MARKET COMMENT: UK Stocks Higher With Mining Support As Banks Fall

Tue, 28th Oct 2014 10:38

LONDON (Alliance News) - UK stocks are holding on to early gains Tuesday, with mining stocks providing some support while the banking sector weighs on indices for the second consecutive day. As the Federal Reserve begins its two-day policy meeting, investors will look to the US for the main data releases of the day still to come.

By mid-morning Tuesday, the FTSE 100 is up 0.3% at 6,382.55, the FTSE 250 is up 0.4% at 15,104.22, and the AIM All-Share is up 0.3% at 708.98.

Major European markets are also higher, with the French CAC 40 up 0.4%, and the German DAX 30 up 1.4%.

The UK banking sector is underperforming for the second time in as many days, with Standard Chartered the heaviest FTSE 100 faller, down 8.2%. The Asia-focused bank reported a 16% drop in its third-quarter pretax profit to USD1.53 billion, compared with USD1.83 billion in the previous year. The bank cited higher losses on bad loans and increased expenses. Jefferies said that it "struggles to see a silver lining" in the update, while various analysts have been quick to cut their full-year earnings forecasts.

Lloyds Banking Group is also coming under continued pressure, down 2.0% Tuesday after suffering a similar loss on Monday. The market showed a negative reaction to the news that the bank suffered another GBP900 million hit from payment protection insurance mis-selling provisions, which has taken the shine off of third quarter numbers that otherwise showed improving underlying growth. The bank also detailed new strategic plans, under which it will cut 9,000 jobs and close 150 branches net over the next three years.

Analysts are broadly positive about the cost-cutting plans, saying they will make the bank leaner in the long run. Investors remain caution over Lloyds in the short term, however, given the concerns raised by the fact that it only passed the recent EU stress tests by a narrow margin, and faces tougher tests by the Bank of England before the end of the year.

Energy firm BG Group is down 2.7% after it reported a drop in its underlying earnings in the third quarter, and said its exploration and production guidance remains at the low end of its forecast range, reflecting continuing issues in Egypt and the acceleration into 2014 of production-sharing contract effects in Kazakhstan.

Mining stocks are providing support to the London market after copper prices reportedly hit a two week high overnight amid talk of strike action at significant copper mines.

"Industrial action at the Anatmina copper mine in Peru and the Grasberg copper mine in Indonesia may be seen as initial support to copper prices given that these two mines account for some 84,000t of supply," said Metals & Mining analyst at VSA Capital Sheldon Modeland. "Depending how long these strikes drag on and assuming China?s demand for copper remains strong we could see a rally in copper prices over the near term," the analyst says.

Anglo American is one of the best performing blue-chip stocks, up 2.0%, and Glencore is up 2.0%.

FTSE 250-listed speciality chemicals company Synthomer is the worst performer in index, down 6.8% after warning that it expects lower profit in the full year and said earnings could be lower still if economic developments in Europe continue to deteriorate.

NMC Health is performing well at the other end of the mid-cap index, up 2.4% after reporting a rise in third quarter revenue to USD161.2 million from GBP136.5 million a year earlier. The group was boosted by a strong performance in NMC's healthcare business, which saw an 18% increase in revenue during the period. The group also announced a reshuffle of its executive team.

While there has been a dearth of European data Tuesday, there is plenty to come from the US, where there is an increased focus on the health of the economy given that the October policy meeting at the Federal Reserve starts Tuesday. On Wednesday the central bank is widely expected to end its quantitative easing programme.

Durable goods data at 1230 GBT are expected to show a rise in orders of 0.5% in September, which would reverse just a tiny bit of the 18% fall recorded in August. At 1400 GMT, the US consumer confidence survey is expected to rise slightly to 87 in October from 86 in September.

Rabobank says that this would be a fairly health reading of US consumer confidence, although it would still be well below the pre-crisis readings of the same survey, which were up above 110.

Social media stocks will also be in focus at the US opening bell, with shares in Twitter having fallen almost 12% in the pre-market after the company posted a third quarter loss of USD175.5 million, widened from USD64.6 million a year earlier.

Futures are currently pointing to a broadly higher open on Wall Street, with the DJIA up 0.5%, the S&P 500 up 0.6%, and the Nasdaq Composite up 0.6%.

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