MARKET COMMENT: UK Stocks Up, While Pound Retreats On BoE Minutes

Wed, 23rd Jul 2014 09:53

LONDON (Alliance News) - UK stocks are trading modestly higher Wednesday, while the pound has slipped from early highs after minutes from the latest Bank of England Policy meeting sounded a little less hawkish about the UK economy than expected.

By mid-morning Wednesday, the FTSE 100 is up 0.2% at 6,812.53, the FTSE 250 is up 0.3% at 15,699.05, while the AIM All-Share is up 0.1% at 773.48.

Major European markets are showing even more positivity in light of the decision by EU officials on Tuesday not to impose sector-wide, or "tier-three", sanctions on the Russian economy. By mid-morning, the German DAX and the French CAC are both up 0.5%.

The Monetary Policy Committee of the Bank of England voted 9-0 to keep the UK base rate unchanged at 0.5%, and also to maintain the central bank's stocks of purchased assets at GBP375 billion, according to the minutes of the July 9 and 10 MPC meeting released Wednesday.

The results of the vote came as little surprise to most, but the pound did fall a little from its morning highs against both the dollar and the euro, as there had been an expectation from some quarters that one or more of the MPC members would have seen fit to vote for a rate rise, given the apparent strength of the UK economic recovery. Against the dollar, the pound fell from USD1.7095 to a session low of USD1.7026, and against the euro, sterling fell to EUR1.2645 from an earlier two-year high of EUR1.2696.

The minutes broadly maintained a balanced perspective of the UK economy and the potential for the first interest rate rise, noting that "sustained economic momentum was looking more assured," but also that "it remained unclear whether growth would slow modestly in the second half of the year, as envisaged in the May Inflation Report."

Slack wage growth remains the primary concern of the committee, and the key measure to watch for those trying to gauge when interest rates will rise. The committee noted two possible reasons for the current disappointing wage growth: either that the lag between falling unemployment and higher wages is longer than previously judged, or that people are working longer hours for the same pay, or the same hours for less pay, than before.

"Such decisions might have been prompted by a number of factors, including concerns about the adequacy of retirement provisions, changes to benefits, or the weakness of current levels of income," the minutes say.

While the MPC minutes have shown the central bank's historical opinion on the economy, Governor Mark Carney might give a more up-to-date view at 1245 BST, when he delivers a speech to the Commonwealth Games Trade and Investment Conference in Glasgow. Given Carney's recent changes in tone and market-moving comments, his words will be monitored closely.

Released at the same time as the minutes, the British Bankers Association said it approved 43,300 mortgages in June, which is up a little from the 41,800 it approved in May and just fractionally below the expectation of 43,400.

Within UK equity movers, Renishaw is the stand-out gainer, having shot to the top of the FTSE 250 at the opening bell. The UK engineering group reported an increase in profit for its recent full year to GBP96.4 million from GBP82.1 million a year earlier. Of the bumper profit, GBP26.3 million came from the disposal of the group's 19.4% stake in previously AIM-listed Delcam, while Renishaw also said that its metrology, or industrial measurement business, saw strong demand. The shares are trading almost 15% higher, helping the FTSE 250 index outperform the FTSE100.

Capita leads the gainers in the blue-chip index, up 4.1% after raising its interim dividend by 10% in an expression of confidence of meeting its full year targets. The outsourcing company posted a pretax profit of GBP152.3 million, down from GBP157.5 million in the previous year, while revenue rose to GBP2.07 billion from GBP1.82 billion. Liberum Capital says the results are slightly ahead of its expectations, and that with a bid pipeline of GBP5.7 billion, Capita is enjoying a period of "strong win momentum".

BHP Billiton is up 1.2% after reporting a 20% increase in annual iron ore production over the 2014 full-year, marking its fourteenth consecutive annual production record.

Energy supplier SSE leads the FTSE 100 fallers, down 3.1% after going ex a GBP0.607 pence full-year dividend.

Johnson Matthey is down 1.4% after saying that its pretax profit fell by 10% during the quarter to June 30, coming in at GBP95.0 million, compared to the GBP106.09 million recorded in 2013.

Still to come Wednesday, GlaxoSmithKline is due to release second quarter results at midday, before attention switches back to the overall economy when Carney talks in Glasgow at 1245 BST.

US MBA weekly mortgage applications data is due at 1200 BST, followed by the eurozone consumer confidence index at 1500 BST, which is expected to remain unchanged in July at negative 7.5.

It's also the busiest day of US second quarter earnings releases so far, with a raft of names from American Airlines to Starbucks to Facebook slated to report.

Futures trading currently indicates that US stocks will open fractionally higher, with the DJIA and the S&P 500 both up by less that 0.1%.

By Jon Darby; jondarby@alliancenews.com; @jondarby100