Leading shares have made an optimistic start to the day, but are still heading for a weekly fall after a volatile few days.
The FTSE 100 is up 24.84 points at 6997.88, as European bonds recover some poise in the wake of European Central Bank boss Mario Draghi saying its QE programme would not end early. A record close on the S&P 500 in the US has also helped sentiment.
Greece however remains a concern for investors as time runs out for a deal to be done with its creditors to release much needed bailout funds.
And US data is in focus, with manufacturing and confidence figures due later, as traders await clarity on when the Federal Reserve is likely to begin raising interest rates. After recent weak figures, including retail sales, analysts are suggesting an anticipated move in September to raise borrowing costs may be in doubt, which has helped weaken the dollar and support US markets. Michael Hewson, chief market analyst at CMC Markets UK said:
The latest Empire manufacturing index for May is expected to show a rise to 4.75, from April’s -1.2 reading, while industrial production for April is expected to show an improvement to 0% from March’s 0.6% decline.
Even allowing for a decent set of data today the prognosis for a September rate rise seems slim. Investors appear to have forgotten that the Fed cut its growth and inflation forecasts at the March meeting, after dropping “patience” from the guidance language.
Given that the next meeting is next month and in light of recent data it is unlikely that the Fed would upgrade those forecasts at its June meeting, given that we only have one more payrolls number between now and then.
If we get a “wait and see” approach in June, which seems likely at the moment, then the earliest the Fed can act in revising its forecasts upwards would be September, and it would be unusual to do that ,and act on rates at the same meeting, which means the earliest we could get a move on rates now is either October, or December.
Among the UK risers, Coca-Cola Hellenic Bottling is up 35p to £14.51 after the group issued an encouraging first quarter update, with volumes rising 7.2%. The rise came due to four extra selling days, the earlier Easter holiday and good performances in Nigeria and eastern Europe.
Currency headwinds, which had unsettled investors, had a 5% adverse impact on sales, so net revenues grew 1.7%. The company said it had taken steps to mitigate emerging market exchange rates. Credit Suisse said:
We raise our earnings per share estimates by around 10%, largely reflecting recent currency moves, in particular, the rouble. We believe this should support margin expansion in 2015. Our target price rises to £14 (versus £12.3).
The group originally signalled at its full year results that it expected a €200m negative foreign exchange impact this year (translational and transactional). Given the rouble’s rally since then this number should be around 25% lower we believe. We now model 50 basis points margin expansion (versus 10 basis points previously), noting that part of the foreign exchange savings will be offset by higher fuel costs and some re-investment - this drives our 10% earnings upgrades.
ITV has recovered 4.3p to 261.6p following positive analyst comment on Thursday’s update, with Bernstein raising its price target from 265p to 325p and JP Morgan lifting its target from 281p to 294p. Bernstein said:
ITV continues to be the most interesting free to air TV broadcaster in Europe both because of geography (the UK TV ad market continues to perform very well, reflecting the current strength of the UK economy) and because it has a larger and more successful TV production business than most continental broadcasters. ITV’s investment into its production business, though volatile, can added to significant organic growth in the short to medium term and furthermore increases long-term sustainability in a world where content is king.
The valuation remains inexpensive, and does not reflect a couple of less defined opportunities for upside (regulatory changes, M&A), which we would not necessarily “pay for” but we believe are not reflected in the current share price. We rate ITV outperform with a target price of £3.25.
Among the mid-caps online gaming company Bwin Party.digital is up 7.45p to 96.85p on hopes of a possible takeover. In March the company said it was closer to selling part or all of the business, while gaming firm GVC Holdings had reportedly expressed interest.
