Buyers move in ahead of long weekend
Thursday saw investors injecting money into the markets ahead of the four-day weekend, putting an end to four sessions of losses
London’s leading index took on 58.2 points or 1.5% to end the week at 3,983.7, albeit still down on the previous end-of-week close and 16 points off the important 4,000-point mark. The FTSE 250 index was even more buoyant, adding 260.5 points or 3.9% to 6,978.9.
UK indices traded up throughout Thursday’s session, but received an extra fillip in late deals from positive movements on Wall Street on the back of reassuring news from the US banking sector.
UK banking stocks put in a strong performance Thursday, fuelled by forecast-busting earnings results from US peer Wells Fargo and sector M&A activity.
Wells Fargo shares had surged 30% at last check in the US after surprising the market with figures that came in well ahead of expectations, while here in the UK, Barclays jumped 12.5% to 177.5p after announcing it had agreed to sell its iShares ETF business to CVC Partners for £3 billion ($4.4 billion).
The UK bank said it expects to report a net gain of £1.5 billion from the sale, which will boost its pro forma equity Tier 1 ratio to 7.2%. In other banking sector M&A news, Dutch financial services company ING announced today that it plans to raise up to EUR 8 billion ($10.6 billion) via asset sales in order to boost its capital.
Caught up in the sector excitement, Royal Bank of Scotland shares closed 11.1% higher at 29p, Lloyds Banking Group added 10.9% to 79.5p, and HSBC took on 8.5% to 474p.
The Bank of England’s decision to hold interest rates at their current record low of 0.5% gave an extra boost to financial sector sentiment as investors were reassured that rates will be kept low for some time: consensus is now for rates to remain unchanged until early- to mid-2010. “The next key debate will be whether the Bank extends asset purchases beyond the £150 billion already authorised by HM Treasury,” Charles Davis, economist at the Centre for Economics and Business Research said today. The monetary policy committee minutes will shed more light on this when released.
Edward Menashy, chief economist at Charles Stanley, commented that: “The initial impression is that QE [Quantitative Easing] has caused market interest rates to fall and confidence to creep back into lending, whilst inflation expectations have remained contained.”
In other economic news, the US trade deficit shrunk to a narrower-than-expected $26.0 billion in February, official figures revealed today, from the previous month’s revised figure of $36.2 billion—the largest one month fall in 13 years. The fact that the decline was not only the result of declining imports but also of increasing exports was particularly encouraging.
Returning to UK equity movements, metal extractors bounced back from their recent demand concern-driven falls as commodities prices moved higher. Vedanta Resources was the FTSE 100’s top performer, 13.0% ahead at 873.5p, while Eurasian Natural Resources, Kazakhmys and Xstrata all gained between 9% and 11%.
On the downside, profit-takers moved in on food and household goods producers after Wednesday’s sector rise, sending Cadbury 3.4% lower to 517p, AB Foods down 3.3% to 628.5p, and Unilever 2.2% behind at 1,302p.
Stocks known for the defensive qualities were also out of favour in the upward market, with tobacco group Imperial Tobacco the main casualty, off 3.6% at 1,477p, utility provider Scottish & Southern Energy sliding 2.1% to 1,049p, and pharmaceuticals giant AstraZeneca 1.5% weaker at 2,315p.
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