By This Is Money Reporters
17.30 (CLOSE): British Gas parent Centrica endured more share losses today after a leading City broker slapped a ‘sell’ rating on the firm just two days before its annual results.
The blue chip stock, which has lost a fifth of its value since October, dropped more than 3 per cent at one stage but later clawed back some of the decline as the wider FTSE 100 Index continued its bounce back, closing 60.4 points higher at 6796.4.
Today’s gains add to a 1 per cent close on Monday, helping the top tier recover last month’s hefty losses.
Big hit: Centrica saw shares drop more than 3 per cent at one stage after UBS slapped it with a ‘sell’ rating.
Early session trading was more lacklustre on America’s Dow Jones Industrial Average as the market got off to a slow start following the long holiday weekend.
In a quiet session for corporate updates, attention was focused on the UK economy after new figures showed inflation fell to 1.9 per cent in January.
Experts believe the decline heralds the start of a run of below-target inflation in what will come as welcome respite for cash-strapped households.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said low inflation should also act as a positive for shares.
He added: “Companies can more easily pass on the costs of slowly rising prices to their customers while investors are protected through rising dividends and share prices.”
But with weaker inflation likely to help the Bank of England keep rates at their record low for longer, sterling came under pressure.
It narrowly held on to its recent four-year high against the US dollar, at 1.67 dollars, but fell a cent to 1.21 euros.
Centrica was in sharp focus after broker UBS added to the group’s share price woes.
It has plunged in value as it faces up to Labour leader Ed Miliband’s threat to freeze prices if he wins the next election and Energy minister Ed Davey’s recent questioning of its gas retail margin.
Ahead of results on Thursday, which are expected to show flat operating profits for 2013, UBS weighed in with a sell rating based on expectations that Centrica’s retail margins will fall to 4 per cent in order to reduce political risk.
Shares dropped 4p to 314.4p, or 1 per cent.
Alongside Centrica, the FTSE 100 fallers board featured InterContinental Hotels after the company posted a 10 per cent rise in operating profits to $ 668million (400million) for last year.
Shares have enjoyed a good run in recent months, but were off 3 per cent or 66p at 1981p on disappointment at the failure of the company to announce plans to return cash to shareholders.
Banking stocks were among the biggest gainers of the session, with Royal Bank of Scotland up 8.4p to 360.2p and Barclays ahead 5.3p to 261.3p.
And BHP Billiton added 37p to 1949p after the world’s biggest mining firm reported a better-than-expected half year profit of $ 8.1billion (4.84 billion) as cost cuts offset lower commodity prices.
The biggest FTSE 100 risers were BT Group up 13.8p to 418.1p, Royal Bank of Scotland ahead 8.4p to 360.2p, Anglo American 35p higher at 1587p and London Stock Exchange 44p stronger at 2001p.
The biggest FTSE 100 fallers were InterContinential Hotels down 66p to 1981p, Rolls-Royce off 29.5p to 976.5p, Tate & Lyle 12.5p lower at 644p and Morrisons 3.8p weaker at 232.6p.
15.55: London shares held firm in late afternoon trade, supported by benign UK inflation numbers, failing to be affected by an opening retreat in New York after further weak US economic data.
With around half an hour of trading to go, the FTSE 100 index was up 37.1 points at 6,773.1 having rallied from an early fall back to a session low of 6,716.6.
The UK blue chip index has now erased its losses for the year, having risen in nine of the last 10 sessions, taking its total gain over that period to 5 per cent, its best such run since October, and leaving it up 0.2 per cent for the year-to-date.
US retreat: Shares on Wall Street fell back in early trade but failed to dent the positive sentiment in London
Joshua Raymond, strategist at City Index said: ‘The fact that we had some better data over the last couple of weeks calmed some of the nerves out there and helped feed the risk appetite we’ve seen in European equities.’
While market concerns about the Chinese economy and emerging markets remain, they have considerably eased over the past two weeks, thanks to better economic data from the world’s second largest economy and a Federal Reserve pledge to keep rates low.
However, on Wall Street, the Dow Jones Industrial Average fell 10.3 points to 16,144.1 in early trading, returning cautiously following yesterday’s Presidents Day holiday break in the wake of the index’s biggest weekly gain of the year.
US stocks retreated as data showed factory activity in New York state slowed this month, illustrating the fragile state of the US economy. The Empire State index slipped to 4.5 in February after soaring to 12.5 in January, which was its highest level since May 2012.
And the NAHB US housing market index dropped to 46 in February, missing expectations and showing confidence among home builders dropping to the lowest level in nine months.
The data backed up last week’s testimony from new Federal Reserve chairman Janet Yellen who told lawmakers in Washington that the economic recovery ‘is far from complete’ and signalled interest rates will remain close to zero for some time to come.
UK interest rates also looked set to stay steady for some time yet after figures today showed UK CPI inflation in January falling below the Bank of England’s target rate of 2 per cent for the first time in over four years, easing the pressure on the central bank to change its monetary policy.
Tony Stenning, head of UK Retail at BlackRock said: ‘The fall in the inflation rate to 1.9 per cent – below the Bank of England’s 2 per cent target for the first time since November 2009 – is good news.
‘However, despite today’s announcement, the rate of inflation remains significantly above the prevailing interest rate (of 0.5 per cent).
‘Individuals shouldn’t get too carried away as this is still eroding the purchasing power of their hard earned nest eggs.’
12.55: The Footsie bounced higher at lunchtime, recovering from a cautious early performance following the release of data which showed UK CPI inflation falling to 1.9 per cent in January, below the Bank of England’s 2.0 per cent target for the first time since November 2009.
The FTSE 100 index was up 31.9 points to 6,767.9, extending Monday’s 1 per cent rise. Experts believe the CPI decline heralds the start of a run of below-target inflation in what will come as welcome respite for cash-strapped households.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said low inflation should also act as a positive for shares.
Inflation drop: CPI inflation in January fell below the Bank of England’s 2% target for first time since November 2009
He added: ‘Companies can more easily pass on the costs of slowly rising prices to their customers while investors are protected through rising dividends and share prices.
But with weaker inflation likely to help the Bank of England keep rates at their record low for longer, sterling fell back from its recent four-year high against the US dollar.
Banking stocks provided the biggest gainers of the session, boosted by the brighter news for Britain’s economy which should help consumer spending and lending, with Royal Bank of Scotland up 8.4p to 360.2p and Barclays ahead 5.1p to 261.1p.
Miners also provided another prop for the blue chips, with BHP Billiton in demand, up 29.5p to 1,941.5p after the world’s biggest mining firm reported a better-than-expected half year profit of 4.84billion as cost cuts offset lower commodity prices.
The Anglo-Australian company’s shareholders also look set to benefit from a share buy-back scheme within six months.
But on the downside, Centrica shares suffered another blow today after a leading City broker issued a sell note on the British Gas owner just two days before its annual results.
The blue-chip stock has lost a fifth of its value since October as it faces up to Labour leader Ed Miliband’s threat to freeze prices if he wins the next election and Energy minister Ed Davey’s recent questioning of its gas retail margin.
Ahead of results on Thursday, which are expected to show flat operating profits for 2013, UBS has weighed in with a sell rating based on expectations that Centrica’s retail margins will move to 4 per cent in order to reduce political risk.
The company’s shares shed another 7.7p at 310.7p.
Alongside Centrica, InterContinental Hotels featured on the FTSE 100 fallers list following annual results, although the company posted a 10 per cent rise in operating profits to 400million for last year.
The hotel operator’s shares have enjoyed a good run in recent months but fell 72p at 1,975p today on disappointment at the failure of the company to announce plans to return cash to shareholders.
InterContinental has 687,000 rooms at 4,697 hotels and trades under brands including Crowne Plaza and Holiday Inn Express.
09.25: London shares eased back following yesterday’s strong gains, with a big fall by British Gas owner Centrica the main drag on the blue chip index.
After an hour and half of trading, the FTSE 100 Index was 15.8 points lower at 6,720.2 as the London market consolidated a 1 per cent rise seen in its previous session. The absence of Wall Street trading last night due to a public holiday was also a factor in the subdued performance.
Centrica topped the top flight fallers list, just two days before it publishes annual results, after the energy firm was hit by a UBS downgrade to sell.
The company has lost a fifth of its value since Labour leader Ed Miliband’s pledge last autumn to freeze prices if he wins the next election.
The stock dropped last week after Energy Secretary Ed Davey wrote to regulators saying profit margins of big energy companies’ gas supply units are too high, and suggesting dominant player British Gas may have to be broken up.
Centrica shares were down another 3.5 per cent, or 11.5p today to 306.8p with the firm due to report flat annual operating profits in figures due on Thursday.
Among the gainers, BHP Billiton added 18.5p to 1,930.5p after the world’s biggest mining firm reported a better-than-expected half year profit of 4.84billion as cost cuts offset lower commodity prices.
The Anglo-Australian company’s shareholders also look set to participate in a share buyback within six months.
Stock watch: BHP Billiton hinted it may launch share buybacks in August, despite a cautious outlook on Chinese growth
Thomson holidays owner TUI Travel provided the biggest rise of the early session, up 6.3p to 449.6p, while Royal Bank of Scotland was 4p higher at 355.8p.
08.30: The FTSE 100 has opened almost flat, up just 0.1 points at 6,736.1, defying hopes that forecast-beating results from miner BHP Billiton would help buoy the overall market.
The global miner topped market forecasts with a 31 per cent rise in first-half profit and hinted it might launch a share buyback in August, despite a cautious outlook on Chinese growth. Its shares opened up 18.25p at 1,930.25p.
Inflation data for January is due for release later and will come under close scrutiny after the Consumer Price Index hit the Bank of England’s target of 2 per cent in December.
‘Last month the UK inflation rate as measured by CPI fell to the 2 per cent level in December, for the first time since November 2009 when it came in at 1.9 per cent,’ said Michael Hewson of CMC Markets.
‘One of the main reasons was that of lower food prices offsetting the effects of slightly higher energy prices, and today’s January numbers have the potential to be even lower still with the month on month number expected to show a drop of 0.5 per cent.
‘If the annual inflation rate were to drop to 1.9 per cent, and the general consensus would appear to be that it might, then market expectations of a future interest rate rise are likely to be kept on the back burner for a little while yet.
‘Bank of England governor Mark Carney’s comments last week, when he delivered the quarterly inflation report, and again at the weekend, suggests that the Bank is now set to ignore the unemployment threshold, thus rendering it largely irrelevant.’
Investor focus will also be on the ZEW think-tank’s poll of German economic sentiment for February, which is due out this morning and is expected to have steadied.
The FTSE 100 closed up by 72.38 points or 1.1 per cent, at 6,736.00 on yesterday.
In corporate news, discount retailer Poundland plans to list its shares on the London Stock Exchange in March, joining a surge of store groups seeking floatations as the outlook for consumer spending improves.
Stocks to watch today include:
FIRSTGROUP: The transport company said it had signed a deal with the government to continue to run London’s First Capital Connect rail franchise for an additional six months ahead of a new bid round for the link.
VODAFONE: The company has lodged a complaint against Spanish rival Telefonica, alleging it is abusing its position in Spain to reduce competition for telecoms, internet and television services.
LLOYDS: US-based Anchorage Capital Group has acquired about 80million of debt from Lloyds Banking Group for a controlling stake in New Century Care (NCC), one of Britain’s biggest care home groups, Sky News reported.
ESSAR ENERGY: The energy group said gross refining margins at Vadinar and Stanlow had fallen.
INTERCONTINENTAL HOTELS: The hotels group posted higher annual profits.
JOHN WOOD GROUP: The energy services company reported an increase in full-year profit of 14 per cent, in line with the company’s expectations. A strong performance in services and engineering offset weakness in its gas turbine division.
DRAGON OIL: Turkmenistan-focused oil company Dragon Oil said it expected to drill 14-16 wells this year and around 20 wells in 2015, in a bid to meet its 100,000 barrels per day production target from next year.
PENDRAGON: The car dealer said it expected another strong year in 2014 after announcing last year’s pre-tax profits had risen 14 per cent to 38.9million.
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