ITV Leads Rising FTSE 100 As UK GDP Growth Muted

LONDON (Alliance News) - Stocks were trading higher at midday on Wednesday on a busy day for corporate earnings, led by broadcaster ITV, as second-quarter UK GDP figures met expectations but suggested the economy has remained sluggish.

The FTSE 100 index of large caps was up 0.5%, or 38.52 points, at 7,473.34. The FTSE 250 index of mid-caps was up 0.5% at 19,747.01, while the AIM All-Share index was up 0.5% at 983.88.

The BATS UK 100 index was up 0.4% at 12,678.50, the BATS 250 up 0.5% at 17,961.62, and the BATS Small Companies up 0.1% at 12,124.92.

"The FTSE continued to climb back towards 7,500 this Wednesday, a GDP-muted performance from sterling and an overall positive morning for earnings pushing the index higher," said Connor Campbell, analyst at Spreadex.

The UK economy expanded at a slightly faster pace in the second quarter, preliminary data published by the Office for National Statistics showed Wednesday.

Gross domestic product climbed 0.3% sequentially, after expanding 0.2% at the start of the year. The quarterly growth came in line with expectations. The growth was driven by the dominant service sector, while construction and manufacturing were the largest drags, ONS said.

Services output grew 0.5% from prior quarter and farm output advanced moderately by 0.6%. Meanwhile, production and construction declined 0.4% and 0.9%, respectively.

On a yearly basis, the economy expanded 1.7% in the second quarter, as expected, versus 2.0% in the first quarter.

"The preliminary estimate of GDP confirms that the economy has little momentum because consumers are enduring falling real wages and businesses are holding back from spending due to Brexit risk," said Samuel Tombs of Pantheon Macroeconomics.

Tombs said the GDP figures also suggest the economy is not rebalancing towards net trade and investment, as would be needed to prompt an interest hike from the Bank of England's Monetary Policy Committee, which meets next week.

"The hawks on the committee also hoped for stronger growth in line with the 0.6% or so rate implied by business surveys, so today’s GDP print clips their wings. The probability of an interest rate rise next month - already reduced by June’s soft CPI inflation print - now is extremely low," said Tombs.

Tombs also said Pantheon believes second half GDP growth is likely to average just 0.2% quarter-on-quarter, with consumers squeezed by inflation and firms stockpiling cash in the face of Brexit uncertainty, likely ensuring UK interest rates will remain on hold.

The pound had a muted reaction to the GDP figure but rose later in the morning and was trading at USD1.3051 at midday, against USD1.3039 at the London equities close on Tuesday.

Broadcaster ITV led the FTSE 100 at midday, up 2.7%. ITV said its performance in the first six months of the year was in line with expectations as it reiterated its full-year guidance. Pretax profit fell 10% to GBP381.0 million from GBP425.0 million as total external revenue dipped 3%. ITV said a drop in net advertising revenue was driven by "ongoing economic and political uncertainty".

However, ITV said it has already secured 85% of expected full-year revenue and that it is on track to deliver "good organic revenue growth".

"With NAR declining across the whole first half in line with guidance, there's room for investor relief, and that is reflected in the stock this morning. Furthermore, somewhat contrary to the candid picture painted by the now departed CEO in May, net-net, both operating environment and outlook look largely static relative to expectations earlier in the year," said Ken Odeluga, market analyst at City Index.

Also rising was catering firm Compass Group, up 1.8%, which maintained full-year expectations in its third-quarter results to June 30.

Compass reported organic revenue growth in the third quarter of 3.9%, or 5.0% excluding the impact of Easter. Growth accelerated in the quarter with strong net new business in North America and good progress in Europe, but a challenging environment in Rest of World. Nine-month organic revenue was up 3.7%.

At the other end of the blue-chip index was payroll software firm Sage Group, down 2.9%. The stock was being sold in reaction to the news late Tuesday that Sage will acquire US cloud-based financial software firm Intacct for USD850.0 million. Sage said the deal for the California-based business will be funded through cash and rolled-over share options .

In addition, Sage said Wednesday that its organic revenue rose by 6.3% in the third quarter to the end of June, resulting in growth of 6.4% for the first nine months of the current financial year.

In mainland Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were up 0.8% and 0.4%, respectively.

Wall Street was called for a higher open on Wednesday. The Dow Jones Industrial Average was seen up 0.1%, as was the S&P 500 index. The Nasdaq Composite was pointed marginally higher.

In a busy day for US corporate earnings, quarterly results are expected before the New York open from Boeing, Coca-Cola, Ford and Nasdaq. Quarterly earnings are due after the US close from Facebook.

Still to come in Wednesday's economic calendar there is US MBA mortgage applications and new homes sales at 1500 BST. Later, attention is on the Federal Reserve's monetary policy announcement and rate decision due Wednesday at 1900 BST.

"Without a press conference and following last month's rate cut, there is practically no chance of a new policy initiative either on the balance sheet or the Fed funds target," said analysts at Brown Brothers Harriman.

The BBH analysts said the focus is likely to be on how the Fed's statement addresses the risk of declining inflation.

"After declining from February through May, core inflation needs to not only stabilize, as core CPI did last month. It needs to rise for perhaps a few months before a cautious central banker may feel confident that the soft patch has passed," said the analysts.