UK equities edged higher on Wednesday, having traded below the breakeven line for most of the day. A sell-off in miners and soft data from the retail sector weighed on the FTSE 100 index throughout the day, while above-expectation employment data from the US propped the index higher towards the end of the trading session.
Ultimately, The FTSE 100 added 0.50% or 30 points to 6,043 and the FTSE 250 gained 0.16% or 19 points to 11,742.
Today’s economic announcements from Europe were mixed. Industrial new orders for the eurozone rose by 1.4% in October after a decrease of 2.5% in September. However, the final reading of the Services Purchasing Managers’ Index for December was confirmed lower month-on-month.
Even though the Services PMI was corrected upward to 54.2, it remained lower than November’s 55.4 and lower on average for the fourth quarter compared to 3Q and 2Q of 2010. Following strong Manufacturing PMI and a decrease in Services PMI, the eurozone’s Composite PMI was also revised upward to 55.5 in December – its seventeenth consecutive month of expansion. New business growth increased in both the services and the composite survey, but the data overall added to evidence of a two-tear economic growth in Europe with Germany and France leading the way and the peripheral economies still suffering.
New business also saw a modest rise in the UK construction sector, but employment fell sharply and confidence remained historically subdued according to the UK Constriction PMI for December. The overall PMI came in just below the 50-point mark which indicates expansion, down from 51.8 in November.
The biggest news on the economics front today was the US ADP non-farm employment survey, which surpassed forecasts with a rise of 297,000 in private payrolls. The ADP report is largely considered a prelude for payroll figures expected in the US this Friday.
“The marked rise in private payrolls certainly bodes well for Friday’s non-farm payrolls report, and the economic recovery should gradually gather pace going forward as the Federal Reserve takes unprecedented steps to stem the downside risks for growth and inflation,” commented on the data David Song, currency strategist at DailyFX.
Also in the US, the ISM Non-Manufacturing Index exceeded expectations with a reading of 57.1 for December.
Boosted by the strong economic data, the US dollar continued to recoup losses from the holiday period, which put downward pressure on commodity prices. US markets were trading higher at the time of writing.
Among individual market movers in London, ARM Holdings (ARM) rallied 7.7% amid market speculation of a takeover from Intel.
Retailer Next (NXT) was the second best gainer, up 4.4%. The market reacted favourably to a trading update which showed the company’s full year profit forecast on track. However, announcements that Next’s same store sales were down 6.1% in the 22 weeks to December 24 and the bad weather cost the retailer £22 million in price sales sent many peers lower in early trade. Within the mid-cap retailers, troubled music and books retailer HMV Group (HMV) also said that it anticipates lower sales due to the bad weather and disclosed plans to close down about 60 UK stores. Its shares fell 20% on the news.
Further down the list of FTSE 100 top gainers, financials gained for a second day in a row with Barclays (BARC) and HSBC (HSBA) adding 3.0% and 3.1% respectively.
Many of the European banks are trading at a discount to their fair value estimates, highlights Morningstar equity analyst Erin Davis, and seemingly without much regard for quality. “The market's apparent lack of differentiation between the winners and the losers is presenting an opportunity for investors with an eye on European financials,” she says.
Elsewhere, Vodafone (VOD) was up 3.2% after the group bought back 13.2 million of its own shares for an average price of 169.9p per share.
On the flipside, miners Antofagasta (ANTO), African Barrick Gold (ABG) and Anglo American (AAL) lost between 1.7% and 2.2%. The sector was hit by profit taking and lower commodity prices. Miners with coal mining operations in South Africa, such as Anglo American and BHP Billiton (BLT), were impacted by heavy rain.
Also among the fallers, Severn Trent (SVT), down 1.4%, and WPP (WPP), down 2.2% lost out after broker downgrades by JP Morgan Cazenove and RBS respectively.
