LONDON MARKET MIDDAY: FTSE 100 Up As Weak UK Retail Sales Hit Pound

Pharmaceutical stocks were largely leading the blue-chip gainers, while ...

Alliance News 17 February, 2017 | 8:13PM
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LONDON (Alliance News) -Stocks in London were mostly higher on Friday midday, with the FTSE 100 recovering from previous losses after weaker-than-expected UK retail sales put pressure on the pound.

Pharmaceutical stocks were largely leading the blue-chip gainers, while miners and banks were seeing some profit taking, having benefited earlier this week from a rise in copper prices and hopes for higher US interest rates, respectively.

Unilever spiked higher on market speculation that US food company Kraft Heinz is interested in the UK-listed consumer goods giant. Financial Times's blog FT Alphaville cited "market chatter", saying "the suggestion [...] is that an approach has been made". Kraft Heinz later confirmed it has made a "comprehensive proposal" to Unilever, but said Unilever had declined the proposal. "We look forward to working to reach agreement on the terms of a transaction," Kraft Heinz said.

Unilever was up 13%.

In the FTSE 250, property firm SEGRO was the best-mid cap performer on the back of well-received 2016 results, while satellite communications company Inmarsat was hit by a broker downgrade.

The FTSE 100 was up 0.2%, or 16.41 points, at 7,294.33. The FTSE 250 index was flat at 18,711.19, but the AIM All-Share was up 0.1% at 907.57.

The BATS UK 100 was up 0.3%, at 12,345.64. The BATS 250 was flat at 17,019.34, while the BATS Small Companies was flat at 10,958.20.

Data from the Office for National Statistics showed that UK retail sales dropped 0.3% month-on-month in January, following a 2.1% fall in December. This was below economists' expectations for a 1% rise. On a yearly basis, retail sales growth eased sharply to 1.5% from 4.1% in December. The annual growth was expected to slow only moderately to 3.4%.

Excluding automotive fuel, the retail sales volume slid 0.2% month-on-month, confounding expectations for an increase of 0.7%. Nonetheless, the pace of decline was slower than December's 2.2% decrease. Annually, retail sales ex-fuel growth came in at 2.6% versus 4.7% in December and the expected rate of 3.9%.

"This shows that consumers are starting to feel the squeeze due to the increase in the inflation," said Naeem Aslam, chief market analyst at Think Markets, highlighting that earlier this week, data have shown that wages growth in the UK is slowing, while inflation is moving higher.

On Tuesday, the ONS reported that the UK consumer price index rose 1.8% annually in January, the highest since June 2014. Meanwhile, on Wednesday, data showed that growth slowed in average earnings, both including and excluding bonus. Both wages readings rose 2.6% year-on-year in the December quarter, compared to previous increases of 2.8% and 2.7%, respectively.

"Higher inflation will simply erode the purchasing power if there is no support in terms of higher wages. Higher prices are biting and there is no denial in this," added Aslam.

The weak UK retail sales data hit the pound, with sterling falling to USD1.2406 from USD1.2490 prior to the data release. At the London close on Thursday, the UK currency stood at USD1.2493.

In Europe, the CAC 40 index in Paris was down 0.7%, while the DAX 30 in Frankfurt was 0.1% lower.

The European Central Bank said the eurozone current account surplus fell to a seasonally adjusted EUR31 billion in December from EUR36.4 billion in November. The surplus on trade in goods rose to EUR 31.7 billion from EUR 30.8 billion in December. The surplus on trade in services fell to EUR 4.6 billion from EUR 5.3 billion.

Meanwhile, Eurostat data showed that eurozone construction output dropped 0.2% month-on-month in December, in contrast to November's 0.9% increase. Output had increased in the previous two months.

On a yearly basis, construction output climbed 3.2% due to a 6.5% surge in civil engineering and 2.5% growth in building construction.

Stocks in New York were pointed lower, as investors in the US appear to be taking a breather following the soft trading seen on Thursday.

The S&P 500 index and the Nasdaq Composite ended down 0.1% on Thursday, putting an end to a rally of five consecutive sessions closing at record highs. The Dow 30 managed to post marginal gains, ending at a new record closing high.

The Dow and the S&P are both pointed down 0.3% and the Nasdaq is seen down 0.2%.

In the US economic calendar, the Baker Hughes US oil rig count is at 1800 GMT.

AstraZeneca was up 2.3%, among the biggest FTSE 100 gainers, after the drugmaker said its Lynparza breast cancer treatment met its primary endpoint in phase 3 trials of the drug, with Berenberg saying the treatment "can reach blockbuster sales".

Meanwhile, Shire was up 2.0%, extending a 3.5% gain on Thursday on the back of well-received annual results. The company bolstered confidence in its immediate prospects and growth plans and demonstrated the strength of its major US acquisition Baxalta.

Shares in Coca-Cola HBC were up 2.5%, also adding to Thursday's 4.8% gain, when the soft drinks bottler announced a 10% increase in its annual dividend payment for 2016.

Mondi was another gainer, up 1.4%. JP Morgan lifted its recommendation on the paper and packaging company to Overweight from Neutral, as the broker expects the firm to benefit from a price-supportive tightening in its key markets.

On the downside were miners and banks, giving back some of the strong gains both sectors have seen earlier this week.

The FTSE 350 Mining sector index was down 1.1%. Most miners had benefited from a rise in copper prices, as 2,500 workers at the world's biggest copper mine Escondida in Chile, owned by BHP Billiton and Rio Tinto, went on strike last weekend. BHP was down 1.7% and Rio down 1.2%.

Meanwhile, the FTSE 350 Banks sector index was down 0.7%. Banking stocks had benefited from comments on Tuesday by Federal Reserve Chair Janet Yellen that it would be "unwise" to wait too long before raising US interest rates. This left the door open to a rate hike as soon as the central bank's next two-day monetary policy meeting ending on March 15.

In the FTSE 250, SEGRO was up 4.5%, after the warehouse property investor published "in line" 2016 results, Numis and Liberum said. The firm said the Brexit vote last June had "little apparent impact" on occupier and investment demand for modern warehousing in the UK.

Meanwhile, shares in Essentra were up 2.8%, having reversed from a lower open. The firm, which makes retail packaging products, industrial components and cigarette filters, issued a bleak outlook for 2017 and said its results for 2016 came in below its downgraded guidance range.

Essentra had in January warned on its outlook, saying adjusted operating profit will be at the lower end, or "modestly below" its GBP137.0 million to GBP142.0 million guidance range for 2016. On Friday, Essentra said adjusted operating profit for the year was GBP132.0 million, below the bottom end of the guidance range. The adjusted number strips out exceptional items.

Meanwhile, Inmarsat was down 5.0%, after UBS cut the firm to Sell from Neutral. UBS reckons consensus growth expectations for satellite communications provider's maritime business are too optimistic, prompting the bank to downgrade its rating on the company.

By Daniel Ruiz;

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Coca-Cola HBC AG 2,584.00 GBX 0.39 -
Unilever PLC 4,138.00 GBX 0.91
Mondi PLC 2,076.00 GBX 0.53 -
Segro PLC 643.60 GBX -0.22 -
Essentra PLC 474.00 GBX 0.30 -
Inmarsat PLC 388.00 GBX -0.03 -
Shire PLC 4,199.00 GBX -0.45
AstraZeneca PLC 5,241.00 GBX -1.95
Rio Tinto PLC 4,340.00 GBX -0.40
BHP Billiton PLC 1,738.00 GBX -0.66
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