17.30 (CLOSE): The pound was boosted today by strong retail sales figures and signs that some Bank of England policy makers are leaning towards a hike in interest rates.
These developments were less positive for the FTSE 100 Index, which was 19 points lower at 6821, as the disappointing week for investors continued.
Members of the Bank’s monetary policy committee (MPC) voted unanimously in favour of leaving interest rates on hold earlier this month but minutes showed there was less agreement on the course for future rates, with some appearing to favour raising rates earlier and then more gradually after.
Footsie cautious: The UK blue chip index stayed weak but was off lows as a UK rate hike seemed to moved closer.
Alpari market analyst Craig Erlam said: ‘Until now, the first rate hike was not expected until the second quarter of next year, or late in the first quarter at the earliest.
‘This has cast serious doubt over whether the MPC will wait that long, especially following yesterday’s inflation reading which showed the rate rising to 1.8 per cent.
‘The prospect of an earlier-than-expected interest rate hike, which was also fuelled by a 6.9% jump in sales volumes in April, lifted the pound against all major currencies. Sterling was up by around 0.5% against the US dollar and euro respectively, at 1.68 and 1.23.
‘AstraZeneca was one of the biggest risers in the FTSE 100 Index after major shareholder Legal & General urged the company’s board to open talks with Pfizer over the US company’s £55 a share takeover offer.
The stock lifted more than 2 per cent or 111.5p to 4420p.
Jitters in the supermarket sector returned today after brokers at Deutsche Bank placed a sell recommendation on Morrisons, adding to concerns over the industry’s slowest growth in a decade.
Morrisons was a heavy faller with a decline of 4.5p to 205p, while Sainsbury’s fell 1.8p to 337.7p and Tesco slipped 2.3p to 303.8p.
Other fallers in London included HSBC, with the banking giant down 8.6p to 618.5p. Mobile phone company Vodafone was off 0.7p to 204.6p as the poor reception to annual results yesterday continued to depress shares.
In corporate updates, shares in luxury goods group Burberry edged up 3p to 1518p after it reported an 8 per cent rise in annual profits to £461million.
The figures met forecasts but Burberry’s warning that sterling’s strength may dent profits this year had an impact on its share price performance.
Shares in FirstGroup recovered from a weak start seen after it announced it would not pay a dividend for the second year in a row as it focuses on the recovery of its UK bus and North American school bus divisions.
Profits still rose 23 per cent to £111.9 million, helping shares lift 2p to 134.2p.
The biggest risers on the FTSE 100 Index were Sports Direct International up 27p at 751p, AstraZeneca up 111.5p at 4420p, William Hill ahead 8.4p to 334.4p and Ashtead up 20p at 850p.
The biggest fallers on the FTSE 100 Index were Morrisons down 4.5p at 205p, Pearson off 24p at 1132p, easyJet down 30p at 1550p and Antofagasta off 12.5p at 771p.
16.00: The Footsie ticked into positive territory in late afternoon trade as US stocks jumped higher in early deals, but the mood in London remained subdued by signs that some Bank of England policy makers are leaning towards a hike in interest rates.
With half an hour of trading to go, the FTSE 100 index was up 4.4 points at 6,806.4 having rallied from a session low of 6.783.8.
On Wall Street, the Dow Jones Industrial Average jumped 139.8 points, or 0.9 per cent 16,514.1, with the broader S&P 500 index and tech-laden Nasdaq composite both up 0.6 per cent.
US boost: Strong early gains in New York helped the Footsie rally from earlier falls into the close.
US indices rebounded from a broad sell-off in the prior session ahead of the release of minutes from the most recent meeting of the US Federal Reserve due at 7pm.
The Fed’s late April meeting saw the central banker’s look past a dismal reading on first-quarter US GDP growth to give a mostly upbeat assessment of the economy’s prospects as it announced another cut in its bond-buying stimulus programme.
Philadelphia Fed President Charles Plosser commented on the slow pace of the bond tapering on Tuesday and said that the $ 2.5trillion in reserves accumulated by banks could be the trigger for more rapid inflation.
Jasper Lawler, market analyst at CMC Markets UK said: ‘Despite comments from Philadelphia Fed President Charles Plosser that the pace of tapering may be too slow, it seems unlikely that this will be a focus of discussion in today’s FOMC minutes with (Ben) Bernanke and (Janet) Yellen both having clearly signalled a ‘steady pace’ until the end.
‘What will be of more importance will be how much ‘slack’ is believed to be left in the labour market and how that should affect the timing of rate hikes. Saving anything wild in the minutes, mid 2015 still seems the most likely timing for a rise in US interest rates.’
Meanwhile, minutes from the Bank of England’s May monetary policy committee (MPC) meeting released today showed there was less agreement on the course for future interest rates, with some appearing to favour raising rates earlier.
13.30: The Footsie stayed weak at lunchtime but the pound was boosted today after strong retail sales figures and signs that some Bank of England policy makers are leaning towards a hike in interest rates.
Around mid session, the FTSE 100 index, was 5.4 points lower at 6,796.6, as the disappointing week for investors continued, although ex-dividend factors accounted for around 5 points of the benchmark’s decline.
Members of the Bank’s monetary policy committee (MPC) voted unanimously in favour of leaving interest rates on hold earlier this month but minutes showed there was less agreement on the course for future rates, with some appearing to favour raising rates earlier and then more gradually after.
Craig Erlam, market analyst at Alpari (UK) said: ‘Until now, the first rate hike was not expected until the second quarter of next year, or late in the first quarter at the earliest.
‘This has cast serious doubt over whether the MPC will wait that long, especially following yesterday’s inflation reading which showed the rate rising to 1.8 per cent.
The prospect of an earlier-than-expected interest rate hike, which was also fuelled by a 6.9 per cent jump in sales volumes in April, lifted the pound against all major currencies.
Sterling was up by around 0.5 per cent against the US dollar and euro, at 1.69 and 1.23 respectively.
AstraZeneca was the biggest riser in the FTSE 100 Index after major shareholder Legal & General reportedly urged the company’s board to open talks with Pfizer over the US company’s rejected £55 a share takeover offer.
After recent sharp falls following the rebuffing of Pfizer’s third and final offer on Monday, Astra shares rallied 2 per cent, or 79.5p higher today to 4,388.0p.
ARM Holdings, the chip designer whose customers include Apple and Samsung, was also in demand, adding 12.5p to 857.5p, after what traders described as a well-received analyst day yesterday.
ARM, which reported disappointing first quarter results last month gave a bullish outlook for the rest of the year, according to analysts.
‘On an overall basis Arm expects to grow its volume market share of the overall semiconductor market from the 35 per cent achieved in 2013. This in turn, is expected to result in its royalty revenue growing at about 15 percentage points ahead of the industry,’ analysts at Liberum Capital said in a note.
However Liberum maintained a sell rating on ARM shares: ‘We continue to be more cautious on Arm’s royalty progression over the next five years, mainly due to the on-going mix shift in the smartphone and tablet markets towards the low end, and the relatively small contributions expected from new product segments.’
Share graph for story – Petrofac PFC
Also among the blue chip gainers, oil services group Petrofac added 24.0p to 1,218.0p after Barclays upgraded its rating to equal-weight from underweight.
Following the firm’s recent profit warning, analysts at the bank reckon that ‘value has returned’ to Petrofac although they its target price to 1,500p from 1,655p.
But on the downside in the top flight, Chilean copper miner Antofagasta fell 11.0p to 772.5p as it said its markets continued to be challenging in the short term.
Energy supply SSE shed 10.0p to 1,558.0p as it also called its sector outlook ‘challenging’ despite reporting a 9.6 per cent rise in annual profits.
Among the mid-caps, utility group Telecom Plus leapt 141.0p higher to 1,511.0p after reporting a 25 per cent jump in annual profits to $ 44.6million lifted by an energy supply deal with Npower.
10.15: The Footsie headed lower as the morning session progressed, spooked by minutes from the Bank of England Monetary Policy Committee (MPC) meeting for May that indicated the bank could be edging even closer to an interest rate rise.
Jitters in the supermarket sector also returned to haunt the market after a broker downgrade for William Morrison in spite of strong official retail sales data showing robust food sales over Easter.
By mid morning, the FTSE 100 index was down 16.5 points at 6.785.5, just holding off the early session low of 6,782.8.
Morrisons knocked: Shares in supermarket firm William Morrison was the top Footsie faller after a broker downgrade.
Traders looked to be further losing faith in the idea that the blue chip index, which has been underpinned in recent weeks by a burst of deal-making and bids, will hit new all-time highs in the near term.
Last week the Footsie climbed to 6,894.88, the highest level since December 1999, when it set a record high of 6,950.60 points. But it has since sold off.
Bill McNamara, technical analyst at Charles Stanley said: ‘It is difficult to escape the impression that the UK index is stalling at the previous highs.’
Traders were more cautious after the BoE minutes showed some officials are moving closer to voting for an increase in interest rates, though all the policymakers want to see less slack in Britain’s economy first.
The nine members of the MPC, as expected, voted unanimously to keep interest rates on hold but the minutes showed that policymakers continued to be divided on how much spare capacity there was in Britain’s economy, and how fast it would be eroded as the economy grew at its fastest pace in years.
Howard Archer, chief European and UK economist for IHS Global said: ‘The outlook for monetary policy is starting to look a lot more uncertain, with the minutes of the May MPC meeting indicating that opinions within the committee are diverging on about exactly when monetary policy should start to be gradually tightened.
‘There are clear indications in the May minutes that some of the more hawkish MPC members are starting to get twitchy.’
Further evidence of a strengthening UK economy came today from figures showing retail sales rose much more strongly than expected in April helped by robust food sales during the Easter holiday.
The Office for National Statistics said UK retail sales volumes jumped 1.3 per cent last month to show 6.9 per cent growth on the year – its highest annual rate since May 2004.
Economists had expected retail sales to rise 0.5 per cent on the month and for sales to be up 5.2 per cent compared with April last year.
Sales for March were also revised up significantly. Easter this year fell in April but was in March in 2013. Britain’s consumers have been the main driver of the country’s economic recovery which began last year.
A fall in inflation and signs of higher wages have helped restore some of the spending power lost in the years after the financial crisis.
Other industry surveys this month had already suggested sales picked up quickly in April due to the Easter break as well as Mother’s Day.
Food sales jumped 3.6 per cent in April from March and 6.3 per cent on the year – its highest annual rise since January 2002 – due to better weather and sales promotions, as well as the later-than-usual Easter holiday, the ONS said.
But this good news on sales failed to help a weaker supermarket sector, with Bradford-based Morrisons the biggest blue chip faller, down over 2 per cent or 5.7p to 203.8p as Deutsche Bank cut its rating on the grocer to sell from hold, largely on valuation grounds.
Morrisons’ shares have jumped some 10 per cent since hitting a trough two weeks ago.
‘Neither incremental news flow nor fundamental valuation supports the recent share price move… Sales trend has deteriorated and we expect no near-term improvement,’ Deutsche Bank analysts said in a note.
Other blue chip food retailers also fell back, with Sainsbury’s off 3.7p to 335.8p and Tesco down 3.0p to 303.1p.
Also among the fallers in London, banking giant HSBC shed 8.35p to 618.75p as the stock traded ex-dividend.
Other blue chip stocks trading without the attractions of their latest dividend payouts today were Carnival, Compass Group, and Intertek, which together with HSBC knocked up to 5.4 points off the index.
Mobile phone giant Vodafone was also lower again, off 1.1p to 204.1p as the poor reaction to annual results yesterday continued to depress shares.
In corporate updates today, shares in luxury goods group Burberry were up 19.5p to 1534.5p after it reported an 8 per cent rise in annual profits to £461million.
And on the second line, shares in transport firm FirstGroup recovered from a weak start seen after it announced it would not pay a dividend for the second year in a row as it focuses on the recovery of its UK bus and North American school bus divisions.
Profits still rose 23 per cent to £111.9million, helping FirstGroup shares to add 1.9p at 134.1p.
08.30: The FTSE 100 has opened down 13.3 points at 6,788.7, tracking losses in the US and in Asia which led major markets further away from recent highs.
Wall Street set the tone for a weak session in Europe after disappointing results for heavy machinery firm Caterpillar and a sell-off in the retail sector.
Concern about sales at groups like TJX Cos – owner of the TK Maxx clothing chain – and office supplies specialist Staples prompted broader share declines.
Company watch: Concern about sales at US groups like TJX Cos, owner of the TK Maxx chain, prompted broader share declines.
The retail sector is also in focus back in the UK with April’s official retail sales numbers due for release at 9.30 am, and as luxury firm Burberry met forecasts with an 8 per cent rise in annual profit.
However, the firm reiterated the risk of a material impact on profit if foreign exchange rates remain at current levels. The stock opened down 1.5p at 1,513.5p.
Minutes from the May Bank of England MPC meeting are also due out later and will be scrutinised for any evidence of dissent on the decision to keep rates unchanged at 0.5 per cent this month.
Carnival, Compass, HSBC and Intertek will start trading ex-dividend – meaning they lose their payout attractions – knocking up to 5.42 points off the index today.
The FTSE 100 closed down by 42.55 points at 6,802.00 yesterday after share falls by mobile operator Vodafone and retailer Marks & Spencer in the wake of disappointing forecasts from both companies.
Stocks to watch today include:
BURBERRY: Annual profits at the luxury goods firm brand met forecasts but it warned about fallout from current foreign exchange rate levels in future results.
SSE: The energy supplier reported a 9.6 per cent increase in full-year adjusted pre-tax profit to £1.55billion after getting a boost from a strong performance in its electricity transmission operations.