LONDON MARKET MIDDAY: Pound Dip After Weak UK Output Lifts Blue-Chips

LONDON (Alliance News) - Stock prices in London were higher on Wednesday at midday, with a retreat by the pound following weak UK manufacturing and industrial production figures supporting dollar-earning large-cap stocks.

The FTSE 100 index of blue-chips was up 1.1%, or 71.30 points, at 6,851.14. The FTSE 250 was up 0.4% at 17,525.74, and the AIM All-Share was slightly lower at 810.70.

The BATS UK 100 index was up 1.5% at 11,629.30, the BATS 250 up 0.4% at 15,946.55, and the BATS Small Companies up 0.3% at 10,250.88.

In mainland Europe, the CAC 40 in Paris was up 0.9% and the DAX 30 in Frankfurt was up 1.5%.

"European equity markets are once more pushing higher in what represents yet another memorable week of market exuberance in the wake of an event (the Italian referendum) which was widely perceived as a negative for investor confidence," said IG analyst Joshua Mahony.

The Italian upper chamber of parliament is due Wednesday to vote on next year's budget law, clearing the way for Prime Minister Matteo Renzi's resignation, which was put on hold until the nation's finances are sorted out.

Renzi decided to quit after losing the referendum on constitutional reforms on Sunday, but President Sergio Mattarella asked him to delay his plans until the budget law is passed in order to minimise destabilising effects for the country.

Italy's government denied on Wednesday a press report suggesting that it was negotiating a EUR15 billion loan from a eurozone rescue fund to shore up its ailing banks.

The La Stampa newspaper, citing two anonymous sources from the economy ministry, said European Stability Mechanism money would be used to fill capital shortfalls in Italy's weakest bank, Monte dei Paschi di Siena, and several cash-strapped regional lenders.

"There are no contacts with the ESM," an economy ministry spokesman said.

UK industrial and manufacturing output declined unexpectedly in October, figures from the Office for National Statistics showed.

Industrial production declined 1.3% month-on-month in October, way short of expectations for an increase of 0.2%. Production had decreased 0.4% in September. At the same time, manufacturing output slid 0.9% in October, reversing a 0.6% rise in September and a 0.2% expected growth.

On an annual basis, industrial production decreased 1.1% in October, in contrast to a 0.4% rise in September and a expectations for a 0.5% rise. Manufacturing output fell 0.4% in October versus a 0.1% rise in September. Economists had forecast a 0.7% rise.

The pound dropped following the data, quoted at USD1.2602 at midday compared to USD1.2710 at the London equities close on Tuesday.

Despite the weak set of data, Capital Economics UK economist Scott Bowman believes the picture appears brighter beyond the fourth quarter of 2016.

"The maintenance-related contractions in oil production should prove temporary, and the recent rise in oil prices could encourage more output. What's more, surveys shows that export orders have already risen due to the fall in the pound since the Leave vote, which should flow though to increases in manufacturing production in time," noted Bowman.

Meanwhile, UK house prices grew at a slower pace in November, data published by building society Halifax revealed. House prices increased 0.2% month-on-month in November, in line with expectations, but much slower than the 1.5% rise seen in October.

Annual growth in house prices accelerated to 6.0% in three months to November from 5.2% in three months ended October. Prices were expected to rise 5.9%.

In Asia, the Nikkei 225 index in Tokyo and the Shanghai Composite both closed up 0.7% while the Hang Seng in Hong Kong ended up 0.6%.

In New York, stocks were called for a slightly higher open, with the Dow Industrials, the S&P 500 index and the Nasdaq 100 all pointed up 0.1%.

Still ahead in the economic calendar, US MBA mortgage applications are at 1200 GMT and US JOLTS job openings are at 1500 GMT, as is the National Institute of Economic and Social Research's UK GDP estimate. US Energy Information Administration's crude oil stocks are at 1530 GMT.

On the London Stock Exchange, Rio Tinto was up 5.2%, the best blue-chip performer. The Anglo-Australian metals and mining company was upgraded by Credit Suisse to Outperform from Neutral.

Shares in HSBC Holdings were higher as well, up 3.3%. The European Commission said it has fined three banks EUR495.0 million over rigging euro interest rate derivatives, including a relatively small EUR33.6 million fine for the London-listed lender. US bank JPMorgan Chase was fined EUR337.2 million and France's Credit Agricole EUR114.7 million, alongside HSBC, after the three banks chose not to reach a settlement over the case back in December 2013.

HSBC's comparatively lower fine partly reflected its traders' shorter participation in the rigging scheme. The case was originally against seven banks, including UK blue-chips Barclays and Royal Bank of Scotland Group, but both had settled early. RBS was up 4.5% and Barclays up 3.6%.

On the downside, WPP was off 2.7%. The advertising giant was hit by a report that the US Justice Department is investigating whether advertising agencies have been rigging bidding processes for commercial contracts in favour of their in-house production units over independent companies, the Wall Street Journal reported on Tuesday citing people familiar with the matter.

The DOJ is investigating whether ad agencies are manipulating the bidding process, urging independent companies to inflate their prices so that contracts could be awarded to the agencies' own production and post-production outfits, the newspaper's sources said. The report said it isn't clear which agencies are being investigated, but it noted that large agencies such as WPP and Publicis Groupe have in-house production and post-production divisions.

Unilever was 1.0% lower, after the consumer goods giant was downgraded to Neutral from Overweight by JPMorgan.

In the FTSE 250, spread betting and contracts-for-difference providers were staging a small rebound after being hammered on Tuesday by new rules proposed by UK regulator the Financial Conduct Authority. CMC Markets was up 2.3% and IG Group Holdings up 2.8%. CMC and IG, both closed down 38% on Tuesday.

Carillion, down 4.2%. The construction and support services company said the pace of new order intake has declined in the second half, citing changes within UK government departments following the Brexit vote. The company said it is performing in line with expectations and expects to report strong revenue growth for 2016. This growth should offset a slightly lower operating margin, Carillion said, noting its full-year operating profit is expected to rise year-on-year.

Carillion also said its Canadian subsidiary, Rokstad, has been selected by power and gas utility Manitoba Hydro as the preferred provider for the next phase of its Bipole lll high-voltage transmission line project in Manitoba. The project has an estimated revenue value of GBP120.0 million. Fellow UK construction company Galliford Try was down 4.2%.

By Daniel Ruiz; danielruiz@alliancenews.com

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