FTSE regains resistance level as commodities rise
UK equities put in strong performances on Monday, with 'riskier' assets such as commodity plays in high demand following G-20
The FTSE 100 index took on a round 90 points to close 1.8% higher at 5,232.7, while the FTSE 250 index added 114.9 points or 1.3% to 9,197.6.
Chancellor of the Exchequer Alistair Darling hosted a meeting of finance ministers from G-20 nations over the weekend, following which he said it had been agreed that interest rates need to remain low and budget deficits kept high until economic recoveries are underway. The comments helped boost investor sentiment, with the Chicago Board Options Exchange Volatility Index, or VIX, falling for its sixth consecutive day and investors switching from ‘safe haven’ dollar purchases to the more ‘risky’ investments of commodities.
As such, with the price of gold hitting another record high of $1,110 per ounce and copper prices also on the up, UK-listed metal extractors Kazakhmys, Xstrata and Antofagasta were among the top blue-chip performers by close of play Monday. Each took on between 4.6% and 6.0%, while sector peers followed suit.
Oil & gas producers were also in demand as the price of oil hovered near the $80 per barrel mark. Cairn Energy, Royal Dutch Shell, Tullow Oil and BP all added 1.9%-3.4%.
But it was Royal Bank of Scotland that topped the leaderboard with a jump of 6.3% as investors continued to cheer the group’s improved visibility on its participation in the government’s Asset Protection Scheme. Other banks weren’t so lucky, however. Lloyds Banking Group underperformed with a gain of just 0.5% as the stock’s progress was hampered by news the Financial Services Authority is looking into disclosures made by the now-43%-government-owned bank ahead of a 2008 capital raising.
The main story of the day revolved around merger and acquisition activity after Kraft Foods formalised its hostile bid for UK confectioner Cadbury just hours before the bid deadline was due. The US firm kept the same terms as its original indicative offer, but with Kraft shares have slipped around 5% since then the offer is now in fact worth less to Cadbury shareholders. Cadbury immediately rejected the bid as “derisory” but Morningstar analyst Erin Swanson thinks that shareholders may end up accepting a bid rather than risking their shares trading down if the confectionery firm opts to go it alone.
Cadbury shares fell back initially as those who had hoped Kraft would raise its bid expressed their disappointment, but the group’s rejection enabled the stock to tick up a moderate 0.4%.
Just three FTSE 100 components slipped into the red on Monday, the worst off being Cable & Wireless, which lost 1.6% under pressure from broker downgrades. Investec Securities cut its recommendation on the stock to Sell from Hold and Morgan Stanley reduced its price target to 170p following the group’s results and demerger confirmation last week.
On the second tier, industrial engineer IMI shone, surging 15.2% ahead after management said it expects the group’s 2009 earnings to be materially ahead of market consensus.
