There were some big share price swings on the large-cap FTSE 100 index on Wednesday, with investors pushing shares in ARM Holdings (ARM) nearly 9% higher after the technology firm reported earnings results that beat analysts’ expectations. Meanwhile, shares in Tullow Oil (TLW) plunged by nearly 6.5% and shares in BT Group (BT.A) tumbled by nearly 3.5%. Both companies also reported earnings results earlier in the day that clearly disappointed investors.
Ultimately these large share price moves balanced each other out, causing both the FTSE 100 and FTSE 250 indices to end the trading day relatively unchanged. The FTSE 100 dipped by one point, closing at 5,498. The FTSE 250 edged down by 13 points, to close at 10,873.
Aside from earnings news, UK GDP figures were giving investors pause on Wednesday after the Office for National Statistics (ONS) reported that Britain’s economy contracted sharply in the second quarter of 2012. The data shows gross domestic product shrank by 0.7% in the quarter.
“While the vast majority of economists had forecast another negative quarter, the final print was worse than even the most pessimistic forecast,” says Azad Zangana, a european economist at Schroders. “The ONS has explained that special factors have had a negative impact on the data. The extra bank holiday to celebrate the Queen’s Diamond Jubilee means that the economy had lost a day of production/activity. In addition, the ONS points to the wet weather during the quarter, which appears to have impacted construction activity and retail sales. In addition, it is worth bearing in mind that these are still preliminary numbers that are subject to revisions.”
Will Hedden, a sales trader at IG Index, points out that many economists and analysts are now trying to come up with explanations for the worse-than-expected economic contraction data: “Interestingly, perhaps in an effort to save face as none of them had predicted such a fall, analysts from some financial firms have been suggesting that this figure doesn't quite reflect the situation and that it is overstating the shrink in our economy.”
Looking ahead to Thursday and Friday, UK investors can expect to see a wide variety of companies reporting earnings results.
“We often talk of earnings season in respect of US markets, but this week sees a heavy focus on our own listed companies,” says Hedden. “Tomorrow sees the turn of Lloyds (LLOY), opening up a streak of earnings reports from the UK's five top-tier banks. The outlook for the banking sector continues to trouble investors: low historical valuations; ongoing battles with those against the banks; regulatory changes; further possible litigation (a real threat and fresh in the memory); and of course the 'relative distance' from the eurozone crisis, is all up for debate. With this in mind, banks remain something we see investors seeking clear short-term opportunism in, while being very careful when it comes to the long-term and the mist that shrouds it.”
