Banking nerves prevent FTSE from turning positive
The UK's benchmark index briefly turned positive for the year but investor nerves ahead of Thursday's bank stress test results proved the gain unsustainable
The FTSE 100 index closed 59.6 points higher, up 1.4% at 4,396.5—its highest closing level since mid-January, while the FTSE 250 index took on a more moderate 34.4 points or 0.4% to settle at 7,871.2.
A raft of economic reports gave rise to another surge in market optimism early Wednesday as the deterioration of the services industry was shown to have slowed substantially, consumer confidence was seen to have received a boost, and the decline in permanent jobs decelerated.
The CIPS/Markit PMI survey revealed the UK’s services sector contracted at its slowest pace last month to 48.7 from March’s 45.5 reading, bringing it ever closer to the 50 mark, which would represent a return to growth. The survey also revealed that companies are more positive about the outlook than they have been for close to a year.
In other economic news, the decline of retail spending in the euro area accelerated in March on a like-for-like basis, according to the latest data, but retail sales in the UK increased by 0.9% in the year to March, offering further cause for optimism.
The figures helped boost Home Retail Group up 2.3% to 257.25p, while supermarket giants Tesco and Sainsbury each added 2.0% to a respective 345.1p and 341.75p.
Banks had extended Tuesday’s rally in morning trade, shunning reports from the US that Bank of America needs $34 billion in fresh capital and Citigroup needs an additional $10 billion, but tension moved back into the sector in afternoon deals as the results announcement of the US government’s bank stress test moved ever closer.
By the UK close, Standard Chartered and HSBC had added 9.2% to 1,256p and 4.2% to 539p, respectively, but Lloyds Banking Group, Royal Bank of Scotland and Barclays had each seen between 3% and 7% knocked off their market value.
Several stocks trading ex-dividend shaved a handful of points off the index, among them Antofagasta, Kingfisher, Wm. Morrison and Drax. The latter lost as much as 7.1% to close at 479p.
Among commodity plays, Antofagasta aside, Xstrata ticked up 3.4% to 677p, Kazakhmys took on 2.6% to 663.5p and Eurasian Natural Resources gained 2.1% to 690.5p, each tracking firming metals prices; Tullow Oil jumped 4.2% to 890.5p after reporting an oil find in Uganda, which helped to fuel a 3.0% rise in Cairn Energy to 2,294p and a 1.5% gain in BP to 500.25p.
On the earnings front, British American Tobacco added 3.6% to 1,640p, taking with its Imperial Tobacco (2.5% ahead at 1,547p), after the tobacco producer claimed it has not been impacted by the global economic slowdown and said it expects to report good profits in the full year.
Finally, as the furore over swine flu continues to subside, Thomas Cook Group, British Airways and TUI Travel remained in demand, the former climbing 6.1% to 297.5p, BA 4.8% higher at 173.9p, and the latter up 4.2% at 279.25p.
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