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Asia boost helps markets to shrug off dismal UK data

UK manufacturing production in July was much worse than expected

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George Osborne's

MID-SESSION UPDATE

Upbeat Asian economic news helped London traders to shrug off dismal British manufacturing data on Wednesday.

Japanese premier Shinzo Abe hinted at extra economic stimulus while the latest consumer confidence survey saw the headline indicator rising a much stronger-than-expected 1.4pts in August to 41.7, reversing the decline in July.

China also weighed in with signals about possible help for the economy, with the Ministry of Finance pledging to speed up "the implementation and improvement of proactive fiscal policy and related measures…to support stable growth and promote continued healthy economic development."

The FTSE 100 Index advanced 124 points to 6,270 while the Dax put on 189 points and the CAC-40 gained about 123 points.

The news from the Far East helped markets to offset disappointing UK manufacturing production numbers, which fell to -0.8% against the 0.2% increase expected.

Industrial production saw a similar drop to -0.4% compared to the 0.1% growth forecast and the trade deficit widened substantially to £11.1bn - the biggest in over a year as exports dropped 10%.

Connor Campbell at spread-betting firm Spreadex said the news was "another damning morning" for Chancellor George Osborne's much-heralded "march of the makers" manufacturing drive.

"It provides further confirmation that the UK economy remains dangerously skewed towards services and consumer growth," Campbell said.

Analysts said the news cast further doubts over the prospect of an interest rate rise this month.

Research analyst at foreign exchange group FXTM, Lukman Otunuga, said: "The main focus for the UK economy will now be tomorrow’s BoE monetary policy decision, with most market participants seeing the possibility of a September rate hike as extremely unlikely."

Oil prices lost early gains to fall into negative territory, with the cost of a barrel of Brent crude dipping 0.6% to US€49.18. A barrel of US light crude also fell 0.6% to US$45.6.

BP (LON:BP.) still rose 4.25p to 344.45p, Royal Dutch Shell (LON:RDSB) spurted 25p to 1,657p and BG Group (LON:BG.) inflated 17.7p to 1,001.5p.

Barratt Developments (LON:BDEV) ticked up 4.5p to 641.5p on news of a 45% rise in profits, although the house builder warned of skills shortages and a continuing mismatch between housing supply and demand.

Ryanair (LON:RYA) flew €0.82 higher to €13.76 as the Irish budget airline revised its annual profit forecast up by a quarter on unexpectedly strong summer demand.

Amur Minerals (LON:AMC) shed an earlier rise, dropping 0.25p to 14.25p after the explorer forecast an upgrade to nickel resources at its Kun-Manie deposit in Far East Russia.

Investors logged onto online retail software supplier Attraqt Group (LON:ATQT) by 1p to 59.5p after reporting "significant" first-half revenue growth of 40% to £1.34mln.

Medical group Angle (LON:AGL) was 3.5p healthier at 83p on news of highly encouraging results from using the company's Parsortix blood testing system to carry out a liquid biopsy for breast cancer.

LONDON OPEN

Some Eastern economic promise spiced up the start of trading in European markets on Wednesday.

Japanese premier Shinzo Abe hinted at extra economic stimulus. In the latest consumer confidence survey, the headline indicator rose a much stronger-than-expected 1.4pts in August to 41.7, reversing the decline in July.

China also weighed in with signals about possible help for the economy. The Ministry of Finance pledged to speed up "the implementation and improvement of proactive fiscal policy and related measures…to support stable growth and promote continued healthy economic development."

The FTSE 100 Index advanced 108.29 points to 6254 while the Dax put on 178 points and the CAC-40 gained about 100 points.

Oil prices continued a recovery, with the cost of a barrel of Brent crude lifting 0.1% to US€49.58, although a barrel of US light crude fell slightly to US$45.78.

BP (LON:BP.) gushed 5.75p to 345.95p, Royal Dutch Shell (LON:RDSB) spurted 34p to 1666p and BG Group (LON:BG.) inflated 23.2p to 1007p.

In the UK, markets were expecting latest UK industrial production and trade figures for the month of July.

Manufacturing output is expected to post a further modest increase of 0.2%M/M to leave its annual growth rate unchanged at just 0.5%Y/Y.

And total industrial output is expected to have risen by 0.1%M/M, leaving the year-on-year rate of growth little changed from June’s reading of 1.5%Y/Y.

Meanwhile, having provided a significant boost to GDP growth in Q2, external trade is likely to have weakened at the start of Q3.

Chris Scicluna at Daiwa Capital Markets said: "In particular, the trade deficit looks set to widen to around £2bn in July from £1.6bn in the previous month."

Barratt Developments (LON:BDEV) ticked up 5p to 642p on news of a 45% rise in profits, although the house builder warned of skills shortages and a continuing mismatch between housing supply and demand.

Ryanair flew €1.01 higher to €13.95 as the Irish budget airline revised its annual profit forecast up by a quarter on unexpectedly strong summer demand.

Amur Minerals (LON:AMC) hardened 0.5p to 15p after the explorer forecast an upgrade to nickel resources at its Kun-Manie deposit in Far East Russia.

LONDON PREVIEW

London’s blue chips are set for a strong start after markets in the US and Asia surged overnight on hopes China’s problems may be soluble.

Financial spread bet firms expects Footsie to add more than 80 points when trading starts, adding to yesterday’s 71 point gain to 6,146.

The change in mood stemmed from market chatter than China’s authorities will take more action to restructure the country’s financial systems including tax reforms and more infrastructure spending.

It boosted US shares overnight, with the Dow Jones Industrial Average adding 391 points, 2.4%, to 16,493 with Nasdaq and the S&P 500 seeing similar percentage gains.

Today sees the conclusion of the September Federal Reserve meeting that has been widely tipped to see interest rates start to rise.

Later Apple is set to unveil the latest version of the best-selling iPhone and possibly even a new Apple TV.

Yahoo was an exception as it announced it had dropped a request not to pay tax  on the spin-off of online shopping associate Alibaba

Asian market took their cue from the US and surged higher.

 The Nikkei in Tokyo had its best day in four years, gaining more than 6% to 18,847 while Hong Kong added more than 3.5% and Shanghai over 2.3%.

In the UK today, house builder Barratt, retailer Sports Direct and financial adviser Hargreaves Lansdown all update on trading.

IN THE PAPERS

Oil company investment in the North Sea is expected to slump by up to £4bn per year through to the end of 2018 as operators slash costs to compensate for lower prices, the industry trade body has warned, reports the Telegraph.

North Sea, Oil and Gas UK said that 15% of the offshore industry’s workforce - equal to 65,000 jobs - has been lost since the beginning of last year.

The “national living wage”  gets plenty of coverage after Costa Coffee and Premier Inn owner Whitbread said it was looking at ways to offset the cost of the pay rise for more than 15,000 staff through higher coffee prices, the Times writes. The warning increases concerns that businesses will increase prices and cut jobs in response to the new pay rate. 

On a similar theme, the FT quotes the new CBI president who said ministers have underestimated the “dramatic impact” of the national living wage on companies’ profitability and hiring, and badly timed its introduction, says the new CBI president.

“I’ve talked to several chief executives and been surprised by the impact on their profits of the change,” Paul Drechsler told the paper.

An engine on a London-bound British Airways jet caught fire on Tuesday while the plane was preparing to take off from Las Vegas. The 159 passengers and 13 crew members on board got off the plane, the FT reports.

Luxury car maker Rolls-Royce Motors has launched a new convertible model, aiming to raise its appeal to women and younger drivers amid declining sales in China. Director of Design Giles Taylor told Reuters that the “Dawn” convertible would help the 111-year old brand attract new customers who have a more modern approach to car ownership, the Guardian writes.

Warren Buffett spent US$500mln a week on shares during market turmoil. The Telegraph reports. Buffett revealed he has been adding to his company's sizable stake in IBM, even though the stock has disappointed.

Yahoo may have to abandon its plan to spin off its $23bn stake in Alibaba after US tax authorities refused to rubber stamp the proposal, in an unusual move that could affect future corporate spin-offs, the FT reports.

Marks & Spencer looks likely to scale back its international expansion plans in the wake of the economic turmoil in Asia and the troubles in the Middle East, according to the Mail.

Britain’s biggest clothing retailer hinted that the targets it had set for new store openings by 2017 were now unobtainable. 

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