managing director at UFX.com.

"While record low inflation reads like great news for consumers, it's a real threat to businesses and the wider health of the economy," de Jong said. "But unlike in the eurozone, where there are falling prices and flagging economic performance, any UK deflation should be short-lived and therefore an interest rate rise looks an increasingly likely measure, perhaps as early as later this year."

UK consumer price inflation was reported Tuesday to have eased by more than expected to a record low in January on falling motor fuel and food prices, buttressing the Bank of England's recent assessment that inflation is moving into negative territory.

In the US at the London close, Wall Street was trading mostly lower. The DJIA and S&P 500 both were down 0.2%, while the Nasdaq Composite was flat.

Industrial production in the US saw a modest increase, up 0.2% month on month in January, slowing from a revised 0.3% rise in December, according to a report released by the Federal Reserve on Wednesday. Economists had expected production to grow by 0.3%

Meanwhile, US producer prices fell by 0.8% in January from the month before, much more than had been expected, a report from the Labor Department showed. The index had been expected to drop by 0.4%.

In London, Intu Properties was the worst performer in the FTSE 100, down 3.3% at 364.10 pence. Barclays downgraded the property investment company to Underweight from Equal Weight, and cut its price target to 313.00p from 326.00p, after the stock outperformed its real estate peers in 2014.

Barclays said it prefers Hammerson, which also was among the biggest losers Wednesday, down 2.6% at 665.50p. Barclays reiterated its Equal Weight rating for the property investor and developer and increased its price target on the stock to 652p from 574p, driven by the increased profitability of Hammerson's sizeable development pipeline.

Coca-Cola HBC also was among the worst performers in the blue-chip index, down 2.2%. The world's second largest bottler of Coca-Cola products cited a "challenging", volatile year ahead, having reported Wednesday a drop in 2014 profit due to adverse currency movements and volume weakness in key emerging markets Russia and Ukraine. The bottler reported an 11.4% drop in fourth quarter comparable net profit to EUR30.4 million, from EUR34.3 million last year.

In the FTSE 250, Galliford Try was one of the biggest gainers, up 3.7%. The construction and housebuilding company reported a rise in pretax profit in the first half on the back of strong revenue growth across its construction and housebuilding operations and hiked its dividend to 22 pence per share from 15 pence per share last year.

Banknote printer De La Rue shares closed among the best mid-cap performers, up 6.4%, after the Daily Mail reported that the company is understood to have attracted the bid attention of French digital security company Oberthur and unnamed European private equity houses.

WH Smith was among the biggest FTSE 250 losers, down 2.2%, after being downgraded to Equal-Weight from Overweight by Barclays. The bank said WH Smith's shares are trading close to all-time highs, having risen by around 14% in the past year, and more than doubled in the past three years.

Still ahead in the economic calendar Wednesday, the US Federal Reserve will release its minutes from its recent policy meeting at 1900 GMT.

On Thursday, the UK CBI Industrial Trends Survey is due at 1100 GMT. The EU current account is at 0900 GMT and consumer confidence is at 1500 GMT. In the US, initial and continuing jobless claims are at 1330 GMT, and Philadelphia Fed manufacturing survey is at 1500 GMT. US EIA crude oil stocks are due at 1530 GMT.

Hong Kong and Shanghai markets will be closed Thursday for Chinese New Year.

In the UK corporate calendar Thursday, BAE Systems, Centrica, Primary Health Properties and Morgan Sindall Group will release full-year results, while Petra Diamonds and Go-Ahead Group will issue half-year results. Sport Direct International will provide an interim management statement.

By Daniel Ruiz; danielruiz@alliancenews.com

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