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Market Blog: US data compounds gloom from Europe and China

Market Blog: US data compounds gloom from Europe and China

16.00: Business is slowing everywhere. US data adds to the gloom following poor data from China and Europe and Wall Street has opened lower.

The Dow Jones industrial average has fallen 60 points, or 0.5%, to 12,763, with the S&P 500 4.5 points, or 0.3% off at 1,351.

The cause is Labor Department figures showing only a slight fall to 387,000 in the number of new unemployment benefits claims. Meanwhile, the Philadelphia Federal Reserve has reported a fall in factory activity in the mid-Atlantic region for the second month in a row. Lastly, home resale levels fell in May, a blow for people looking for a consumer upturn.

The FTSE 100 continues to languish 26 points, or 0.5% lower, at 5,595.

15.30: Bank shares have been weak all day following a report that Moody's is set to downgrade UK banks as part of a sector review.

The ratings agency is expected to wait until after the US market closes before downgrading the likes of RBS (RBS.L) and Barclays (BARC.L), which are both off 1% at 245p and 204p respectively.

12.30: Here is a snapshot of where we are so far:

  • UK retail sales bounced back in May after a fall in April;
  • This gives the pound a lift on currency markets;
  • Spain survives its second government bond auction this week but pays a high rate of interest for the loans;
  • The FTSE 100 and European markets drift lower as new data shows Europe mired in recession and another contraction in China's industrial activity;
  • The US looks to follow suit when Wall St opens this afternoon;
  • Invensys (ISYS.L) shares slide as the engineering group says there will be no bid from Emerson Electric or anyone else;
  • Ashtead (AHT.L), the building equipment hire company, produces stunning results, showing it is possible to do well in a downturn.

10.30: Sterling is having a good day after the release of better-than-expected UK retail sales figures.

The pound firmed 0.12% to $1.5725 against the dollar as retail sales rose a seasonally adjusted 1.4% in May, following a 2.4% decline in April. This beat economists' forecasts of a 1.2% rise. The rolling three-month figures also strengthened to 0.5% from a 0.1% in April.

Clothes sales recovered as the weather improved last month and petrol sales revived after fears of a fuel strike in April.

David Kern, chief economist at the British Chambers of Commerce, welcomed the figures although he warned against complacency, saying the UK clearly needed more measures to boost growth.

'This increase in sales, which follows positive labour market figures this week, proves that excessive pessimism over the state of the UK economy is unjustified. Falling inflation is clearly playing a role in reviving consumer demand,' he said.

But there is no cheer in Europe

Meanwhile the euro fell 0.3% to 80.6p against the pound and 0.15% to $1.2681 against the dollar as Spain succeeded in tapping bond markets for €2.2 billion, although once again at a high rate of interest.

Although demand in the auction of Spanish government bonds was strong, the yield the country had to pay on the five-year bonds on sale rose to just over 6% from 4.96% last month. Talk that the eurozone might use its bailout funds to buy 'periphery' government bonds helped support the pricing, analysts said.

European stock markets drifted downwards as new data showed the economic bloc remains in a tough recession.

The influential Markit Flash Composite Purchasing Managers' index fell to 46 in June. Although better than the 45.5 predicted by economists it is the ninth month in the past 10 that the figure has been below 50, which indicates a contraction in economic activity.

Howard Archer, economist at IHS Global Insight, said: 'The only remotely positive spin that can be put on the dismal euro zone (PMI) is that there was no further deepening in the overall rate of contraction. Hardly a cause for celebration,' he said.

Following the disappointing China data earlier in the day and the Federal Reserve's decision overnight not to further pump prime the US economy by issuing more dollars under its quantitative easing programme, markets are lacklustre.

The Euronext 100 was off 1.8 points at 595 and Spain's IBEX 35 index 4 points lower at 6,791. In France the CAC 40 shed nearly 10 points at 3,117 while in Germany the Dax dropped 22 points to 6,370.

In the UK the FTSE 100 trimmed some of its earlier losses to trade 26 points lower at 5,596.

US futures indicate the Dow Jones will open 23 points down at 12,740 this afternoon, with the S&P 500 off 3 points at 2,603.

Dixons digs in and delivers 'solid' results

9.45: Analysts are giving Dixons Retail (DXNS.L) the benefit of the doubt as it copes with the recession in the UK and Europe better than its rivals in the electrical goods trade.

The group, which operates as Currys and PC World in the UK and has businesses in Scandinavia, Greece and Italy, made underlying profits before tax of £70.8 million in the year to 28 April on flat sales of £8.2 billion. This is less than £85.3 million profits it made in 2010-11 but ahead of forecasts and reflects efforts to improve its stores, product ranges and customer service.

Broker WH Ireland says it was 'a solid performance' and maintains its 'buy' rating. It adds: 'We believe that the potential to improve the group operating margin on in excess of £8 billion of sales will provide scope for upward revisions to estimates in due course should management successfully deliver on efficiency gains and market share is continued to be taken from weaker competitors.'

Earlier this week Kesa Electricals (KESA.L), up 0.25p to 52.75p, reported a 42% fall in full-year profits.

Dixons shares have fallen 1.3% to 15.75p this morning. They are up 6% so far this year.  

Ashtead surges on rent-not-buy mood

9.15: The tough economic times suit some companies. Ashtead (AHT.L) has jumped nearly 7%, or 17p, to 267p after full-year profits more than quadrupled to £130.6 million, way ahead of analyst forecasts.

Ashtead hires out construction equipment and says it has benefited from customers looking to rent rather than buy expensive equipment while budgets are restricted and business unsteady.

Its US Sunbelt business did particularly well, with revenues 23% higher at £945.7 million, while turnover at its UK A-Plant division rose 9%.

The company says business has continued to be strong in May, the first month of its new financial year, and expects profits this year to be ahead of previous expectations.

'The momentum we have established, and the flexibility provided by our strong balance sheet, allows us to anticipate further growth with or without end market recovery,' said chief executive Geoff Drabble.

The FTSE 250 firm is popular with private investors and smaller company investment funds, such as the Old Mutual UK Select Smaller Companies fund, a pick of Citywire Selection, and the Franklin UK Mid Cap fund (formerly Rensburg UK Mid Cap Growth), run by Citywire A-rated Paul Spencer.

Analysts applauded the results. 'Ashtead looks set to make further considerable progress irrespective of any macro assistance given its investment in additional fleet and ability to increase yields as it does so. We increase our forecast and target price to 317p (304p), and reiterate our 'buy'',' wrote analysts at Panmure.

Ashtead shares have risen 18% so far this year.

Invensys says no bid in pipeline

8.30: Invensys (ISYS.L) shares slide 16% after the engineering group says it held talks with potential bidders, including US rival Emerson Electric, but that these had ended without an offer being made,

''The company confirms that, whilst it had previously received a highly preliminary approach from Emerson Electric Co for the group, these discussions are no longer ongoing. Furthermore there are no other discussions taking place in relation to an offer for the group,' it said in a statement.

The shares surged 27% yesterday as speculation swirled over the company, which makes railway signals and controls for central heating and washing machines. It has a huge pension liability and is still saddled with debts from the merger of BTR and Siebe which formed the company in 1999.

FTSE falls in face of China slow down

8.10: The FTSE 100 falls 33 points in early trading after data shows a further contraction in China's industrial activity.

The HSBC Flash Purchasing Managers Index revealed a contraction in China's factory sector for the eighth month in a row with export orders at their lowest level since early 2009.

Miners sold off at the news with Glencore (GLEN.L), Xstrata (XTA.L), Kazakhmys (KAZ.L), Vedanta Resources (VED.L) and BHP Billiton (BLT.L) falling between 2.5% and 3.5% in early trading.

This saw the FTSE 100 trading 0.6% down at 5,589.

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