MARKET COMMENT: UK Stocks Push Higher But Sanction Talks Cap Gains

Tue, 29th Jul 2014 10:05

LONDON (Alliance News) - The UK's main stock indices are trading modestly higher Tuesday, as investors remain reluctant to significantly add to positions ahead of some major pieces of economic data to come later in the week, as well as the expected announcement of new EU sanctions against Russia.

By mid-morning Monday, the FTSE 100 is up 0.2% at 6,802.81, the FTSE 250 is up 0.5% at 15,704.97, and the AIM All-share is down 0.1% at 771.17.

Meanwhile, major European markets have barely moved, with the French CAC 40 fractionally lower and the German DAX 30 fractionally higher.

While the US Federal Reserve policy meeting, latest US GDP data, and the monthly US jobs reports are all still to come later in the week, holing investors back from adding to overall equity positions, a busier day in the UK corporate calendar is creating some stand-out stock movers.

GKN is the top FTSE 100 gainer, up 6.2% after the car and aerospace parts company said its pretax profit rose 6% to GBP296 million from GBP278 million in the comparative period last year. The company achieved the better profit despite recording a marginal decline in revenue for the period.

Next is also a top FTSE 100 gainer, up 2.6% after the retailer reported broad growth across its business in the first half of the year, and raised its full-year profit and sales forecasts for the second time. Next now expects its earnings per share for the full year ending in January 2015 to be between 12% and 18% higher than the previous year.

St. James's Place is dragging at the other end of the FTSE 100, down 4.2% after reporting a sharp fall in pretax profit to GBP110.4 million, down from GBP249.5 million in the previous year, as revenue declined to GBP1.76 billion from GBP3.87 billion. Investors have reacted negatively to the update, despite the financial services group also increasing its dividend payout by 40%.

BP shares are also lower, down 1.0%, despite reporting second quarter earnings ahead of expectations, as the company also warned over the impact of EU sanctions against Russia and specifically its trading partner Rosneft, which is Russian state controlled and has already been targeted by the sanctions.

Concern over the impact of any new sanctions, which could target the whole energy sector is weighing on BP and equity markets as a whole Tuesday, as EU leaders meet in Brussels to discuss the matter, with an announcement expected any time in the coming 24 hours.

The latest Kantar Worldpanel grocery market share data, covering the 12-week period to July 20, has shown that the big listed supermarkets continued to lose share to the discounters, apart from Sainsbury's, which managed to maintain its market share of 16.6% and is therefore outperforming its competitors Tuesday. Sainsbury's shares are up 0.4%, while Morrison shares are down 0.4% after the data showed its market share fell to 11% from 11.5% in the previous year.

"The 'Big Four' are collectively losing market share still as many punters eschew large stores in favour of convenience, small supermarkets and discount," says Shore Capital Head of Research Clive Black.

In the FTSE 250, Petra Diamonds is more than 10% lower following a block sale of 21 million shares. The placing comes after Petra saw its shares rise almost 3% on Monday to an all-time high when the diamond miner said its revenue rose by 17%.

UK mortgage approvals rose in June for the first time since January, according to the latest lending data from the Bank of England. Approvals rose to 67,196 in June from 61,707 in May, exceeding expectations for a riser to 62,600.

"Housing activity is expanding again as the temporary hit from stricter mortgage rules passes," said Berenberg chief UK economics Rob Wood.

Mortgage approvals have been on a downward trend so far this year amid the introduction of stricter lending criteria by the Bank of England, aimed at cooling the UK housing market and stopping households from taking out unsustainable debt as the economy ultimately prepares for the first interest rate rise. The rise in approvals comes after a warning from the International Monetary Fund earlier Monday, which said that if the macro-prudential measures are unsuccessful in reining-in the housing market, then the UK should consider raising interest rates instead.

The pound rose to a session high against the dollar of USD1.6995 following the date, but sterling failed to rise above USD1.70 and has slipped back a little as the major currency pairs remain in extremely tight ranges ahead of the major US data to come later in the week.

The UK mortgage data did appear to boost property search company Rightmove, which now sits near the top of the FTSE 250, up 3.6%, while the housebuilders are also performing well, with Persimmon up 1.5% and Barratt Developments up 1.0%.

The focus will soon switch to the US, where second-quarter earnings are due from big names including Twitter and tobacco group Reynolds, with the latest consumer confidence survey due at 1500 BST.

Currently, futures trading indicates that a slightly softer open can be expected on Wall Street, with the DJIA and the S&P 500 both pointing down about 0.1%.

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