13.10: The Footsie was flat at lunchtime, treading water after hitting record levels, as excitement over a big merger in the retail sector was subdued by worries about the health of the economy in the euro zone, Britain’s biggest trading partner.
Around mid session, the FTSE 100 index was just 0.6 points higher at 6,879.1 consolidating after a recent assault on its all-time closing peak of 6,930.2 in December 1999, although progress has been slow amid lacklustre trading in recent sessions
There was little help from Europe, where it emerged that output from the 18 members of the euro failed to gain any momentum in the first quarter and fears over deflation remain heightened.
Water trod: The Footsie was just about flat as a recent push up to record levels was consolidated.
Will Hedden, Premium Client Manager at IG said: ‘Europe is digesting mixed GDP data and another hit to the inflation outlook.
‘Germany led the way again, growing 0.8 per cent for the quarter, in line with the UK. France came out stagnant and the Netherlands, Italy and Portugal all contracted.
‘The headline figure missed comfortably, and year-on-year growth for the entire zone sits at 0.9 per cent.
‘Eurozone inflation again printed disappointingly (year-on-year at 0.7 per cent) and this moves the likelihood of action in June from Mario Draghi further towards certainty,’ Hedden added.
The latest disappointing data fuelled expectations that the European Central Bank will soon back fresh stimulus measures to shore up the recovery, causing sterling to rise by nearly half a percent against the euro.
The pound was down slightly against the US dollar, however, after the Bank of England yesterday dampened expectations of interest rate rises later this year.
The main corporate focus today was a proposed tie-up between Carphone Warehouse and Currys and PC World owner Dixons Retail which will create a new company with a UK portfolio of more than 1,300 stores and valued at more than £3.5billion.
However, both companies’ shares came under heavy selling pressure as the merger of equals had been widely anticipated and raised fears over the challenge of combining the two operations.
On the FTSE 250 index, Carphone lost 5 per cent or 15.9p at 311.8p while Dixons Retail, which shed 1.9p to 49.0p.
Dunstone merged: Sir Charles Dunstone will become chairman of the merged Carphone Dixons group.
Elsewhere on the high street, blue chip supermarket groups rallied after Asda, the British arm of Wal-Mart, said it returned to underlying sales growth in its first quarter as it battles with discounters to attract price-conscious shoppers.
Asda said sales at stores open over a year, excluding fuel and VAT sales tax, rose 0.1 per cent in the 15 weeks to April 20 compared to the same period last year. The outcome follows a like-for-like sales decline of 0.1 percent in its previous Christmas quarter.
The rare bit of good news in the sector helped under pressure William Morrison top the FTSE 100 leader board, up 5.0p to 201.3p, while market leader Tesco gained 4.9p at 301.2p.
But on the downside with blue chips, Aviva shed nearly 3 per cent, down 15.5p to 515.6p after the insurer said it saw mixed performances from its businesses in the first quarter of the year, with strong recoveries in Europe partly offset by a volatile life market in the UK.
Anglo-South African financial services group Old Mutual was also under pressure, down 6.5p to 202.9p after its first quarter sales growth was limited to just 12 per cent due to adverse currency movements, half that which it would have been if currency levels had been constant.
Meanwhile, annual results from Land Securities also failed to please, with the real estate investment trust’s adjusted net asset value only in line with consensus growth of only 1.8 per cent in London offices disappointing some brokers. Land Securities shares fell 25.0p to 1,080.0p.
Negative broker comment weighed on mobile phone giant Vodafone’s shares, down 4.6p to 217.5p. Goldman Sachs cut its rating for Vodafone to neutral from buy and reduced its target price to 240p ahead of the telecom firm’s fourth quarter results due next week.
Discount airline EasyJet was also lower, off 80.0p at 1,582.0p as RBC Capital cut its target price to 1,750 pence from 1,800 pence following a recent update.
The broker highlighted the difficulties set out by easyJet in forecasting passenger behaviour this summer since people’s holiday dates might be based on whether their team was still in the World Cup soccer competition.
Elsewhere in the travel sector, Thomas Cook was the biggest faller in the FTSE 250 index, down 13.8p to 164.7p after it revealed that the impact of Egypt’s political turmoil on demand for its holidays knocked £131million off its half-year sales and £14million from its profits.
The business, which like most travel firms and airlines traditionally makes a loss in the quieter winter months, still beat market expectations and narrowed its losses to £257.1million, from £268.8million a year ago.
And French Connection shares dropped 10 per cent, or 8.6p to 79.2p after it said it expected its trading in North America to be below expectations for the remainder of the year, offsetting further signs of progress in Europe.
09.50: The Footsie moved another step closer towards its record high as the morning session progressed with confidence boosted by a multi-billion pound merger on the high street.
Approaching mid morning, the FTSE 100 index was up 4.7 points at 6,883.1, within sight of its all-time closing peak of 6,930.2 hit in December 1999, although progress has been slow amid lacklustre trading in recent sessions.
The big focus was a proposed tie-up between mid caps Carphone Warehouse and Currys and PC World owner Dixons Retail which will create a new electricals retail group with a UK portfolio of more than 1,300 stores.
Retail merger: Currys and PC World owner Dixons retail has unveiled plans for a £3.7bn merger with Carphone Warehouse.
Both FTSE 250 firms are worth around £1.8 billion, although shares in the pair drifted today as the merger of equals had been widely anticipated.
Keith Bowman, Equity Analyst at Hargreaves Lansdown Stockbrokers commented: “As expected, a merger of equals is to be created. Enhanced commercial opportunities and operating synergies have been highlighted by management, with cost savings of at least £80 million on a recurring basis expected to be delivered by the financial year 2017/18.
‘As such, an international retailing giant with over 2,500 stores is being crafted, and one which will potentially join the UK’s elite FTSE 100 index.
‘On the downside, shareholder and regulatory approval is still required, the merger of equals could still leave respective managements battling for dominance, whilst competition from the likes of Amazon will prove no less intense,’ Bowman added.
Carphone shares were 3.2p lower at 324.6p and Dixons Retail slipped 1.2p to 49.6p.
Significant risers in the FTSE 100 Index included the London Stock Exchange, which rose 61.0p to 1,862.0p after announcing it would accelerate its cost cutting programme.
But holidays firm Thomas Cook was the biggest faller in the FTSE 250 Index, losing 9.4p to 169.1p even though it cut its first half losses in the first six months of the year.
The business, which like most travel firms and airlines traditionally makes a loss in the quieter winter months, beat expectations and narrowed losses to £257.1 million, from £268.8 million a year ago.
08.20: The Footsie was flat in early deals, subdued by overnight falls from US stocks as benchmark indices pulled back from recent record levels, with investors awaiting some key euro zone data today.
In opening deals, the FTSE 100 index was up 2.3 points at 6,880.80, consolidating yesterday’s modest gains as investors sought fresh direction.
The UK blue chip index closed 5.4 points higher yesterday at 6,878.5, within sight of its all-time closing peak of 6,930.2 hit in December 1999 – and the highest finish since that time.
ECB watch: Investors were braced for some key euro zone data today after European Central Bank boss Mario Draghi said last week that the bank is ready to take action next month to boost the struggling economy.
Investors were upbeat yesterday after the Bank of England pushed back against expectations it might raise interest rates in less than a year’s time, leaving largely unchanged its assumptions on the timing of interest rate rises even as it acknowledged a strong recovery in the labour market and shrugging aside worries over a UK housing market bubble.
BoE policymaker Ben Broadbent said in an interview today with BBC Radio that it was not surprising that Britain’s housing market was recovering along with the rest of the economy and he did not see troubling levels of credit growth.
After yesterday’s flow of UK data, no important indicators will be released today, so the focus will be firmly fixed on the economic health of the euro zone, Britain’s biggest trading partner.
Euro zone first quarter GDP numbers and April CPI inflation figures will both be released at 10.00am, and investors will be looking for signs of deflationary pressures after European Central Bank boss Mario Draghi said last week that the bank is ready to take action next month to boost the struggling economy if price inflation forecasts warrant.
Reuters yesterday quoted sources as saying the ECB is preparing a package of policy options for its June council meeting, including cuts in all its already rock-bottom interest rates, and targeted measures aimed at boosting lending to small and mid-sized firms.
Joshua Mahony, research analyst at Alpari (UK) said: ‘The backdrop of impending stimulus measures from the ECB add another dimension to this today, with GDP rates likely to be strengthened by any monetary stimulus going forward.
‘I would not expect any adverse reaction should these figures come in above estimates, owing to the fact that largely the ECB decision-making is driven by low inflation and a strong euro, rather than any current growth fears for the region.
‘However, with the inflation figure also due out this morning, we could certainly see markets draw conclusions as to whether we will see any further action from the ECB in June.
‘The March announcement of 0.7 per cent is expected to be matched this month, yet given disinflationary pressures, we could see it tumble further to the downside, putting further pressure upon Draghi to act.
‘The March figure was largely expected to be higher given that Easter typically sees firms in the services sector increase their prices, thus with this out of the way, I believe there will likely be downward pressure upon this release,’ Mahony added.
Once the euro zone excitement is out of the way, investors will also have US CPI inflation and industrial output figures to contemplate this afternoon.
Stocks to watch include:
CARPHONE WAREHOUSE, DIXONS RETAIL – The two companies have agreed a £3.8billion pounds all-share merger, creating a powerful pan-European mobile phone and electricals group with about 2,900 stores.
LLOYDS BANKING GROUP – The taxpayer-backed lender is braced for tough questions from shareholders at its annual general meeting today over a £7.8million pay package handed to chief executive Antonio Horta-Osorio.
ASTRAZENECA – The drugmaker’s boss said on Wednesday he would engage with Pfizer if the price was right and the risks posed from forcing the British drugmaker’s operations into the US company’s new three-unit model were addressed.
AVIVA – The insurer said it saw mixed performances from its businesses in the first quarter of the year, with strong recoveries in Europe partly offset by a volatile life market in the UK.
OLD MUTUAL – The Anglo-South African financial services group said gross sales were up 24 per cent in the first three months of 2014 on a constant currency basis, ahead of expectations.
LAND SECURITIES – Britain’s largest listed property developer posted a better than expected 12.2 per cent rise in net asset value and announced an end to its strategy of building London offices speculatively.
LONDON STOCK EXCHANGE – The bourses operator has reported a 50 per cent rise in full year reported revenue, saying expansion in capital markets infrastructure had boosted profits.