01/09/10 - 20:30
UK Research Team, IG Group
A positive report on Chinese manufacturing and bid speculation helped to drive London markets higher this morning, shrugging off a reported slowdown in UK manufacturing for August.
Chinese manufacturing staged a modest rebound in August, as the Purchasing Manager's Index (PMI) for August hit a three-month high. The Index increased to 51.9 from 49.4 in July, close to the median figure of 51.8 predicted in a poll conducted by Reuters – the move above the 50 mark signifying that the world's second-largest economy had moved from contraction to expansion. However, analysts cautioned that despite the signs of stabilisation, the economy would still have to deal with the problem of soft external demand, especially from the US, as consumers around the world continue to limit spending. Bank of America Merrill Lynch observed that the increased inventory and data orders pointed to a continuing recovery in the coming months. The news pushed mining stocks in the FTSE 100 higher due to increased optimism about demand for raw materials from the manufacturing element of the Chinese economy. Fresnillo was the leading riser, adding 3.58% to reach 1129p, while Kazakhmys gained 2.77% to 1188p and Xstrata advanced 2.29% to 1049.50p.
By contrast, UK manufacturing slowed by more than expected in August. The Markit/Chartered Institute of Purchasing and Supply Manufacturing PMI dropped to 54.3 from 56.9 in July. A Reuters poll had forecast a figure of 57. Although the British economy continues to expand, the figure indicates that the economy is losing traction after strong growth in the second quarter of the year. The PMI's new orders index slumped to 52 in August from 58.5 in July, its lowest level since June 2009. There was a slight increase in the growth of export orders, suggesting that the majority of the slowdown came from weaker domestic demand.
By 10.30am (London time), the FTSE 100 had risen 74.79 points (1.43%) to 5300.01 and the FTSE 250 was 94.57 points (0.96%) higher at 9919.71.
TUI Travel was the star FTSE 100 performer in morning trading, as the company's shares gained 5.18% to 211.70p on reports in the Financial Times that TUI's German parent was considering making an offer for the remainder of the shares in the UK operator that it does not already own.
Telecoms firms Vodafone and Inmarsat also rose after European communications and entertainment firm Vivendi published its results for the first half of the year. The firm saw net profit increase by 4% to €1.53 billion and said that it expects profit for 2010 to exceed the €2.59 billion euros it made in 2009. Inmarsat, the UK satellite firm, advanced 1.72% to 680.50p and Vodafone moved ahead 0.5% to 157.94p.
Property firm Land Securities also gained this morning as JP Morgan Cazenove nominated the company as its top large-cap pick, upgrading its stance on the stock to 'overweight' from 'neutral'. The shares rose 2.29% to 625.50p.
Pre-tax profits at investment adviser Hargreaves Lansdown jumped 20% to £86.3 million for the year to 1 September, helped by new customers and rising stock markets. The firm, whose co-founder Peter Hargreaves steps down as chief executive today, said that it would pay a second special dividend for the year of 1.7p, on top of March's 1.6p special dividend and regular dividend payments for the year of £8.58. Mr Hargreaves warned, however, that income in the coming year would be dragged down by low interest rates. Despite the impressive growth, the shares fell back 0.3% to 387.92p.
A report from the Bank of International Settlements showed that currency trading in London had jumped by 25% over the past three years. Global forex trading had risen by 20% but the UK capital had outpaced the rest of the world, helping to allay fears that London was beginning to lose its pre-eminence as a global financial capital. 37% of trading now takes place in London, with the US carrying out around half this amount. Around $4 trillion is now traded on currency markets, with growth driven by a variety of financial institutions.
After falling sharply on the release of the UK PMI data, sterling began to advance steadily against the US dollar on the back of the positive Chinese manufacturing data, gaining 0.23% to reach $1.5386. Increasing risk appetite also buoyed the euro against the US currency, and the single European currency hit $1.2788, up 0.81% by 10.45am (London time). The Aussie dollar charged ahead due to the news from China and a report that showed the Australian economy in the last quarter grew at its fastest pace in three years. The Aussie dollar surged to $0.9054.
Looking ahead this afternoon, the September futures for the Dow and S&P 500 currently point to a strong opening on Wall Street, up 0.75% and 1.17% respectively at 10.45am (London time). Investors will need to keep their wits about them during the afternoon as today sees the release of a swathe of US economic data, including mortgage applications for the week to 27 August as well as the Employment Change measure, the Institute of Supply Management's manufacturing index and total vehicle sales for August.
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