MARKET COMMENT: UK Stocks Post First Gains Of The Week

LONDON (Alliance News) - UK stocks closed firmly in the black Wednesday, posting their first gains of the week, as technology stocks rebounded from some heavy selling earlier in the week.

Nevertheless, London's major indices closed off their intra-day highs as investors expressed some caution ahead of the latest release of Federal Open Market Committee policy meeting at 1800 GMT.

With investors worried about the high multiples - on which some momentum stocks currently trade on - not being supported by earnings, the technology sector has been severely punished in recent sessions.

However, following a battering at the beginning of the week, the stocks have overturned some of their losses Wednesday. Blue-chip ARM Holdings ended the day as the leading riser in the FTSE 100, closing up 4.5%, while Imagination Technologies was the biggest winner in the FTSE 250, closing up 6.2%.

The gains ensured that the FTSE 350 Technology Hardware & Equipment sector index closed up 3.9% as the biggest gaining sector, while the Software & Computer Services sector closed up 1.8%, and the Electronic & Electrical Equipment sector closed up 0.9%.

Overall, the FTSE 100 closed up 0.7% at 6,635.61, the FTSE 250 closed up 0.9% at 16,163.7, and the AIM All-Share index closed up 0.6% at 846.29. In Europe, the DAX 30 in Frankfurt closed up 0.2% and the CAC 40 closed up 0.4%.

On Wall Street, at the close of the European equity market, US stocks also are higher. The DJIA and S&P 500 are both up 0.3%, while the NASDAQ Composite is up 0.7%.

The strong performance by stocks sent the price of gold lower. "Demand for the safe haven asset has fallen as a result of a more stable equity market, which had dropped sharply in the aftermath of the non-farm payrolls data on Friday," says Fawad Razaqzada, technical analyst at Forex.com.

At the close of the UK equity level, the precious metal trades at USD1,305.11 per ounce.

At the individual UK stock level, and away from technology stocks, mid-cap motor insurers Esure Group and Direct Line Insurance closed down 8.9% and 2.9%, respectively, making them two of the biggest fallers in the FTSE 250.

The firms plummeted after an industry pricing index showed a drop in the cost of insurance. The latest price index from Confused.com and Towers Watson showed that motor insurance has fallen by 7.5% in the first-quarter, leaving rates down by about 19% over the last twelve-months.

While the price falls are good news for the consumer, the latest price index makes "grim reading for the UK personal motor insurers," said Shore Capital analyst Eamonn Flanagan.

FTSE 100-listed motor insurer Admiral had spent much of the day in negative territory, before reversing its losses late in the day, closing up 0.7%.

Housebuilders Barratt Developments and Persimmon were amongst the biggest risers in the FTSE 100, while Berkeley Group Holdings and Taylor Wimpey were stand out performers in the FTSE 250.

The stocks have fallen sharply recently as investors prepare themselves for tighter UK monetary policy amid a strengthening economy. However, with easy affordability, significant lending aspiration from banks combined with a willingness to reduce their spreads further, Deutsche Bank believes that the share price reaction has been overdone.

Barratt closed up 3.9%, Persimmon closed up 3.1%, Berkeley Group closed up 3.5%, and Taylor Wimpey closed up 3.1%. The overall FTSE 350 household goods sector index ended the day up 1.7%.

Kingfisher was another big winner in the UK's blue-chip index. The stock rose 3.4% after UBS upgraded it to Buy from Neutral and increased its price target to 470.00 pence from 440.00p, saying that there may be more benefits from last week's acquisition of French home improvement retail chain Mr Bricolage than previously anticipated.

With sales of EUR552 million and pretax profit of EUR17 million, pro forma earnings per share enhancement was initially estimated to be around 2%, assuming the deal passes through anti-trust, says UBS analyst Andrew Hughes. "However, there could be more upside from converting some of the owned stores (which lost EUR13 million last year) to Brico," he says.

Conversely, Antofagasta was a big faller, ending the day down 2.6%, after UBS downgraded Antofagasta to Sell from Neutral and lowered its price target to 710.00 pence from 785.00p. Myles Allsop, an analyst at UBS, believes that the mining company's premium rating against its rivals will narrow.

Although the firm has historically commanded a premium rating versus its sector and copper peers due to its strong balance sheet, low cost position, high dividend yield, and growth optionality, these are no longer as compelling as in the past, Allsop says. A challenging copper price outlook also increases the risk of de-rating, the analyst adds.

FTSE 250-constituents Berendsen, BBA Aviation, Bodycote, Jupiter Fund Management, Essentra and Ultra Electronics were all amongst the biggest fallers in their respective indices after going ex-dividend Wednesday, meaning new buyers no longer qualify for the latest dividend payout.

Berendsen closed down 4.3%, BBA Aviation down 2.6%, Bodycote down 1.8%, Jupiter down 1.8, Essentra down 1.6%, and Ultra Electronics down 1%.

Still to come Wednesday, the minutes from the March 18-19 Fed policy meeting are released at 1800 GMT.

"The minutes could well add some extra colour around the decision to drop the 6.5% guidance threshold to unemployment, as well as other measures the Fed has decided to look at when making future decisions about any decision to cut back on stimulus in the coming months," says Michael Hewson, chief market analyst at CMC Markets.

Yellen's more-hawkish-than-expected comments at the press conference that followed the meeting sparked speculation of an US interest rate rise as soon as the second quarter of next year, which resulted in a fall in US bonds and equities around the world.

"Since then, her more dovish comments have helped reassure the bond market and expectations of the timing of the first interest rate hike have been pushed back once again," says Rhys Herbert, senior economist at Lloyds Bank. "Nevertheless, the minutes will be watched for further clarification on the likely course of policy," he says.

The minutes come at a crucial moment for the US dollar, says Christoper Vecchio, currency analyst at DailyFX. At a technical level, "EURUSD and GBPUSD are attempting breakouts from their mid-March downtrends; and USDJPY is barely clinging to its sideways channel support dating back to late-January," he said, adding, "A lack of hawkish FOMC would find the dollar at a vulnerable moment."

Ahead of the minutes, the dollar currently trades JPY101.879, while sterling trades at USD1.6745 and the euro at USD1.3811.

In Thursday's data calendar, Chinese trade information is released at 0200 GMT. French consumer price inflation numbers are released at 0645 GMT, ahead of Italian industrial output data at 0800 GMT. The European Central Bank's monthly report also is released at 0800 GMT, with the Bank of England's interest rate and asset purchase facility decisions published at 1100 GMT.

In the US, import and export price index data are expected at 1230 GMT, at the same time as weekly jobless claims numbers. The monthly US budget statement is released at 1800 GMT.

In the corporate calendar, blue-chip Marks & Spencer releases a trading update, while FTSE 250-listed Ashmore Group, Hays, 888 Holdings, and Michael Page International all provide interim management statements. Also in the mid-cap index, Vedanta Resources provides fourth quarter results, WH Smith releases full-year results, and Oxford Instruments releases a trading statement.


By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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