LONDON (Alliance News) - The UK stock indices trade lower Tuesday, amid a disappointing drop in business confidence in Europe's largest economy, and as market attention focuses on comments from Mark Carney and other members of the Bank of England's Monetary Policy Committee, who are facing questions from the Treasury Select Committee.
By mid-morning Tuesday the FTSE 100 is down 0.3% at 6,782.06, the FTSE 250 is down 0.6% at 15,574.19, and the AIM All-Share is down 0.1% at 784.45.
German business confidence has dropped to its lowest level of the year, according to the IFO survey of current conditions. The survey reading fell to 109.7 in June from 110.4 in May, missing economists expectations for just a small drop to 110.2.
Despite this fall, major European stock markets are performing a little better than those in the UK, with the German DAX 30 down just 0.1% at 9,906.28, and the French CAC 40 fractionally higher at 4,517.09.
The FTSE 100 listed housebuilders are amongst the heaviest fallers for the second consecutive day as investors remain cautious ahead of the publication of the Financial Stability Review on Thursday. The review may contain further measures to rein in house price inflation. Barratt Developments leads the FTSE 100 fallers, down 3.0%, with Persimmon down 1.8%.
The latest mortgage market data from the British Bankers Association has indicated that restrictions that have already been put in place by the BoE may already be having a small damping effect. The BBA said that 41,800 mortgages were approved in May, more than the 41,300 that had been expected by economists, but down from 42,200 in April and the lowest level of approvals since August last year.
Mining stocks are seeing mixed fortunes Tuesday, with Anglo American and BHP Billiton having been identified by Liberum Capital as being at risk to rising iron ore freight costs, while the precious metal miners are seeing a benefit from the continued rise in gold prices.
In a morning note to clients, Liberum forecasts a 50% rise in freight costs by 2015. Meanwhile, freight rates implied in mining analyst consensus estimates are flat, leaving potentially significant downside to achieved iron ore prices. BHP Billiton is down 1.2%, Anglo American is down 0.9%, and Rio Tinto is down 1.5%. Amongst the precious metal miners however, Fresnillo is up 1.3%, and Randgold Resources is up 1.0%.
BG Group is the best FTSE 100 performer, up 1.7% after an international business within the group, QGC, confirmed Tuesday that it has begun operating a network of upstream gas processing plants integral to the delivery of gas to the Curtis island liquefaction facilities. "Confirmation of the start of gas processing operations should provide some greater visibility on the progress being achieved," said Deutsche Bank in a note to clients.
Imagination Technologies is the top gainer in the FTSE 250, up 6.7% after making progress on its licensing revenue, which came in at the upper end of guidance for the full year, despite a negative currency revaluation. Jefferies says the current trading multiples "misrepresents the strength of the underlying fundamentals", and the stock deserves to trade higher.
Domino Printing Sciences is providing a drag at the other end of the FTSE 250. The ink-jet technology company is down nearly 13% after saying that, although its on track to meet its full-year expectations for this year, next year's results are unlikely to be any better, due to a requirement for additional investment in research and development.
Carney and colleagues are in full flow in front of the Treasury Select Committee, with the general tone emerging that the rate setters are using the occasion to talk down rate rise expectations, which had been heightened since Carney's recent Mansion House speech and the subsequent release of Monetary Policy Committee meeting minutes.
The pound has fallen below USD1.70 for the first time since the minutes were released last week as Carney explains to the committee that there is still concern amongst the members over the disappointing lack of real wage growth in the economy.
The hearing is continuing and remains the major current focus, with the BoE members being grilled about the appropriateness of their communication style, given the significant market impact.
Still to come Tuesday, the US consumer confidence index from the conference board at 1400 BST, with economists looking for a small increase in the reading to 83.5 in June from 83.0 in May. New home sales data and the Richmond Fed manufacturing index is due at the same time, and there is also a speech scheduled at that time from Treasury Secretary Jack Lew.
Currently, futures trading indicates that US equity markets will follow those in the UK lower, with the DJIA and the S&P 500 both pointing down between 0.2% to 0.3%.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
Copyright 2014 Alliance News Limited. All Rights Reserved.
