View this email in your browser

UK MIDDAY BRIEFING 


Rate Rise Predictions Pegged As Inflation Halves

LONDON (Alliance News) - The Bank of England is unlikely to raise interest rates until late this year or even the first quarter of 2016, analysts said Tuesday after the oil price decline caused the UK's inflation rate to drop to just 0.5% in December, its lowest level since May 2000.

Inflation as measured by the Consumer Prices Index halved to 0.5% in December, from 1% in November. That was a bigger fall than the drop to 0.7% that economists had predicted.

Berenberg analyst Rob Wood said inflation is set to fall even further in coming months as fuel prices continue to fall and utility companies start passing on lower gas and electricity prices, and could even swing to deflation.

"We expect the Bank of England to keep interest rates on hold until late this year, when it should be faced with a sharp upward trajectory for headline inflation as petrol price falls drop out of the annual comparison. At that point they should begin considering rate hikes again," Wood said.

"Rising real wages were set as an indicator for the Bank of England to raise interest rates. Whilst we would have sympathy with the notion that rates should rise if wages were rising in real terms due to rising nominal wages, we believe that the Bank may tread warily toward tightening, especially given the evidence of the stalling housing market," said Shore Capital analyst Gerard Lane.

The Retail Prices Index measure of inflation fell to 1.6% in December, from 2% in November.

That figure came as latest industry data showed that prices continued to fall in the UK grocery sector in the 12 weeks to January 4. Like-for-like prices fell by 0.9% on the year due to lower commodity costs and an ongoing price war which has continued as the large retailers battle for market share, according to Kantar Worldpanel.

The data showed that Tesco, Wal-Mart Stores Inc-owned Asda, J Sainsbury and Wm Morrison Supermarkets continued to lose sales and market share to discounters Aldi and Lidl and premium grocer Waitrose over the key Christmas period, but also showed that the rate of decline for the large grocers slowed.

Actual figures from Morrisons revealed a 3.1% fall in like-for-like sales excluding fuel over the six weeks to January 4, a performance that was better than recent quarters but still meant that Morrisons was the weakest of the UK's big-four grocers over Christmas.

However, that news was overshadowed as the struggling grocer said Chief Executive Dalton Philips will step down in March after five years at the helm, as it seeks a new leader to try and turn it around. The supermarket chain said it has begun the search for a new CEO, with Philips set to leave once the company reports year-end results in mid-March. Morrisons said it is almost certain the next CEO will be an external candidate.

"Dalton has done a good job under difficult circumstances, but now it is time to restore growth in the business," Chairman Elect Andrew Higginson told journalists. "It was a judgement call based on trading momentum around the business. A business like this needs trading momentum to perform, and we think it is time to restore that... time for a fresh pair of eyes."

"He deserves particular credit for facing into and dealing with the pricing issues that have now become evident, for taking the business into the convenience and online channels, and for the steps he has taken to modernise the company's operating systems," Higginson added.

Morrisons said it plans to close 10 loss-making supermarket stores during 2015, although did not give a timeline on when it expects these closures to take place. Higginson said 409 employees would be affected by the closures.

Investors have welcomed the improved sales performance and the changes at the UK's fourth-largest grocer by market share, and its stock is the best-performing in the FTSE 100 Tuesday. Tesco and Sainsbury's shares have also risen, as Morrisons' statement confirmed the sector as a whole has performed better than expected over the key Christmas trading despite the continued slide in sales.

Tesco last week revealed that its UK like-for-like sales were down 0.3% in the six weeks to January 3, and down 2.9% excluding fuel for the 19-week period ending on the same date. Sainsbury's had said like-for-like sales were down 1.7% excluding fuel for the 14 weeks to January 3.

Sticking in the retail sector, baker Greggs is the best-performing stock in the FTSE 250 after it upgraded its expectations for its full year results for the second time in as many months on the back of a rise in sales over the full year and a boost from a strong Christmas trading period.

Greggs said total sales for the 53 weeks to January 3 are expected to be up 5.5%, with own-shop like-for-like sales expected to increase 4.5%. The rise in sales includes an extra trading week compared with the year before.

Greggs attributed the strong performance to consumer demand for its 'food-on-the-go'-focused product range, particularly over the Christmas period when it recorded strong sales of sandwiches, sausage rolls and coffee. It added sales of its 'Balanced Choice' low-calorie range has continued to grow and said new products, including its fresh soups and steak and cheese rolls received a positive reception from customers.

Contrast that with department store operator Debenhams, which is the worst-performing stock in the mid-cap index. Its shares are down over 7% after it, like peers, was hard hit by the unseasonably warm weather in early autumn. Trading improved over the key Christmas period, and it stuck with its pledge not to discount until after Christmas, but margin growth failed to keep pace with higher sales as much of the increase came from lower-margin sales of beauty products and from its concessions.

Debenhams said like-for-like sales in the four weeks to January 10 rose 4.9% on the year, driven particularly by online sales which grew 28.9%, although it said margin growth would be towards the bottom end of its guidance.

In the 19 weeks to January 10, like-for-like sales declined 0.8%, compared with analysts' expectations for growth of just short of 1%, while online sales were up 6.0%. Gross transaction value rose a modest 0.2%, compared with 5.9% in the last four weeks of the period.
----------
Markets: London stocks are trading higher, showing resilience despite lower-than-expected UK inflation figures, further falls in crude oil prices, and renewed concerns about the health of the global economy. Brent crude touched a near six-year low of USD45.20 early Tuesday, down more than 60% from its summer high of USD115. The pound fell to a 4-day low of USD1.5077 against the dollar in early trade, off an early high of USD1.5191 as UK inflation slowed more-than-expected in December.

US stock futures are pointing to a higher open on Wall Street. The DJIA and S&P 500 are called to start up 0.6%, and the Nasdaq 100 up 0.7%.
----------
FTSE 100: up 0.6% at 6,542.32
FTSE 250: up 0.6% at 16,030.64
AIM ALL-SHARE: down 0.1% at 702.98
GBP-USD: down at USD1.5152
EUR-USD: down at USD1.1792
GOLD: up at USD1,238.58 an ounce
OIL (Brent): down at USD46.084 a barrel
----------
Other Top Corporate News
----------
Meggitt said its training systems business has won a USD31.7 million contract to provide indoor simulated marksmanship training systems from the US Marine Corps. In a statement, the aerospace, defence and energy market engineer said the five-year indefinite quantity deal covers the design, development, installation and support for some 670 systems and weapon simulators at US Marine Corps facilities in the US and abroad.
----------
Online fashion retailer ASOS saw its shares rise after it said sales growth accelerated over the key Christmas trading period, reporting a 15% rise in retail sales for the six-week period as UK sales held up strongly. However, as previously guided, the retailer said its retail gross margin continues to take a hit from price investments, down around 200 basis points on the prior year. In a statement, AIM-listed ASOS said total retail sales in the six weeks ended January 9 were up 15% on the corresponding period last year, without giving specific figures. UK sales rose 27%, while international sales were up only 5%.
----------
Michael Page International posted profit growth across its operating regions in the fourth quarter, and said it expects its gross profit for the full year to increase despite a drag from currency fluctuations. For the fourth quarter to December 31, the recruiter said gross profit increased to GBP136.2 million, up 8.9% against the GBP125.1 million reported last year. For the full year, the group expects to post gross profit of GBP532.7 million, up 3.7% from the GBP513.9 million reported last year, when it had posted a 2.5% fall. The full-year profit this year was hit to the tune of GBP33 million by the strength of sterling, with constant currency growth at 10% for the year.
----------
Pace said it expects its 2014 profits to be above its previous guidance, after revenue growth was particularly strong in the second half of the year thanks partly to new product launches and its acquisition of networks infrastructure company Aurora Networks. The company also said it is confident of making "further progress" in 2015 and beyond.
----------
Big Yellow Group reported strong growth in revenue during its fiscal third quarter, partly driven by its acquisition of the whole of the Big Yellow Limited Partnership, and said the decline in occupancy in what is traditionally a weaker quarter was lower than in the previous year. It said revenue was GBP21.3 million in the three months to December 31 including those stores, up from GBP18.3 million a year earlier. Excluding the partnership stores, revenue for the latest quarter was GBP20.3 million.
----------
Amec Foster Wheeler said the UK Nuclear Decommissioning Authority has informed the company it will terminate the Nuclear Management Partners Sellafield contract in 2016, which was awarded to a consortium of companies including Amec. Despite the authority stripping the consortium of the contract from the first quarter of 2016, Amec said it does not impact any other work that the company is carrying out at the Sellafield site. Amec said the contract cancellation is "not performance related", and said the progress made since the contract was awarded in 2008 should "not be wasted," it said.
----------
Ashmore Group reported a drop in assets under management during the last three months of 2014, hit by a negative investment performance stemming from the markets sell-off in early December, as well as net outflows. The emerging markets asset manager reported USD63.7 billion of assets under management at the end of 2014, a drop from the USD71.3 billion in assets managed at the end of September. Ashmore reported a negative investment performance of USD2.8 billion, net outflows of USD4.2 billion, and the disposal of its stake in a Chinese real estate joint venture that reduced alternatives assets under management by USD0.6 billion.
----------
Rathbone Brothers reported a rise in funds under management over the course of the fourth quarter, bolstered by its main investment management business and helped by the performance of its unit trusts. The investment manager also said it expects results for 2014 to be in line with expectations. In a statement, the FTSE 250 constituent, which manages the investments and wealth of private clients, charities and trustees, said total funds under management increased to GBP27.2 billion at the end of 2014, up from GBP26.3 billion at the end of September, and GBP22.0 billion at the end of 2013.
----------
Galliford Try said its Morrison Construction arm has reached financial close on the GBP31.2 million Hub South West Scotland Ltd contract. Morrison will handle the construction of the new Greenfaulds High School on behalf of North Lanarkshire Council, part of its Schools and Centres 21 scheme. Galliford will invest GBP0.7 million in funding for the project.
----------
Building products group SIG said it expects an improvement in underlying pretax profit and revenue for 2014, despite being held back by currency movements. The FTSE 250-listed company said it expects its underlying pretax profit for the year to December 31 to be marginally ahead of what it cited as the Bloomberg market consensus of GBP96.5 million. That would be an increase on the GBP90 million posted for the year earlier. The company said it expects revenue from continuing operations for the year to be GBP2.6 billion, up 2.5% year-on-year despite adverse foreign currency translation effects which cut sales by 3.1%.
----------
Spire Healthcare Group upgraded its revenue expectations for the year after strong trading in the fourth quarter and said it expects its earnings for the year to increase on the back of the contribution from the St Anthony's hospital acquisition. Spire said its trading in the fourth quarter was positive, meaning it now expects revenue for 2014 to be between GBP850 million and GBP855 million, an upgrade on the GBP825 million to GBP840 million guidance it gave in its interim statement in November. The group expects its earnings before income, taxation, depreciation and amortisation for the full year to be GBP157 million to GBP160 million. That compares to EBITDA of GBP150 million for 2013.
----------
AIM Movers
----------
SerVision shares are up after it signed a deal with Crosstone Trading Ltd and A&A Traffic Technologies Ltd in Kazakhstan to supply its video gateway products for buses operated in Astana. Crosstone and A&A have committed to an initial purchase order of USD415,000, with USD207,500 paid to SerVision already and the balance to be paid within four weeks of the order delivery date. Alexander Mining shares are down by more than a quarter after it raised GBP360,000 gross by issuing 72.0 million new shares at a discounted 0.5 pence each to institutions and other investors, money it will use for general working capital purposes. Charlemagne Capital is also down after it said it intends to cut its dividend as it reported a double-digit drop in assets under management, hurt by the substantial net outflows from the sector over the course of its last financial year.
----------
Top Economics And General
----------
UK inflation slowed more-than-expected to the lowest rate since May 2000 on lower fuel prices, data from the Office for National Statistics showed. Factory gate prices declined at a faster pace in December. Inflation halved to 0.5% in December from 1% in November. This was the lowest annual rate since records began in May 2000. Inflation was expected to ease to 0.7%. Meanwhile, core inflation excluding energy, food, alcoholic beverages and tobacco, rose to 1.3% in December from 1.2% in November.
----------
House prices growth in the UK slowed by less than expected in November, data from the Office for National Statistics showed. House prices climbed 10% year-on-year in November, more than the 9.8% increase expected by economists. This follows a 10.4% rise in October. Prices across the majority of the UK increased, with prices in London rising the most, by 15.3%.
----------
Like-for-like retail sales in the UK were down 0.4% on year in December, the British Retail Consortium said. That was well shy of forecasts for an increase of 1.0% on year following the 0.9% gain in November. Non-food sales provided support with a 7.0% online gain. Overall sales gained just 1.0%, slowing from 1.8% in November to mark the slowest December in six years.
----------
The European Central Bank should act sooner rather than later to lift inflation, Governing Council member Ewald Nowotny said. He noted that there is a long lag in the effect of monetary policy action. Eurozone inflation turned negative for the first time in more than five years in December. The central bank is widely expected to unveil quantitative easing at its next meeting on January 22. Nowotny said discussions on range of options for quantitative easing are continuing at the central bank. He said it is important to have no legal concerns about quantitative easing.
----------
The US Federal Reserve is on track to raise interest rates by the middle of the year, according to Atlanta Fed President Dennis Lockhart. The US economy is now "hitting on all cylinders," Lockhart told the Rotary Club of Atlanta Monday morning. "The recovery that began in 2009 is well-advanced." Days after the Labor Department said US unemployment dropped to 5.6% in December, Lockhart acknowledged "more improvement in labor markets in 2014 than in any other year of the recovery." Perhaps as important, Lockhart said he expects wages to rise. Stagnant wages were a dark lining on December's otherwise strong jobs report, prompting some Fed officials to urge patience before hiking rates.
----------
China's trade surplus decreased slightly less than expected in December, figures from the customs office showed . The trade surplus fell to USD49.1 billion in December from USD54.48 billion in November. Economists had expected the trade surplus to decrease to USD49 billion. Exports grew 9.9% year-over-year in December, which was faster than the 6% rise expected by economists. In November, exports had increased 4.7%. Imports declined 2.3%, slower than the 6.2% drop forecast by economists. In November, imports had decreased 6.7%.
----------
Japan posted a current account surplus of JPY433.0 billion in November, the Ministry of Finance said. That beat expectations for a surplus of JPY139.5 billion following the JPY833.4 billion surplus in October. The trade balance showed a deficit of JPY636.8 billion versus forecasts for a shortfall of JPY734.0 billion following the JPY766.6 billion deficit in the previous month.
----------
French satirical magazine Charlie Hebdo is publishing Wednesday a cartoon depicting the Prophet Muhammad holding a sign saying "Je suis Charlie," meaning "I am Charlie." The cartoon will appear on the front page of the 14 January edition under the headline "Tout Est Pardonne," or "All is forgiven". The defiant act comes a week after 12 people were killed in a terrorist attack on the office of Charlie Hebdo in Paris on January 7.
----------
Indonesian divers retrieved the cockpit voice recorder of the crashed AirAsia flight, a news report said. The recorder had been recovered to a navy ship, a Transport Ministry official was quoted as saying by Metro TV. Indonesian search teams earlier Tuesday were deployed to a spot about 20 metres from where the flight data recorder was retrieved on Monday. The voice recorder was stuck underneath a large piece of wreckage, and the divers were sent down with inflatable lifting bags to free it, Air Commodore Suryadi Surpriyadi, the search operation director, was quoted as saying at the start of the operation.
----------
Afternoon Watchlist (all times in GMT)

12:30 US NFIB Business Optimism Index
13:55 US Redbook index
15:00 US IBD/TIPP Economic Optimism
15:00 US JOLTS Job Openings
19:00 US Monthly Budget Statement
23:50 Japan Money Supply M2+CD
----------
Wednesday's Key UK Corporate Events

Tungsten Corporation - Half Year Results
Barratt Developments - Trading Statement
Burberry Group - Q3 Trading Statement
Fenner - Q1 Interim Management Statement
Jupiter Fund Management - Q4 Trading Statement
Connect Group - Interim Management Statement
Games Workshop Group - Half Year Results
Ocado Group - Christmas Trading Update
Premier Oil - Trading Statement
Cineworld Group - Trading Statement
Shoe Zone - Full Year Results
---------
Wednesday's Key Economic Events (all times in GMT)

06:00 Japan Machine Tool Orders
07:45 France Current Account
07:45 France Consumer Price Index
09:00 Italy Consumer Price Index
10:00 EU Industrial Production
12:00 US MBA Mortgage Applications
13:30 US Import/Export Price Index
13:30 US Retail Sales
15:00 US Business Inventories
15:30 US EIA Crude Oil Stocks change
18:00 US Fed's Beige Book
23:50 Japan Domestic Corporate Goods Price Index
23:50 Japan Machinery Orders
---------
Contact: +44 207 199 0340; newsroom@alliancenews.com; @AllNewsTeam

Copyright © 2015 Alliance News Limited, All rights reserved.



unsubscribe from this list    update subscription preferences 

Email Marketing Powered by Mailchimp
@AllNewsTeam
www.alliancenews.com