MARKET COMMENT: UK Stocks Make Gains In Thin Market Ahead Of US Data

Thu, 29th May 2014 09:58

LONDON (Alliance News) - UK stocks are trading modestly higher Thursday, although volumes remain light with half of Europe closed for the Ascension Day holiday and no economic data due until the afternoon, when revised US GDP numbers are released.

"Trade volumes on the FTSE are basically abysmal. With a mere 520 million yesterday, it looks like today will fail to even match that owing to the public holiday in Europe," said IG Chief Market Strategist Brenda Kelly.

By mid-morning Thursday the FTSE 100 is up 0.2% at 6,867.55, the FTSE 250 is up 0.4% at 15,991.03, and the AIM All-Share is up 0.3% at 807.72.

"Trading has been a bit muted this week as traders are sitting on their hands in anticipation of the expected announcement of monetary easing from the ECB next week," said CMC Markets market analyst Jasper Lawler.

Smith & Nephew leads the FTSE 100 higher for a second day, up 2.6%, following Wednesday's late afternoon speculation, sparked by a story in the Financial Times, that it is the subject of takeover interest from US company Stryker. The US maker of hip implants and knee replacements quickly denied the interest, but now that the stock has been highlighted as a potential target, it remains well supported.

"With US corporates sitting on a lot of cash, tax inversion deals are likely to be an ongoing topic," said CMC Markets chief market analyst Michael Hewson. "We?ve already seen IHG and AstraZeneca the object of these types of M&A, and Smith and Nephew isn?t likely to be the end of it."

Kingfisher leads the FTSE 100 fallers, down 6.0%, after releasing a disappointing first quarter trading update. Despite reporting a strong increase in its retail profit over the period, the group also warned of tougher trading in the second quarter against stronger comparatives and said margins were hit by promotions and a sales mix that favoured lower-margin products.

Aggreko shares are down 2.8% following some directorate changes that sees Chris Weston, the head of Centrica's British Gas, leave the company to become Aggreko's new CEO. Aggreko will lose Interim CEO Angus Cockburn - a change that Liberum Capital calls "a significant loss to the business".

In the FTSE 250, Man Group lead the gainers, up 4.9% after confirming it's in talks to buy quantitative hedge fund specialist Numeric Holdings. "While acquisition talk normally brings about a negative share price reaction for the predator, due to the risk of failed integration or overpaying, the positive move today comes from both the news and target being right in-line with Man?s strategy of seeking out growth opportunities via bolt-on acquisitions to provide diversification from both a product and geographical standpoint," said Accendo Markets Head of Research Mike van Dulken.

Tate & Lyle is also performing well, up 4.2%, despite guiding that its 2015 results are likely to be "slightly lower" that the ones it just announced. Its 2014 results were broadly in line with expectations, but given recent profit warnings and takeover speculation surrounding the sugar producer, there had been a market expectation that the outlook would be considerably worse.

The Bank of England has released its first quarter Funding for Lending statistics that show a GBP0.7 billion fall in net lending to small and medium sized enterprises since the start of the year. Towards the end of last year, BoE Governor Mark Carney cancelled the Funding For Lending scheme with respect to mortgage lending, in an attempt to focus lending to businesses and particularly SME's.

While the banks continue to be reticent to lend to SME's, the Help to Buy housing scheme has continued to encourage mortgage lending. Help to Buy data released by the Treasury at the same time has shown that 27,861 people have used the scheme to buy a home so far, with an average price of GBP151,500, against a UK average of GBP252,000. Some 85% of those that have used the scheme were buying their first home.

The data comes after one of the nine members of the Bank of England's Monetary Policy Committee, Martin Weale, said in an interview in the Financial Times Thursday that the central bank should start the rate rise process "sooner rather than later" if it wants to stick to its promise that any rise will be gradual. Weale is known to be amongst the most hawkish of the members, having voted against the introduction of the first stage of forward guidance back in August 2013.

"The costs of waiting too long before hiking are registering with some rate setters," said Berenberg chief UK economist Rob Wood. "We expect at least one MPC member to vote for a rate hike by late summer, possibly even in August."

The pound paid very little notice to the warning of an early rate rise, actually dropping to a six week low against the dollar in early trade of USD1.6689, although it has since recovered a little to USD1.6725.

"GBPUSD fell below its 50 day moving average yesterday which helped to prompt additional selling of the pound," said IG's Brenda Kelly.

The euro is performing a little better against the dollar, currently trading up slightly at USD1.3618 after some reasonable data from Spain.

The Spanish economy grew by 0.4% in the first-quarter of the year, in-line with economists expectations. With half of Europe closed for the religious holiday, the reading has had little impact, but it provides an interesting comparison to the same numbers from the US that are still to come Thursday at 1330 BST.

US GDP is expected to have shrunk by 0.2% in the first-quarter, in an expected downward revision from the initial print of just 0.15 growth.

Ahead of the data, the US futures indicate that a marginally higher open can be expected on Wall Street.

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