European Indices fall as banks consolidate but miners rally – Tesco earnings please

<p>European stock indices lost some of the ground gained this week  in a weaker trading seesion with investors taking some profits off the table in […]</p>

European stock indices lost some of the ground gained this week  in a weaker trading seesion with investors taking some profits off the table in financial stocks after yesterdays charge higher, but continued demand for mining stocks was a bright spot in early trading. Earnings from Tesco pleased shareholders however, lifting the firms share price in early trading.

The FTSE 100 closed lower by 21 points at 5745 – though 9.1 points of the fall can be attributed to stocks going ex-dividend – whilst the German DAX lost 1% and the French CAC weighed the most, losing over 1.6% in trading.

Investors sold out of positions in the afternoon session and downsized risk ahead of an important test of market confidence in Spain with a long term bond auction due to take place tomorrow. Should the auction see a big jump in yields and a weak coverage ratio, this could escalate fears of widening contagion in the eurozone.

Much of the weakness in trading today has also been dictated by investors attempting to consolidate their gins in financial stocks after a strong session yesterday. The FTSE 350 banking sector lost 1.36%, whilst insurers also lost 1.6% in trading with stocks such as Legal and General amongst the top fallers in trading on the London Stock Exchange.

Tesco earnings please but still a long way to go to restore list confidence
Tesco beat expectations today to report a rise of 1.6% in underlying profit to £3.92bn against consensus estimates of £3.88bn, alongside plans to invest £1bn into the business across several areas to regain lost market share after reporting its first profit warning in twenty years in January to much shock in the city of London.

The UK remains a key issue that lies at the heart of investor concern for Tesco’s prospects and its ability to maintain its stranglehold on the UK consumer space. In the final quarter of the year, UK like for like sales fell 1.6%, quickening the pace from a fall of 0.9% in the third quarter of the year. Part of Philip Clarke’s, the Tesco CEO, plan is to re-weight the firms focus and pace from global expansion to fixing issues closer to home first as a major priority. Part of the £1bn investment will be distributed across six key areas; customer service, store formats, price value, range of goods, marketing and online optimisation.

Clarke also showed some stubbornness to refrain from aggressively ramping down its Fresh and Easy chain in the US despite calls from shareholders to do so, though he did admit that the chain was likely to take slightly longer than expected before it breaks even.

The read across from Tesco’s results was initially well received by the market, with the firms shares price opening higher, but the key with the ability to convince shareholders that the can regain lost market share and turnaround the firms fortunes in one of the toughest consumer environments for decades will likely come when evidence is seen of improving sales over the coming quarters.

Tesco’s share price had initially jumped higher by as much as 2% to trade at 335p before falling back to close down on the day by 2%. Support remains at the 310p level whilst a breakout above resistance at 340p is required if shares are to gain the momentum it needs to help it to try and regain the £4 level from which prices sold off sharply following January’s profit warning.

MPC minutes surprisingly show Posen changes tact on QE calls
The pound sterling rallied against the US dollar, with the $1.60 level in sight after MPC minutes from the latest Bank of England rate meeting showed that Adam Posen dropped his call from more stimulus in the shape of QE to support the UK economic recovery. Only David Miles maintained his QE call, with eight of the 9 committee members voting to keep QE at current levels of £325bn. Importantly, inflationary pressures were highlighted to be at a greater risk in the medium term, posing question marks over whether more QE could be considered next month in indeed over the next quarter.

An element to keep an eye out on however was the fact that the committee stated that the Office of National Statistics could report that UK GDP fell in the first quarter of the year next week due to the sharp falls in construction output in December and January, which the committee found perplexing.

Data also showed that the UK unemployment rate nudged lower to 8.3% from 8.4%, though the amount of people claiming unemployment benefits rose 3,600 also, leaving the data largely a mixed bag of positives and negatives.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.