29/07/10 - 20:30
UK Research Team, IG Group
A rash of upbeat earnings reports from UK companies helped to revive London's rally, allowing markets to shrug off a cautious Beige Book report from the US Federal Reserve.
The FTSE got off to a good start after opening, with promising first-half updates from a number of major firms. The biggest riser in the morning was publisher Reed Elsevier, which surged 4.5% to 556p after it said that first half revenues rose by 1% to £2.99 billion, ahead of analyst expectations. The firm commented that it saw 'signs of stabilisation' in its advertising and promotions markets and that the outlook for its exhibitions division was improving.
Following close behind was drugs giant AstraZeneca, whose first-half pre-tax profit jumped from $5.6 billion to $6.4 billion. The group also reported that its Brilinta blood clots treatment had moved closer to gaining regulatory clearance. Investors were also cheered by news that Astra was not looking to make a major acquisition and would instead return capital to investors. AstraZeneca gained 4.42% to 141.5p.
The Federal Reserve's Beige Book survey, which is based on contacts between regional Federal Reserves and local businesses, found signs that the US economic recovery had slowed. 10 out of 12 districts said that activity had continued to increase, and the report is likely to back the Fed's view that the recovery is continuing despite some weaker figures. As a result, the central bank is likely to hold off from loosening monetary policy even further.
Shares in both BAE Systems and Rolls Royce were also airborne, up 2.5% and 1.6% respectively. BAE said that it continued to expect revenue growth in 2010 despite looming government cutbacks in defence spending. Sales rose by 7% on a like-for-like basis and the interim dividend was lifted from 6.4p to 7p. The news comes on top of a good week for BAE, with India ordering 57 Hawk fighter jets in a deal worth £500 million. Engine maker Rolls said that underlying profit for the full year was forecast to be 'modestly higher' than in 2009, thanks to strong trading in its marine unit.
A significant rise in high definition (HD) subscriptions helped BSkyB to report a more than three-fold jump in pre-tax profit, to £878 million for the year to the end of June. The group added 90,000 customers over the last quarter, bringing the total number of subscribers to almost 10 million. BSkyB added that it planned to continue with 'business as usual' while News Corp continues to consider making an offer for the 61% of the company that it does not already own. Numis Securities commented that it expects the acquisition to be completed at around 800p per share. [1] Despite the good figures, BSkyB fell back 0.63% to 715.5p.
At 11am (London time), the FTSE 100 was up 36.23 points (0.68%) at 5355.64 and the FTSE 250 had gained 60.23 (0.6%) to 10079.93. Banks and miners also provided support to the main index this morning, with RBS, HSBC and Standard Chartered up between 0.5% and 1%, while Anglo American and Antofagasta gained around 1.1% and Kazakhmys pressed ahead by 1.59%.
Troubled support services firm Connaught received some much-needed good news as it succeeded in securing additional funding from its bankers. A syndicate led by RBS and including Barclays and Lloyds provided the firm with a £15 million overdraft facility together with a deferral of interest and principal payments due on its existing facilities in July and August. Connaught chairman Sir Roy Gardner said that he was 'delighted by this tangible evidence of support', and the company added that it would continue in discussions with lenders with the objective of securing a longer-term restructuring. Shares in the battered firm jumped 3.6p to 34.6p.
A number of macro-economic indicators were also updated this morning. UK house prices dropped by 0.5% in July, according to a survey by building society Nationwide. This is only the second drop in the year and the average home price now stands at £169,347, almost the same as in July 2008. Nationwide's chief economist Martin Gahbauer said that 'a combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources'. [2] European economic and industrial confidence were both reported to be slightly improved in July, with economic confidence rising to 101.3 from 99 in June, beating economists' forecasts of a marginal increase to 99.1. Industrial confidence moved up to -4 from -6 in June, again above forecasts of -5. Consumer confidence came in at forecast levels, at -14, edging up from June's level of -14.1.
The improved economic figures helped to push the euro above the $1.30 level against the dollar this morning, hitting a high of $1.3084. Reuters reported that analysts believed that increased confidence regarding US earnings would help to keep demand for the euro strong. Strong economic figures and optimistic earnings reports also supported sterling, which hit a five-month high against the dollar of $1.5656.
Looking ahead to this afternoon, the US will release figures for initial and continuing jobless claims for the weeks to 24 July and 17 July respectively. A number of corporations including Motorola and defence firm Raytheon will also be publishing their second quarter results. September futures are pointing towards a positive start on Wall Street, with Dow futures up 0.47% and S&P 500 futures 0.53% ahead.
Source: [1] Reuters, 29 July 2010, [2] BBC News, 29 July 2010
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