London midday: FTSE falls as dividends and banks weigh

Thu 17 Aug 2017

LONDON (SHARECAST) - (ShareCast News) - London stocks gave up more ground by midday on Thursday as a retreating oil price and dovish US central bankers hit lenders to offset a better set of retail sales data.
At 1215 BST the FTSE 100 was down 27.50 points or 0.37% to 7,405.53, though the FTSE 250 was less affected despite both being weighed down by a large cabal of stocks going ex-dividend.

The pound was down another 0.25% against the dollar to 1.2859 and jumped 0.37% on the euro to 1.0996, with UK retail sales data and eurozone inflation cited by analysts as key reasons.

UK retail sales beat forecasts at the top line but strong food sales continue to mask wider weakness as consumers continue to feel the pinch.

Total retail sales including fuel rose 0.3% for a second month, the Office for National Statistics revealed, beating the average economist estimate of 0.2%.

Excluding petrol, retail sales increased 0.5% month-on-month in July, better than the consensus forecast for a 0.1% rise but down from the revised previous month's 0.6% rise.

This did not offer much to cheer about, said analyst Connor Campbell at Spreadex, as July and June's readings were halved from the initial 0.6% growth stated last month.

Eurozone inflation came in as expected at 1.3%, continuing the steady decline from the 2.0% and 1.9% readings seen in February and April respectively.

Analyst Henry Croft at Accendo Markets saw some other forces at play: "Investors continue to analyse the fallout from the disbanding of President Trump's business councils, seen as a key link between corporate America and the White House. At best, it could remove pressures on CEOs to defend the President's views in order to focus on running profitable businesses; at worst it could slow the administration's ability to enact key economic policies such as tax reform and sector deregulation."

He noted that less hawkish minutes from the US Federal Reserve's rate setters compounded woes from the US, with disagreement between policymakers hurt banks across the world, also noting that oil was retreating as dollar bounced.

The split at the heart of the US Federal Open Markets Committee was revealed as minutes from the last central bank monetary policy meeting showed an unexpected divergence of opinion among the policymakers on whether they should carry on with the interest rate hikes or not.

Although "most participants expected inflation to pick up over the next couple of years....and to stabilize around the 2% objective over the medium term", the minutes said, many participants see "some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside".

Commenting on the content of the minutes, Ipek Ozkardeskaya at London Capital Group said: "The minutes revealed debates regarding the Fed's inflation outlook, concerns about the unprecedented rise in stock prices and financial stability. Apparently, some Fed members favoured announcing the balance sheet normalisation plans at the July meeting, hoping to kick off in September. Others highlighted risks of an excessively rapid policy normalisation and remained cautious on achieving the 2% inflation target."

In the aftermath of the FOMC minutes, the probability of a December rate hike plunged below 40%.

The US 10-year yield softened slightly below the three month average. Gold rallied to $1,289, as the dovish Fed minutes removed a major barrier to last month's positive trend. Ozkardeskaya said the conditions are conducive for a price breakout for gold above the $1,295/1,300 resistance level, with shares in miners Fresnillo, Randgold and Hochschild benefitting.

Later there is likely to be keen interest in the minutes of the European Central Bank's last policy meeting, which is due to be published at 1230 BST.

Stateside, investors are waiting on a flurry of economic data, including the Philly Fed regional manufacturing index for August at 1330 BST and industrial production figures for July at 1415 BST.


Hikma Pharmaceuticals was hammered after reporting a 1% rise in first-half sales and trimming its guidance for the full year as the generic drugs arm faces tougher market conditions. For the full year management now see sales rising to "around $2bn", down from previous guidance of $2-2.1bn issued in May.

In comparison, shares in retailer Kingfisher received only a light hammering, after sales in the second quarter fell and the B&Q and Screwfix owner expressed caution on the outlook for the UK and France in the second half. In the three months to 31 July, group like-for-like sales shrank 1.9%, deteriorating from the 0.6% decline in the first quarter, though management said they "remain comfortable" with the market forecast of underlying earnings per share of 26p for the full year.

Banks, led by Standard Chartered, RBS and HSBC, were been buffeted lower by the dovish reading of the Fed minutes, which cast doubts on the likelihood of another rate hike in the US this year. Also, there were reports that British banks are facing massive Libor lawsuit from the US Federal Deposit Insurance Corporation.

Fallers were led by a list of stocks going ex-dividend, including British American Tobacco, Evraz, Legal & General Group, Man Group, Merlin Entertainments, Millennium & Copthorne Hotels, Pearson, Reckitt Benckiser Group, Schroders, and Segro.

Marshalls, the making of paving slabs and interior tiling, was headed higher as it reported revenue up 8% and EBITDA up 13% as it saw a continued improvement in operating margins.

Johnson Matthey was helped by a note from Bernstein that suggested forthcoming bans on the sale of diesel vehicles in several European countries should not be a reason to despair for producers of automotive catalysts, which has likely contributed to JMAT's stock falling 25% since October.

Kaz Minerals was on the front foot as revenues more than doubled thanks to higher volumes and commodity prices. Together with net cash costs of $0.64 per pound of copper, that drove a greater than four-fold jump in operating profits to $291m.

Market Movers

FTSE 100 (UKX) 7,412.24 -0.28%
FTSE 250 (MCX) 19,847.74 -0.06%
techMARK (TASX) 3,421.22 0.17%

FTSE 100 - Risers

Fresnillo (FRES) 1,556.00p 3.18%
Johnson Matthey (JMAT) 2,840.00p 3.12%
Randgold Resources Ltd. (RRS) 7,435.00p 2.20%
Barratt Developments (BDEV) 620.00p 1.39%
Coca-Cola HBC AG (CDI) (CCH) 2,610.00p 1.36%
G4S (GFS) 303.80p 1.27%
AstraZeneca (AZN) 4,519.00p 1.15%
Taylor Wimpey (TW.) 194.20p 0.94%
London Stock Exchange Group (LSE) 3,951.00p 0.92%
Mondi (MNDI) 2,061.00p 0.88%

FTSE 100 - Fallers

Kingfisher (KGF) 291.70p -5.11%
Standard Chartered (STAN) 760.20p -2.05%
Admiral Group (ADM) 2,008.00p -1.91%
Legal & General Group (LGEN) 268.00p -1.87%
British American Tobacco (BATS) 4,859.00p -1.42%
Royal Bank of Scotland Group (RBS) 260.40p -1.33%
United Utilities Group (UU.) 900.00p -1.04%
Ferguson (FERG) 4,658.00p -1.00%
HSBC Holdings (HSBA) 740.60p -0.99%
Royal Mail (RMG) 399.10p -0.94%

FTSE 250 - Risers

FDM Group (Holdings) (FDM) 942.00p 4.61%
QinetiQ Group (QQ.) 245.70p 4.02%
Hochschild Mining (HOC) 269.10p 3.74%
Marshalls (MSLH) 413.70p 3.30%
Sirius Minerals (SXX) 28.24p 3.07%
Polymetal International (POLY) 939.00p 2.85%
Balfour Beatty (BBY) 285.30p 2.18%
Polypipe Group (PLP) 392.30p 2.06%
Carillion (CLLN) 50.95p 2.02%
Just Eat (JE.) 658.00p 2.02%

FTSE 250 - Fallers

Hikma Pharmaceuticals (HIK) 1,144.00p -13.92%
Evraz (EVR) 254.70p -5.21%
Tullow Oil (TLW) 154.80p -4.50%
Hunting (HTG) 421.10p -3.20%
Aldermore Group (ALD) 228.90p -2.30%
Rank Group (RNK) 234.10p -2.30%
Petrofac Ltd. (PFC) 419.70p -2.26%
TBC Bank Group (TBCG) 1,585.00p -2.16%
Virgin Money Holdings (UK) (VM.) 280.50p -1.99%
Ashmore Group (ASHM) 355.40p -1.96%
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