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FTSE extends rally as manufacturing falls to new low

FTSE extends rally as manufacturing falls to new low

  • UK purchasing managers' index hits 38-month low
  • Rexam falls as half-year results disappoint
  • Next leads FTSE 100 after beating sales forecasts
  • FTSE 100 rises despite weak manufacturing data from China
  • Investors await this evening's Fed comment and tomorrow's ECB interest rate statement

10.30: UK manufacturers' woes continue with the latest manufacturing purchasing managers' index (PMI) hitting a 38-month low in July.

The reading, provided by data company Markit with the Chartered Institute of Purchasing and Supply, is much worse than expected and will only add to concerns about the UK economy after news that it shrunk by 0.7% in the second quarter of the year. It does, however, contradict another industry gauge, the CBI industrial trends survey.

Is this enough to prompt the Bank of England to do more to boost the economy tomorrow?

Economists are divided over the outcome of the monthly policy meeting on Threadneedle Street, with some expecting the bank's monetary policy committee to wait and see how much impact the extra quantitative easing (QE) announced last month will have. A minority of City economists though reckon things are so bad that the Bank will act.

As Alan Clarke of Scotiabank says 'the Bank of England is a master of surprise'.

Rexam falls as half-year results disappoint

10.00: Rexam (REX.L) has bounced back a bit but is still the FTSE’s biggest faller, down over 3% to 421p after its half-year profits came shy of some analysts forecasts.

Rexam has bounced back a bit but is still the FTSE’s biggest faller, down over 3% to 421p after its half-year profits came shy of some analysts forecasts.

The company, which makes cans for Red Bull, Pepsi and Carlsberg, said pre-tax profits from continuing operations rose to £207 million in the first six months of the year, up from £204 million a year ago, on sales 3% higher at £2.17 billion.

Although drinks can sales rose 6%, sales at its healthcare business fell slightly as a result of there being fewer flu sufferers in the US and from one of its drug delivery devices going off patent.

The company delighted investors last month by announcing the sale of its underperforming personal care business for around £452 million, £370 million of which it will return to shareholders.

Sandy Morris of Jefferies said second half trading could be ‘challenging’ but maintained the broker’s ‘buy’ rating on valuation grounds. Deducting the proposed 42p per share return of capital from the share price leaves the stock trading on around 10.3 times forecast earnings for 2013 and on a dividend yield of around 4.3%.

The FTSE 100 is now 28 points higher at 5,664.

Next leads FTSE higher after beating targets

09.10: More on the Next (NXT.L) results. The country's second biggest clothing retailer tops the FTSE 100 with a 5%, or £1.63, surge to £33.85 after beating its target for first half sales and raising its forecasts for this year.

Once again the driver to the 4.5% rise in total sales is the Directory home shopping business whose services were much in demand during the wet weather. Like for like sales rose a more modest 0.2% in the six months to 28 July but this compares with the firm's earlier guidance that sales would be flat or could fall as much as 3%.

Next, the official clothing and homeware supplier to the London 2012 Olympic Games, now expects total sales to grow between 2%-4.5% in 2012-13 with group profit before tax of £575 million to £620 million, up from its previous guidance of £560 million to £610 million.

Kate Calvert, retail analyst at Seymour Pierce, said: 'While not quite a gold medal winning perforamnce ... Next has delivered a commendable one nonetheless, slightly above the top end of its guidance, and coninues to win market share.'

The FTSE 100 is now 30 points higher at 5,667 as investors ignore the latest signs of how the eurozone debt crisis has hit China's growth. The Euronext adds 4 points or 0.6% to 636.

See our FTSE home page for details on the day's other risers and fallers.

FTSE ignores China data to rise on central bank hopes

08.05: The FTSE 100 makes a surprisingly strong start as investors continue to look for help from central bankers after fresh signs of weakness in China's economy.

China's official purchasing managers' index (PMI) fell to 50.1 in July from 50.2. This is an eight-month low, although any reading over 50 shows an expansion rather than contraction.

The HSBC China PMI, also out today, was more positive rising to a seasonally adjusted 49.3, its highest level since February, although it was the ninth consecutive month it has been below 50, indicating contraction in the economy. 

The FTSE 100 rose 25 points, or 0.4%, to 5,660 with retail darling Next (NXT.L) leading the charge, 4% higher at £33.53, after raising its full-year forecast after a good first half of the year.

Can maker Rexam (REX.L) was the biggest faller, down 3% to 421p after its half-year figures.

On currency markets the pound was slightly weaker at $1.5672 against the dollar but rose to €1.2320 against the euro.

The main focus for investors is waiting to see what, if any, measures the central banks take to ease the pressure in financial markets over the eurozone debt crisis. The US Federal Reserve will announce it statement this evening and tomorrow brings the interest rate statement from the European Central Bank.

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