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FTSE 100 ends week up as Chinese slowdown fears ease

MARKET BLOG: Britain’s markets make gains after Chinese economic data match expectations, cheering investors here and in the US.

 
FTSE 100 ends week up as Chinese slowdown fears ease
  • US markets up as Chinese growth hits expectations
  • JP Morgan posts $4.4 billion loss
  • China's economy grows 7.6% in the second quarter 
  • ITV rises to top of FTSE 100 on Aegis sale
  • UK construction falls 6.3% in May
  • Cove Energy set for auction on Monday
  • Moody’s downgrades Italian bonds to Baa3

17.00: Britain’s FTSE 100 has closed in positive territory as China’s economic growth slowed to 7.6% in the second quarter of this year. The reduced level of growth was in line with expectations, and was viewed as positive by investors in the UK and US.

The benchmark UK index of blue-chip shares added 1.03%, or 58 points, to 5,666 and the Mid-250 index took on 1.1%, or 120 points, to 11,044. The gains reversed early-week losses to see the FTSE 100 inch up four points, or 0.06% since the start of the week and the Mid-250 shed 27 points, or 0.24%.

Burberry (BRBY.L) took on 71p, or 6.1%, to £12.29 on China’s growth figures as a large part of the group’s revenues come from emerging market sales.

Credit information company Experian (EXPN.L) sunk 19p, or 2%, to 932p, at the bottom of the FTSE 100 as a strong dollar halved the company’s revenue growth in the first quarter from 14% to 7%.  

Other stock markets in Europe also rose despite Italian debt downgrades from Moody’s: Germany’s DAX index gained 2.15% to 6,557; France's CAC 40 index increased 1.46% to 3,181; and the FTSEurofirst 300 index of top European shares ticked up 1.22% to 1,041. 

US markets rise; JP Morgan posts $4.4 billion trading loss

16.30: US markets have opened higher, adding to buoyancy on European markets as Chinese economic growth figures, though downbeat, averted fears of a 'hard landing' in the world's second largest economy.

The Dow Jones Industrial Average added 1.19% to 12,734; the Standard & Poor's 500 index took on 1.24% to 1,352; and the Nasdaq Composite index gained 0.95% to 2,894.

The gains come despite data showing US consumer confidence fell back for the seventh consecutive month, as worries about the job prospects and low wage growth hit the public’s outlook on the economy.

The US purchaser’s price index (PPI) also recorded a slight rise of 1%, which has been dismissed by analysts as an anomaly.

Julia Coronado, analyst at BNP Paribas, commented: ‘The pipeline trend is for a moderation in producer inflation across the board, and we think the upside surprise in today's report should be heavily discounted.’

JP Morgan Chase revealed a $4.4 billion (£2.8 billion) trading loss in the second quarter of this year, most of the losses are due to trades made by the ‘London whale’. The company has been forced to restate its first-quarter earnings as traders made efforts to hide the extent of the losses.

13.30: Emails released by the Bank of England (BoE) show Timothy Geithner, then president of the Federal Reserve Bank of New York, discussed concerns about Libor with BoE in May 2008.

In an email to Mervyn King, governor of the BoE, Geithner set out a list of recommendations to enhance the credibility of the Libor rate by improving the reporting procedures by UK banks.

One of the most telling guidelines was to ‘eliminate the incentive to misreport’ rates. King supported the proposals and asked the British Bankers’ Association (BBA) to include the ideas in a consultation on Libor.

Barclays (BARC.L) was the first bank to be fined £295 million for fixing the Libor rate and a number of other banks are under investigation, including Royal Bank of Scotland (RBS.L). Bank shares were unmoved by the new documents.

ITV tops FTSE 100; Chinese growth slows

11.50: Broadcaster ITV (ITV.L) added 2.75p, or 3.8%, to 75p to rise to the top of the FTSE 100 leaderboard following yesterday’s buyout of Aegis (AEGS.L). 

Ian Whittaker, analyst at Liberum Capital, said: ‘There is nothing in the news that is moving the price. It’s probably a positive reaction to what happened yesterday with Aegis. It was bought at 240p, which was a surprise both in terms of price and that the deal went through. People are questioning if Aegis was bought, who will get taken out next?’  

Aegis, the UK’s second-biggest advertising company, was snapped up by Japanese buyer Dentsu for £3.2 billion, which valued its shares at 240p, a massive mark up from its closing price of 163p on Wednesday. 

Aegis is a holding in Anthony Cross’ Liontrust Special Situations fund and Simon Haines’ Threadneedle UK Mid 250 fund.

UK construction falls 6.3% in May

10.10: UK construction output fell 6.3% in May despite an extra working day in the month as the sector felt the impact of public expenditure cuts.

New public housing work came under the most pressure, falling 22.9% between March and May compared with last year, and overall construction output fell 7.4% in the same period. The sector contributes 6% of UK gross domestic product (GDP) growth.

Howard Archer, chief UK economist at IHS Global Insight, said: ‘With construction output again disappointing in May, there is a very real danger that the sector saw further contraction in the second quarter thereby increasing the likelihood that the economy suffered a third successive quarter of contraction in the second quarter.’

Shares in house builder Wolseley (WOS.L) lost 12p, or 0.5%, to £23.28 on the announcement.  

Italian bonds downgraded; Cove set for auction

09.20: Cove Energy (COVE.L) is set to go to auction if a deal to buy the group isn’t reached by Monday. 

Shell (RDSb.L) and Thai rival PTT Exploration & Production have been vying to buy the company, which has a stake in a huge gas field discovered off the coast of Mozambique. 

Shell’s current £1.16 billion offer was outbid by PTT with an offer of £1.23 billion in May. However, the shares have consistently traded above the 240p bid, and are currently trading at 277p.

The bidding war has pushed Cove’s share price up 139% so far this year, meaning strong returns for investors. Jeremy Tigue, manager of the F&C investment trust , and Giles Hargreave, manager of the Marlborough UK Micro Cap Growth fund, both sold their shares to make a profit.

Moody’s downgrades Italian government bonds

08.55: Moody’s has cut its rating on Italian government bonds by two notches to Baa2, just two levels above junk status. The agency holds a negative outlook on the country’s debt, meaning it could make further downgrades in the coming months.

Moody’s cited the ongoing eurozone crisis and a weakening domestic economy as the reasons for the downgrade. The yield on 10-year Italian bonds rose following the announcement, adding 11 basis points to 6.08%.

The country’s first test will come later this morning as it auctions €5.25 billion in medium-term bonds.

Experian slumps as eurozone headwinds slow growth

08.10: The FTSE rises 24 points to 5,632 as miners advance in response to the China data, as credit risk information business Experian (EXPN.L) falls 3% after releasing its first-quarter trading statement.

Vedanta Resources (VED.L), Kazakhmys (KAZ.L), Fresnillo (FRES.L), Randgold Resources (RRS.L) and Evraz (EVRE.L) rise between 1.5% and 2.4% after second-quarter GDP data from China reassured investors that the country is avoiding a hard landing and will continue to need lots of natural resources.

Experian is the biggest faller on the FTSE 100, down 26p and 927p. The credit information company saw revenues jump 14% on the back of a strong performance in the US, but said full-year growth would be in the mid- to high-single-digit level. Chief executive Don Robert said: 'Looking ahead we are mindful of tougher conditions in some markets, notably in the eurozone.'

Bank shares are under pressure following Morgan Stanley's estimate that 12 global banks could be hit with $22 billion (£14.2 billion) in fines and damages from the Libor-fixing scandal. RBS (RBS.L) and HSBC (HSBA.L) traded 0.3% lower at 204p and 554p while Barclays (BARC.L) was broadly flat at 164p and Lloyds (LLOY.L) firmed slightly to 30p.

Chinese growth slows

07.55: The FTSE 100 looks set to rise around 26 points higher after China said overnight that its economy grew by 7.6% in the second quarter. Although this is its slowest rate for three years it is in line with forecasts.

However, eurozone worries remain in the foreground after Moody's downgraded Italy's sovereign credit rating by two notches to Baa2, just two notches above being considered non-investment grade.

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