UK equities ride higher in light volumes
With the holiday season just around the corner, UK equities spiked higher on Wednesday ahead of the FOMC's rate announcement
The FTSE 100 index ticked up 34.5 points or 0.7% to close at 5,320.3, while the FTSE 250 index jumped 114.5 points to 9,141.4—a session gain of 1.3%.
European indices and Wall Street were also moderately higher as investors digested strong housing starts data from the US, the Eurozone service sector’s fastest expansion in two years, and an unexpected drop in UK unemployment claims.
The US trading session will be dominated by the Fed’s rate decision—seen unchanged at 0.25%—and accompanying statement, in which chairman Ben Bernanke is expected to suggest rates will be kept near zero for many months to come. A BofA Merrill Lynch monthly fund manager survey today revealed that a growing proportion of global fund managers do not expect interest rate hikes from the Fed before the second half of 2010.
Prior to tonight’s Fed statement, investors had a 0.4% increase in the US consumer price index in November and a 6.0% rise in the annualised rate of housing starts. Though both figures were in line with market expectations, they spell mixed news for the US economy, commented Centre for Economics and Business Research economist Andrew Pilkington.
“On the one hand, housing start increases are no doubt encouraging for the Construction sector, Pilkington said. “However, with tax credits scheduled to end in April and unemployment still high, the medium term outlook for the sector seems fragile. Furthermore, the inflation figures released today may spark fears of an early interest rate hike by the Federal Reserve which would add to worries for the construction sector.”
Meanwhile, here in the UK, a significant drop in the claimant count measure of unemployment and its first fall since February of last year helped offer some seasonal cheer. In line with expectations, the rate of unemployment remained steady at 7.9% and the internationally comparable ILO measure of unemployment now stands at 2.5 million.
Among equity movements, investors picked up banking stocks following Tuesday’s falls and supported by reports of delays in the Basle Committee’s new capital adequacy rules for major banks. “If true, this would save major banks from a potential rush to top up their capital base and give them extra time to do so in the manner they would prefer,” commented City Index market strategist Joshua Raymond. “As a result, the banking sector is the main driver to equity markets in Europe today.”
Barclays, HSBC and Standard Chartered each gained 1.0%-2.6% in London deals, while broader financials including insurer RSA, asset manager Schroders and interdealer broker ICAP added 1.9%-3.5%.
With metal and oil prices on the up, miners Kazakhmys and Lonmin took on 3.0% and 2.3%, respectively, and oil producers BG Group and Cairn Energy rose 1.5% and 1.1%.
Real estate investment trusts were also in demand following upbeat comments on the property sector from a major broker, as well as the positive read-across from US housing data. Hammerson, Segro and British Land led the blue-chip sector players higher with respective gains of 2.6%, 2.3% and 1.8%, after Citigroup upgraded mid-cap housebuilders Barratt Developments, Taylor Wimpey and Redrow to Buy citing overdone negative sector sentiment. The three FTSE 250-listed stocks firmed between 4.9% and 6.9% apiece.
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