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FTSE dips on US slump despite manufacturing boost

by Daniel Grote on Apr 08, 2014 at 11:23

FTSE dips on US slump despite manufacturing boost

The FTSE dipped again as a fresh sell-off in the US and escalating political tensions between Russia and Ukraine outweighed strong UK manufacturing and industrial production data.

The FTSE 100 shed 34 points or 0.5% to 6,588 points in choppy trading, while the pound surged to $1.6712 against the dollar after the Office for National Statistics released much stronger figures than the market had expected.

Industrial production in February rose 0.9% on January levels, ahead of the 0.3% jump the market had been expecting, and 2.7% up on the same period last year, ahead of the 2.2% that had been anticipated.

Manufacturing output figures were also strong, up 1% on January, versus a 0.3% expected rise, and 3.8% year-on-year, compared to the 3.1% that had been forecast.

Howard Archer, chief UK and European economist at HIS Global Insight, labelled the data ‘a very welcome and encouraging upward surprise’.

‘While decent manufacturing growth had been expected in February, it came in way above expectations. Buoyant manufacturing output in February lifts first quarter growth prospects and supports hopes that manufacturing can make a sustained healthy contribution to UK growth,’ he said.

Alex Edwards, head of the corporate desk at UKForex, added the surprise was likely to lend medium-term support for the pound, which could push towards $1.68. ‘These are very impressive numbers and will serve to boost expectations for an early rate hike by the Bank of England, perhaps even as early as January or February next year, and certainly before the UK general election in May 2015.’

The FTSE had been trading under the weight of another day of losses in US markets, with tech stocks hammered as investors took another look at lofty valuations.

The UK blue-chip index opened lower, but losses were more modest than those on the S&P 500, which erased its yearly gains with the biggest three-day drop in two months, suggesting UK stocks haven’t been pushed to the elevated levels of their US counterparts.

‘The surprise is that it’s taken investors so long to catch on to the fact that a lot of high growth stocks are trading on stupidly high valuations as companies like Twitter, Facebook, Pandora and Zynga continue to get pummelled,’ said Michael Hewson, analyst at CMC Markets UK.

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