Wall Street rally helps FTSE reverse losses
UK equities were spared a fifth consecutive day of losses as rising US consumer confidence helped offset a disappointing GDP result
The FTSE 100 index initially slipped into the red for the fifth consecutive session, falling to levels not seen since before the Christmas period, but recovered to close up 16.5 points or 0.3% at 5,276.9. The FTSE 250 index, which is seen as more closely representing the UK economy, closed flat at 9,292.9.
For UK investors, the main news of the day was that the economy grew by just 0.1% in the final quarter of 2009—marking an end to the longest and deepest recession since World War II, as had been expected, but a disappointingly feeble one.
Azad Zangana, European economist at Schroders, noted that preliminary estimates are subject to revision as they include only around 40% of the information required to produce the final estimate. “Let's be clear, the UK has finished last in the race to exit recession, six months behind Germany and France,” Zangana commented. “We estimate it will be at least three years before the UK returns to the level of output achieved in 2007, and as a result the Bank of England will keep interest rates on hold, at least until there is some evidence of the recovery gathering pace.” Zangana added that the UK is particularly prone to double-dip recessions, and said early fiscal or monetary policy tightening could easily push the UK economy under the water again.
Across the pond, where Friday’s GDP data is expected to show once again that the US economy is way ahead of the UK and has expanded in excess of 5% in the fourth quarter, consumers clearly have more reason to be optimistic. As such, the Conference Board’s confidence index increased to a higher-than-expected 55.9 from a revised 53.6 in December.
In the UK, FTSE 100 stocks were split 11-9 in favour of risers, with Standard Chartered the strongest performer, up 2.5% as investors bought back into the Asia-facing bank after the recent sector decline. Other British banks continued to feel the pressure, however, with Lloyds Banking Group, Royal Bank of Scotland and HSBC slipping 0.2%-2.3%, while Barclays was unmoved. Broader financials such as ICAP, London Stock Exchange and Schroders fell back between 1.0% and 3.8%.
But it was the miners that continued to put the most downward pressure on the blue-chip index. Fresnillo, Kazakmys and Randgold Resources led the sector lower, down 1.8%-2.3% each as fears over China’s next monetary policy moves remained.
Returning to the risers, defensives were in demand: Imperial Tobacco added 2.0%; Cable & Wireless took on 1.7% and International Power rose 1.6%. Pharmaceutical companies Shire, AstraZeneca and GlaxoSmithKline also attracted buyers, thanks in part to their defensive characteristics but also on the positive read across from strong results from Swiss peer Novartis. The three London-listed players climbed 1.5%-1.6% each.
