Upbeat UK Unemployment Data Fails To Boost Pound

LONDON (Alliance News) - Stocks in London were higher on Wednesday at midday, with the pound seeing little benefit from an upbeat UK unemployment and average earnings report, while Admiral was taking a hit, the worst blue-chip performer.

Market focus will likely shift to the US in the afternoon, as the Federal Reserve releases at 1900 BST the minutes of its Federal Open Market Committee meeting held on July 26.

"The risk-on rally has continued apace this morning, with the FTSE 100 hitting a new high for the week, although the gains have been pared in response to a sterling rebound. Fears of a conflict between the US and North Korea appear to have been left behind for now and the focus is clearly upon the positives," said IG analyst Joshua Mahony.

The FTSE 100 index was up 0.7%, or 47.73 points at 7,431.58. The mid-cap FTSE 250 index was up 0.8% at 19,852.79, and the AIM All-Share index was up 0.1% at 1,002.64.

The BATS UK 100 index was up 0.6% at 12,627.36 The BATS 250 was up 0.9% at 18,029.84. The BATS Small Companies was up 0.2% at 12,221.68.

The UK unemployment rate declined in the second quarter, data from the Office for National Statistics showed, falling to 4.4% from 4.9% a year ago. This was the lowest level since 1975. Economists had forecast a rate of 4.5%, the same as seen in three months to May.

Average earnings including bonus increased 2.1% annually in the three months to June, faster than the expected 1.8% and the 1.9% seen in the three months to May. Excluding bonus, average earnings rose 2.1%, faster than the 2.0% rise forecast by economists, which would have been unchanged from a month ago.

The UK unemployment report came after UK consumer inflation data released on Tuesday showing that CPI climbed 2.6% annually in July, the same rate as seen in June. The annual growth was forecast to rise slightly to 2.7%. On a monthly basis, consumer prices fell 0.1% in July, while they were expected to remain flat.

Excluding energy, food, alcoholic beverages and tobacco, core inflation remained at 2.4% year-in-year in July, below expectations for an increase to 2.5%.

"The UK's current period of above-target (2% target) inflation is mostly driven by the fall in sterling since the Brexit vote, which has pushed up import prices. But this effect will fade as the annual change in import prices washes out of the consumer price index," said Berenberg analyst Kallum Pickering.

"As the Bank of England is already looking through the sterling-effect, whether or not current inflation is a little higher or lower than expected is largely irrelevant for the policy outlook. However, in the BoE's model, an acceleration in wage growth today will cause underlying inflation to rise in the future. Today's upside surprise thus raises the chances of a policy tightening soon," noted Pickering.

Pickering expects the BoE to lift interest rates by 25 basis points to 0.50% in November and forecasts three more hikes until the end of 2019.

Despite spiking higher after the UK unemployment data, the pound has failed to recover much of the ground lost on Tuesday after the UK inflation data, having been further hit by upbeat US retail data that boosted the dollar.

Sterling was quoted at USD1.2874 on Wednesday at midday, compared to USD1.2858 at the London equities close on Tuesday.

The euro was quoted at USD1.1700 at midday against USD1.1731 at the European equities close on Tuesday.

The euro area economy expanded as initially estimated in the second quarter, a flash estimate from Eurostat showed.

Gross domestic product grew 0.6% quarter-on-quarter, slightly faster than the 0.5% increase seen in the first quarter. Eurostat confirmed the preliminary estimate released on August 1. On a yearly basis, GDP growth was revised up slightly to 2.2% from 2.1%. The economy had expanded 1.9% in the first quarter.

The CAC 40 index in Paris and the DAX 30 in Frankfurt were up 1.1% and 0.8% respectively.

Stocks in New York were pointed higher on Wednesday, with the Dow Jones Industrial Average and the S&P 500 index seen up 0.2%, and the Nasdaq Composite pointed 0.3% higher.

"The Fed has become noticeably less hawkish in recent months as inflation has failed to pick up as much as policy makers had anticipated, causing some to question whether the current pace of tightening is appropriate," said Oanda analyst Craig Erlam.

"I expect the minutes will reflect this growing unease within the Fed which could once again weigh on interest rate expectations," noted the analyst.

Elsewhere in the US economic calendar on Wednesday, the MBA mortgage approval data are at 1200 BST, while the EIA crude oil stocks are at 1530 BST.

On the London Stock Exchange, Admiral was down 5.3%. The insurer said its profit slightly increased in the first half of 2017, although a lack of return of surplus capital meant its interim payout dropped below the prior year. It reported a pretax profit of GBP193.0 million for the six months to June 30, rising 2% from GBP190.0 million the prior year.

Admiral declared interim dividends totalling 56.0 pence per share, comprising an ordinary dividend per share of 37.9p and a special dividend per share of 18.1p.

This payout was behind the 62.9p per share declared in Admiral's interim dividend in 2016. However, that included an 11.9p per share return of surplus capital. Excluding this, the 2017 dividend was 10% ahead of 2016's 51.0p per share payout.

After accounting for the dividend, Admiral's solvency ratio stood at 214% as at June 30, up from 180% at the same date in 2016.

At the other end of the index was Sage Group, up 3.1%, after UBS upgraded the accounting software provider to Neutral from Sell following the "good" - although "expensive" - acquisition of US-based cloud financial management services provider Intacct in July for USD850 million.

Among mid-caps, Balfour Beatty was up 8.2%, the biggest gainer. The construction and infrastructure firm reported a pretax profit of GBP12.0 million, swinging from a GBP15.0 million loss a year before. Revenue rose to GBP3.54 billion compared to GBP3.32 billion a year earlier.

The company declared an interim dividend of 1.2%, up 33% from the same time last year. Balfour said it is "on track for industry-standard margins in the second half of 2018".

Hochschild Mining was the worst FTSE 250 performer, down 14%. The miner said its half-year revenue was up and production was in line with full-year guidance, but profit was hit by higher production costs.

Revenue in the six months to the end of June was slightly ahead of the year before, up 0.4% at USD340.8 million from USD339.3 million. Despite this, pretax profit was down 34% at USD39.9 million from USD60.3 million.

Hochschild declared an interim dividend of 1.38 cents per share, in line with a year earlier.