UK and global markets were reasonably buoyant today, as investors focused on better-than-expected corporate earnings results and brushed off news about lower-than-expected US GDP figures and S&P’s downgrade on Spanish debt.
The benchmark FTSE 100 index in London rose by 28 points, or 0.49%, closing the week at 5,777. The FTSE 250 index rallied by 118 points, or just over 1%, to close at 11,480.
Major Market Movers
Earnings results from companies such as Amazon.com (AMZN) in the US gave investors a boost of confidence. The online retailer reported first-quarter sales grew by 34% and profit margins also increased. Shares in the company soared ahead by 14%.
In the UK, shares in the publishing company Pearson (PSON) received a 1.5% boost after releasing first-quarter results that showed a healthy rise in revenue. However, the Financial Times owner warned profit will be down in the first half of 2012.
Man Group (EMG) was the FTSE 100 leader on Friday. Shares in May Group rallied by 14% as investors began hoping this week that the hedge-fund manager would be seen as a suitable takeover target by a larger institution. Earlier this week, the Swiss bank UBS suggested the company could be a takeover target because its value has more than halved over the past year. That report started the upward momentum in Man Group shares which lasted throughout the week.
Shares in Barclays (BARC) also jumped by nearly 5% after the bank held its annual general meeting. The focus of the meeting centred around large pay packages for top executives, such as CEO Bob Diamond. In the end, 27% of shareholders voted against the 2011 remuneration packages. However, the vote failed to block the bank’s remuneration plans.
US GDP and Spain's Downgrade
In economic news, US first-quarter economic growth came in below expectations. The US Commerce Department's first reading on gross domestic product, a broad measure of all the goods and services produced in the economy, grew at a rate of 2.2% in the first quarter of 2012, versus expectations for 2.6% growth.
UK market sentiment had been tepid earlier in the day as investors digested news that the rating agency Standard & Poor’s cut Spain's long-term sovereign credit rating by two notches.
Tristan Cooper, sovereign debt analyst at Fidelity Worldwide Investment, says: "We have had significant concerns about Spain for some time and so agree with the overall thesis behind S&P's downgrade ... [We believe] the pernicious cocktail of very high unemployment and a very wide fiscal deficit in the context of a deep recession ... gives the government little room for manoeuvre in terms of fiscal consolidation and will leave it vulnerable to liquidity risk for a prolonged period.”
In other economic news this week:
Eurozone PMI Data Disappoints, And Sentiment Suffers
On Wednesday, Markit released their flash Purchasing Managers Index (PMI) data for the eurozone. This data tracks the state of the eurozone manufacturing industry. The data revealed a reading of 47.4 for the region. In general, a reading above 50 indicates economic expansion, whereas a reading below 50 indicates contraction. Many economists rely on the PMI number in producing their economic forecasts as it has historically been positively correlated with GDP growth. The latest reading marks a five-month low, declining from March's reading of 49.1 and failing to meet market expectations at a level of 49.3. Though the French and German economies have been resilient in recent months, it appears that they are no longer immune to the spreading softness as French output contracted (46.8) at its steepest pace in six months and the rate of output growth in Germany declined to its lowest level (50.9) in 5 months.
In recent months, consumer and business confidence surveys have been broadly positive. However, the batch of eurozone confidence surveys published this week appear to be bucking that trend. The Economic Sentiment Indicator (ESI) for the euro-area published by the European Commission declined by 1.7 points to 92.8, completely eliminating all gains made during the course of 2012. According to the report, industry and service sector business confidence declined so fast it eroded improvements in the retail sector.
Other confidence surveys also pointed to weakening sentiment this week. In France, the Business Climate Survey fell to 95 from 98 in March despite broad expectations for no change. The French Business Climate Survey measures the level of optimism amongst business leaders within the main economic sectors. Elsewhere, the Italian Consumer Confidence Indicator plummeted from 96.3 to 89.0 despite expectations for no change, marking the lowest level ever recorded since the survey began in 1996.
Draghi Calls for "Growth Pact"
At the European Central Bank’s (ECB) monthly press conference, ECB President Mario Draghi called on eurozone leaders to consider implementing and adhering to a "growth pact." The premise of the "growth pact" would be to offset the contractionary effects of austerity policies, which were implemented following the "fiscal pact" agreed upon in December. The debate raging around austerity vs. growth-centric policies has intensified recently following the collapse of the Dutch majority coalition and the ongoing presidential elections in France.
At the press conference, Mr. Draghi noted that the economic weakness plaguing the eurozone seemed to be more palpable as new data suggests output has fallen significantly, bank lending has dried up, and confidence has plummeted. Though Mr. Draghi failed to specifically identify ways in which the ECB may assist in this "growth pact", he generally alluded to long-term structural reforms that must be implemented to boost competitiveness across the currency bloc.
US Jobless Claims Fall
Data released this week from the US Bureau of Labour Statistics showed that initial jobless claims fell by 1,000 to 388,000 for the week ending April 21. Meanwhile, last week's estimate was revised upwards to 389,000. The four-week moving average, which smoothes out volatility and is seen as a better gauge of labour market trends by economists, rose by 6,250 up to 381,750--registering the highest level in more than three months. Sustained jobless claims below 400,000 tend to indicate employment growth.
With files from Morningstar's Lee Davidson and Dow Jones
