By Carla Mozee and Mark DeCambre, MarketWatch

Retail sales surge in May; Rolls-Royce to cut thousands of jobs

U.K. stocks on Thursday finished at the highest level in about four weeks as the pound weakened following the European Central Bank's decision to begin gradually closing the chapter on its crisis-era monetary policy.

Upbeat domestic retail sales figures offset worries about slowing economic growth in China, which had hobbled shares of mining companies in early trade.

How markets are performing

The FTSE 100 index reversed opening losses to finish up 0.8% to 7,765.79, helping the U.K. benchmark end a two-day skid and reaching its highest level since May 23, according to WSJ Market Data Group. On Wednesday, the blue-chip benchmark shed less than 1 point (http://www.marketwatch.com/story/ftse-100-moves-lower-as-oil-shares-fall-fed-steps-into-the-spotlight-2018-06-13).

The pound bought $1.3302, trading about 0.5% lower compared against the buck and giving up gains sparked by the better-than-expected retail data. Against the euro , sterling fetched EUR1.1429, up from EUR1.1346 in the prior session.

What's driving markets

The European Central Bank said it would phase out some of its easy-money policies, a day after the U.S. Federal Reserve raised its benchmark interest rate and signaled a total of four rate increases in 2018 (http://www.marketwatch.com/story/fed-hikes-interest-rates-now-sees-4-moves-this-year-2018-06-13).

ECB President Mario Draghi said the central bank would taper its monthly bond purchases beginning in October, aiming to bring the controversial program to a halt by the end of 2018, with an eye toward raising rates in the summer of 2019.

Draghi's decision was widely expected but knocked down the pound and euro, perhaps due to the central bank boss's emphasis of a gradual process to unwinding quantitative-easing programs that have been in place for years.

On Wednesday, the Fed lifted its benchmark federal-funds rate by a quarter-percentage point--to a range of 1.75% to 2%.

And see:The ECB, not the Fed, is the match that will spark bond market volatility: analyst (http://www.marketwatch.com/story/the-ecb-not-the-fed-is-the-match-that-will-spark-bond-market-volatility-analyst-2018-06-13)

Investors will look ahead to a meeting of Bank of England policy makers on June 21.

What strategists are saying

"Perhaps the bigger surprise (for financial markets at least) was that the ECB is clearly in no hurry to raise interest rates. The Bank's earlier line that rates were expected 'to remain at their present levels for an extended period' was replaced with a pledge to keep them unchanged," wrote Jennifer McKeown, chief European economist at Capital Economics in a Thursday research note.

Stock movers

Mining stocks had been knocked by concerns about the economic health of China, the world's largest buyer of copper and a major purchaser of other metals, but ended mixed.

Business activity in China slowed in May, and readings on industrial output, retail sales and fixed-asset investment from the National Bureau of Statistics fell short of expectations (http://www.marketwatch.com/story/business-activity-slows-in-china-in-may-2018-06-14). Investors also took notice of a decision by the People's Bank of China to stand pat on interest rates (http://www.marketwatch.com/story/boc-stands-pat-on-rates-fails-to-follow-fed-as-usual-2018-06-14), breaking a pattern of raising rates in the footsteps of the U.S. central bank.

Shares of copper producer Antofagasta PLC (ANTO.LN) lost 1.5%, Glencore PLC (GLEN.LN) cut its drop to end up 0.1%, as did shares of Anglo American PLC (AAL.LN), which rose 0.8%.

Unilever PLC (ULVR.LN) fell 2.8%, paring a steeper drop of about 4%. The consumer-goods maker's CFO, Graeme Pitkethly, warned sales growth in the first half of 2018 will be below the full-year target of 3% to 5% (http://www.marketwatch.com/story/unilever-extremely-unlikely-to-be-in-ftse-cfo-2018-06-14), but maintained sales guidance for the year. Pitkethly also said it is "extremely unlikely" Unilever will maintain a primary listing in London after its move to consolidate in Rotterdam.

Aveva Group PLC (AVV.LN) surged 12% on the FTSE 250 midcap index . The industrial-software company said it was maintaining its dividend even as fiscal 2018 pro forma pretax profit fell 34% (http://www.marketwatch.com/story/aveva-2018-profit-falls-34-on-reverse-takeover-2018-06-14), stemming in part from reverse acquisition by France's Schneider Electric SE (SU.FR)

Rolls-Royce Holdings PLC shares (RR.LN) surged by 6.5% after the British aircraft-engine maker said it would cut 4,600 jobs (http://www.marketwatch.com/story/rolls-royce-to-cut-4600-jobs-in-restructuring-2018-06-14), in its latest round of job reductions.

Economic data updates

Retail sales in the U.K. in May exceeded forecasts, as a stretch of good weather and Royal Wedding celebrations spurred spending in food and household goods stores, the Office for National Statistics said. Sales were up 1.3% on the month, compared with the 0.5% estimated. They were up 3.9% year-over-year, compared with the 2.4% expected in a FactSet consensus estimate.

"Today's strong retail sales print offsets multiple downside surprises this week--in manufacturing, trade, construction, pay and RPI inflation--and is supportive of our call for a second-quarter rebound in growth to 0.4%, and an August hike," said Jacob Nell, chief U.K. economist at Morgan Stanley, in a note. "Still this week's mixed data points to continued uncertainty over the rebound, implying a cautious 'wait-and-see' tone at next week's Monetary Policy Committee meeting."

 

(END) Dow Jones Newswires

June 14, 2018 14:15 ET (18:15 GMT)

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