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Pound continues climb after construction boost
by Daniel Grote on Jul 02, 2014 at 11:06
The pound continued its strong surge after fresh construction data provided further evidence of the strength of the UK’s recovery.
Sterling hit $1.7162 against the dollar, setting fresh near-six year highs after having reached its highest level since October 2008 yesterday on strong manufacturing data.
The purchasing managers’ index (PMI) for UK construction has come in at 62.6 in June, up from 60 in May, marking a growth in building activity that has rarely been beaten since 1997, when the figures were first collected. Any reading above 50 indicates expansion.
‘The marked rise in construction output follows news from the manufacturing PMI that the goods-producing sector saw the largest quarterly rise in output for two decades in the second quarter,’ said Chris Williamson, chief economist at Markit.
‘The strong growth of both sectors should help drive a further increase in gross domestic product of a similar magnitude to the 0.7%-0.8% increase seen in previous quarters over the past year. Such persistent strong growth adds to the chance of interest rates starting to rise later this year, rather than a first rate hike being delayed until 2015.’
The FTSE 100 edged up slightly after yesterday’s strong gains, adding four points to 6,807 points, with miners continuing to do well on the back of positive data on factory activity from top metals producer China.
House builders were also on the rise, as Nationwide reported a 1% month-on-month rise in house prices, pushing the year-on-year increase up to 11.8%, the strongest rate since January 2005. ‘At the moment, house prices still look more likely than not to see clear increases over the coming months, although it is looking increasingly probable that there will be some easing back in house price gains from the recent strong increases,’ said Howard Archer, chief European and UK economist at IHS Global Insight.
Outside the FTSE 100, ‘small cap’ stock Mothercare (MTC) jumped 12% to 260.2p after rejecting the latest takeover approach from US retailer Destination Maternity (DEST.O). Destination had offered 300p per share for the company, with 70p of that in shares of the combined entity that would result.
Analysts at Liberum said that Destination’s ability to execute the deal was ‘not clear-cut’. ‘The rationale for the business combination is also not obvious in terms of solving Mothercare’s UK problems,’ they said. ‘Other bidders may emerge, but we can see why Mothercare has rejected Destination’s proposals.’
Shares in Ocado (OCDO) also enjoyed a strong morning of trading, jumping 5.5% to 374.6p, making up the ground it lost yesterday after it announced profits for the first half of the year, but a marked reduction in sales growth in the second quarter. Analysts at Deutsche Bank have upgraded the online supermarket from ‘sell’ to ‘hold’.
AIM-listed Blinkx (BLNX) was a heavy faller, losing nearly half its value after issuing a profit warning. The online video company fell 45% to 36.1p after announcing earnings for the first half of its financial year would be $5 million below its expectations. It pointed to concerns about the effectiveness of internet advertising, which it said had been compounded by a critical blog post about the company.
‘We attribute this performance to industry-wide issues of efficiency and effectiveness, which, in our case was compounded by the lingering effects of the disparaging blog,’ it said.
Shares in Blinkx had been in a downwards spiral after the post by Benjamin Edelman from Harvard Business school, ‘The Darker Side of Blinkx’ which criticised the company’s business model.
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As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.
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