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Pound and FTSE fall on surprise manufacturing blow

Pound and FTSE fall on surprise manufacturing blow

The pound fell after a surprise drop in UK manufacturing output dealt a blow to hawks pushing for an interest rate rise before the year is out.

Sterling fell from $1.7137 to $1.7093 against the dollar on the Office for National Statistics data showing manufacturing output in May slid 1.3% from April levels, despite expectations of a 0.4% rise. The FTSE 100 retreated 36 points, or 0.5%, to trade at 6,788.

It marks the biggest drop in output since January 2013 and follows data yesterday showing a decline in factory orders in Germany, possibly hinting at a wider trend. But the data stands in contrast to purchasing managers’ index figures for the sector released last week, which suggested robust growth.

‘Given that production industries account for 15.2% of the output approach to calculating gross domestic product (GDP), this suggests that we may not necessarily see a pick-up in second quarter GDP growth to 1% as we had expected, from 0.8% in the first quarter,’ said James Knightley, analyst at ING.

‘However, we have our doubts on today’s number given the strength in hiring within the sector and the fact manufacturing confidence is up at 40-year highs and business order books are at such high levels according to key surveys. Consequently, we wouldn’t be surprised to see revisions and/or a strong bounceback in June.’ 

British Airways owner International Consolidated Airlines Group (ICAG) and EasyJet (EZJ) were among the big FTSE 100 fallers after a profit warning from Air France KLM (AIRF.PA) hit the airline sector.

The French airline said 2014 profits could be 12% lower than expectations due to overcapacity and resulting weak prices. International Consolidated Airlines Group fell 18p, or 5%, to 343.2p while EasyJet shed 38p, or 2.9%, to trade at £12.87.  

Miners advanced after analysts at Barclays upgraded their view on the European mining sector from ‘negative’ to ‘positive’. They pointed to stimulus from US and Chinese growth and a European recovery, and the impact of Narendra Modi’s election as Indian prime minister.

‘Meanwhile price risk has diminished in bulk commodities with the 40% fall in iron ore price and coal prices seemingly finding support,’ they added. ‘We are on the cusp of a cash harvest for the sector in 2015 and valuations look interesting.’ 

Rio Tinto (RIO) added 27p, or 0.8%, to £32.90, while Glencore (GLEN) jumped 2.7p, or 0.8% to 345.2p. Fresnillo (FRES) rose 5p, or 0.5%, to 932.1p and BHP Billiton (BLT) traded 2p, or 0.1%, higher at £19.97. 

Marks and Spencer Group (MKS) fell 5.5p, or 1.3%, to 427.7p after the retailer reported a 1.5% drop in sales in its general merchandise division over the first quarter of its financial year.  

Chief executive Marc Bolland blamed the group’s new website for the fall. ‘We have seen continued improvement in clothing although, as anticipated, the settling in of the new M&S.com site has had an impact on sales,’ he said. 

Analysts at Shore Capital labelled the results ‘another disappointing update for the company’. ‘The dot come fiasco, and that is what it looks like… leaves a bitter taste for investors to our minds,’ they said. ‘As such, it will still take some considerable amount of time for M&S to demonstrate that it can break the mould, grow its non-food offer, maintain market share and build earnings.’ 

Outside the FTSE 100 Connect Group (CNCTC) plunged after the newspaper distributor warned performance in its books division would be below expectations. Its shares fell 18.8p, or 9.8%, to 170p. Analysts at Liberum cut their price target on the stock from £2.20 to £2.

Mobile banking technology company Monitise (MONI) meanwhile fell 16.2% to 41.3p after the AIM stock lowered its full-year revenue growth forecast for the second time this year. It said it was hurt by the renegotiation of a small number of contracts that fell through.

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