MARKET COMMENT: UK Stocks Trade Higher, Pound Jumps

Tue, 25th Mar 2014 10:59

LONDON (Alliance News) - UK stocks trade firmly higher Tuesday, retaking the modest declines posted Monday, while the pound has jumped in the wake of UK inflation data for February.

By mid-morning, the FTSE 100 is up 1% at 6,587.4, the FTSE 250 is up 0.6% at 16,120.88, and the AIM All-Share index is up 0.4% at 848.98.

In a raft of UK data released Tuesday morning, the Office for National Statistics said UK consumer price inflation slowed to a four-year low in February. Following January's dip below 2%, the latest CPI reading revealed that consumer price inflation slowed for the fifth consecutive month, coming in at 1.7% year-on-year in February, versus 1.9% in January, and in line with economists' expectations.

Month-on-month, consumer prices were up 0.5%, in line with forecast, reversing the 0.6% drop seen in January.

Factory gate output inflation came in at 0.5%, the lowest annual rate since October 2009, down from the 0.9% seen in the previous month, while input prices continued their decline for the fourth consecutive month in February, dropping 5.7% annually, having fallen 2.9% in January.

"Hot on the heels of some positive economic rhetoric during last week's Budget, consumers have received a boost to the cost of living with inflation hitting another four-year low," says Dennis de Jong, managing director at UFXMarkets.

"Lower than predicted unemployment may be threatening to raise interest rates, but today's CPI numbers will give the Bank of England further food for thought as they continue to plot a path to stable and flourishing UK economy," he adds.

The pound advanced against the dollar, euro, Swiss franc, and Japanese yen in the immediate aftermath of the data. Sterling currently trades at USD1.6495, EUR1.1940, CHF1.4568, and JPY168.625.

Meanwhile, the euro has been further weighed upon after Germany's business confidence slipped by more than expected in March. Monthly IFO information revealed that the business sentiment index in Europe's largest economy dropped to 110.7, down from the 111.3 posted in February, and missing economists' expectations of a more modest decline to 111.0.

At the same time, Germany's expectations index fell to 106.4 in March from 108.3 in February, while current conditions edged slightly higher to 115.2 from 114.4 in the previous month.

The data saw the euro drop sharply against its major rivals. The single currency currently trades at USD1.3812 and JPY141.207.

Back in the UK, latest figures from the British Bankers' Association revealed that mortgage approvals for house purchases in the UK unexpectedly declined in February. The number of home loan approvals decreased to a seasonally adjusted 47,550, down from the 49,341 recorded in January, which was revised lower from 49,972.

Nevertheless, mortgage lending has increased dramatically from February of last year, where approvals totalled just 31,073.

Released at the same time, the ONS reported that UK house prices rose by 6.8% in February compared with a year earlier, up from the 5.5% increase posted in January.

At the individual equity level, easyJet is the FTSE 100 index's biggest winner, up 5.1%. Shares in the low-cost airline company have soared after it said it expects its pretax loss for the first-half to be smaller than previous expectations and boosted forecast revenue per seat growth, after revising figures announced in January due to the timing of Easter.

It said it now estimates that its first-half pretax loss will come in between GBP55 million and GBP65 million, narrower than the GBP70 million to GBP90 million range predicted in January.

Kingfisher, up 4.8%, is another big blue-chip riser. The home improvement retailer has reported an increase in profits and revenues for its recent financial year and announced the start of a multi-year capital return programme to shareholders.

For the year ended February 1, it reported pretax profit of GBP759 million, up from GBP691 million a year earlier, driven by a 5.2% increase in revenue to GBP11.13 billion for the year. It also said that it will start a multi-year programme of additional capital returns to shareholders, starting with around GBP200 million during the current financial year.

The retailer made several other big announcements Tuesday, including that it plans to take its successful UK Screwfix business internationally, starting in Germany, and that it is currently looking for a strategic partner for B&Q China, now that the business is stable with the core business broadly break even.

At the other end of the spectrum, Royal Mail is the biggest of just four fallers in the blue-chip index. The recently listed postal company shares are off 1.3% after it announced that it will commence a formal consultation with unions Unite and Communication Workers Union with a proposal to cut 1,600 jobs and create approximately 300 new or enhanced roles as part of its continued efficiency programme.

888 Holdings is currently the stand out gainer in the FTSE 250. The online gaming company has reported a 30% increase in pretax profit in 2013, driven by a continued strong performance from its core casino and poker products. It said that pretax profit rose to USD53.2 million in 2013, up from USD40.8 million the year before, as revenues for the year rose to USD400.5 million from USD375.8 million.

Still to come in the data calendar Tuesday, the US Redbook index is scheduled for 1255 GMT, ahead of US housing data at 1300 GMT. US consumer confidence and new home sales information are released at 1400 GMT, at the same time as the Richmond Federal Reserve manufacturing index.

Later on, European Central Bank President Mario Draghi is set to give a speech at 1600 GMT. Atlanta Federal Reserve President Dennis Lockhart and Philadelphia Fed Chief Charles Plosser speak at 2000 GMT and 2300 GMT, respectively.

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