A much better than expected indication of strength among services companies in China bolstered Asian stock markets on Friday and gave Europe a firm open as well.
The positive economic news counteracted growing concern about higher-for-longer US interest rates and declines for FTSE 100 constituents Pearson and Rightmove following their annual results.
The FTSE 100 index was up 23.67 points, 0.3%, at 7,967.71. The FTSE 250 was up 53.85 points, 0.3%, at 19,905.50, and the AIM All-Share was up 0.92 points, 0.1%, at 862.21.
The Cboe UK 100 was up 0.3% at 797.50, the Cboe UK 250 up 0.2% at 17,437.09, and the Cboe Small Companies up marginally at 14,193.30.
Growth in China’s service sector sped up sharply in February, according to final survey data on Friday, as business continued to rebound after the rollback of anti-Covid measures.
The Caixin services purchasing managers’ index rose to 55.0 points in February from 52.9 in January. Rising further above the 50-point no-change mark, it shows the pace of growth picked up during the month.
It also was much higher than FXStreet-cited market consensus of 50.5.
‘Overall new business rose solidly in February, with the rate of growth the quickest seen since April 2021. Panel members often mentioned that the relaxation of Covid-19 measures had underpinned the recovery in customer demand and client numbers,’ S&P Global and Caixin explained.
The composite PMI - which weighs services and manufacturing indices - rose to 54.2 from 51.1. Released on Wednesday, China’s manufacturing PMI rose to 51.6 from 49.2.
In Japan, business activity in the county’s service sector also expanded in February.
The au Jibun Bank services PMI rose to 54.0 points from 52.3 in January. This was the highest reading since last June. It was also slightly higher than the flash estimate of 53.6.
‘Panel members often commented that stronger economic conditions and demand as the impact of the pandemic reduced had boosted activity and client confidence in both domestic and external markets,’ said Usamah Bhatti, S&P Global economist.
The outlook for activity over the next 12 months also strengthened, reaching a four-month high.
The Japan composite PMI - which weighs manufacturing and services together - rose to 51.1 points from 50.7.
This was led by growth in the services sector, offset by a decline in manufacturing, due to weaker orders and demand.
On the back of the positive readings, Asian stocks rose on Friday.
In Tokyo on Friday, the Nikkei 225 index closed up 1.6%. In China, the Shanghai Composite closed up 0.5%, while the Hang Seng index in Hong Kong was up 0.7%. The S&P/ASX 200 in Sydney closed up 0.4%
Also on Friday, there will be services PMIs from the EU, UK and US as well.
Investors continue to worry about rising interest rates.
‘The eurozone’s flash [consumer price index] estimate looked as ugly as it smelled beforehand,’ said Swissquote Bank Senior Analyst Ipek Ozkardeskaya.
‘The latest CPI update confirmed the European Central Bank hawks’ aggressive positioning for further rate hikes. The ECB head Christine Lagarde told the Spanish TV that the rate hikes will continue beyond the next 50bp hike. The ECB meeting minutes showed that policymakers are betting for a soft landing at this point, and they are not worried about a too-aggressive policy tightening.’
According to preliminary figures on Wednesday, inflation eased by less than expected in the eurozone last month, while core inflation unexpectedly heated up.
According to Eurostat, eurozone harmonised inflation eased just slightly to 8.5% in February, from 8.6% in January. This was higher than expected, with FXStreet-cited market consensus of 8.2%.
Core inflation - which excludes energy, food, alcohol & tobacco - ticked up to 5.6% annually, from 5.3% in January. This was ahead of market consensus that it would remain unchanged at 5.3%.
Expectations for higher US interest rates also have risen.
According to the CME FedWatch tool, there is currently a 31% chance that the US central bank hikes the federal funds rate by 50 basis points this month. A month ago, markets believed there was a 0% chance of that happening, according to the tool.
In European equities on Friday, the CAC 40 index in Paris was up 0.4%, and the DAX 40 in Frankfurt was up 0.7%.
The pound was quoted at $1.1978 early on Friday in London, up compared to $1.1949 at the equities close on Thursday. The euro stood at $1.0619, up against $1.0606. Against the yen, the dollar was trading at JP¥136.28, down compared to JP¥136.75.
In the FTSE 100, Pearson lost 1.9%.
The education publisher said sales rose by 12% to £3.84 billion for 2022 from £3.43 billion a year ago.
Sales were up 8% in Assessment & Qualifications and up 4% in Virtual Learning. In Higher Education, however, sales were down 4%, due to a decline in enrolments and a ‘loss of adoptions to non-mainstream publishers’, Pearson explained.
Pretax profit surged by 82% to £323 million from £177 million, as basic earnings per share grew to 32.8 pence from 23.5p a year ago.
‘These results are testament to the strong momentum that we’ve been building operationally and strategically over the past 24 months. For a second consecutive year, our financial performance was ahead of expectations, and we saw progress in our strategic initiatives, which are taking Pearson on a new, exciting journey,’ said Chief Executive Andy Bird.
The company declared a 14.9 pence final dividend, up 4.9% from 14.2p a year prior. This brings the annual dividend to 21.5p, also up 4.9% from 20.5p.
Looking ahead, Pearson said it is confident of achieving underlying sales growth of a a low- to mid-single digit percentage in 2023, with adjusted operating profit in line with current market expectations.
‘There are many moving parts to the business and not everything is doing well, which implies management has to study harder to find solutions to get the company firing on all cylinders,’ commented Russ Mould, investment director at AJ Bell.
‘The shares have had a great run, up 44% over the past 12 months, but there wasn‘??t enough in the latest results to sustain that momentum and so the stock slipped amid investors taking profits.’
Real estate portal Rightmove was down 2.3%.
It said pretax profit grew 6.9% in 2022 to £241.3 million from £225.6 million a year prior. Operating profit rose 6.7% to £241.3 million from £226.1 million, underperforming against company-compiled consensus of £242.2 million by 0.4%.
Revenue climbed 9.1% to £332.6 million from £304.9 million, beating company-compiled consensus of £330.8 million by 0.5%. It fell 5.5% short however of a revenue forecast of £352.0 million by UBS analysts.
The company paid a final dividend of 5.2 pence per share for 2022, up 8.3% from 4.8p paid for 2021. This brings the total dividend to 8.5p, up 9.0% from 7.8p a year ago.
Outgoing Chief Executive Officer Peter Brooks-Johnson said: ‘The year’s changing housing market conditions demonstrated our customers’ resilience and ability to adapt and to continue to succeed. The softening from the Covid-induced frenetic market towards a more normal market earlier in the year was disrupted in the final few months by the unexpected rapid mortgage rate increases.’
The company said 16.3 billion minutes were spent on its platform, down from 18.3 billion in 2022, as the UK housing market cooled off.
Mortgage lender Nationwide on Wednesday reported that UK house prices fell 1.1% annually in February, compared to a 1.1% rise in January. On a monthly basis, prices fell 0.5% in February from January, slowing slightly from a 0.6% decline in January from December. It was the sixth consecutive monthly decline in UK house prices, however.
In the FTSE 250, oil and gas industry services provider Hunting was down 3.7% to 294.21 pence. Berenberg cut Hunting to ’hold’ from ’buy’, although it maintained its price target on the stock at 325p.
On AIM, Enwell Energy gained 9.7%, after the Supreme Court of Ukraine issued a final decision in the legal proceedings relating to the validity of the production licence for the company’s Vasyschevskoye gas and condensate field in Ukraine.
In 2019, the State Service of Geology & Subsoil of Ukraine published an order for suspension of the production license. Since then, Enwell has disputed the order.
The Ukraine-focused oil and gas exploration and production company said that the court found that its production license was valid.
Chief Executive Officer Sergii Glazunov said: ‘Although we were always confident on our legal position, we are nonetheless extremely pleased with the decision of the Supreme Court and the confirmation of the validity of our VAS licence.’
Wall Street ended higher on Thursday, with the Dow Jones Industrial Average up 1.1%, the S&P 500 up 0.8% and the Nasdaq Composite up 0.7%.
Brent oil was quoted at $84.72 a barrel at early in London on Friday, down from $84.84 late Thursday.
Gold was quoted at $1,844.32 an ounce, up against $1,837.58.
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