12th May 2014 16:26
LONDON (Alliance News) - The FTSE 100 ended Monday at its highest level since late February, following a strong performance by its mining constituents and after China's state council pledged to push ahead with a broad range of capital market reforms designed to increase liquidity.
"Optimism about capital market reforms in China helped markets to look past the farce of a referendum in the Donetsk region of Ukraine, said Peter Boockvar, chief market analyst at The Lindsey Group.
"Tensions in Ukraine have not gone away, but traders will be relieved that there has not been a sudden rush by any of the involved parties to praise or condemn the outcome (of the referendum)," said Chris Beauchamp, market analyst at IG. "That may change over the coming days, but for now the quiet reaction has been gratefully received," he added.
Pro-Russian separatists in the Donetsk region have claimed that nearly 90% of voters in the region were in favour of self-rule in a referendum held on Sunday, although the vote has been condemned as illegal by Kiev and Western governments.
In the latest developments surrounding the crisis, the European Union has issued a fourth round of punitive sanctions over Russia's annexation of Crimea Monday. The new sanctions targeted companies for the first time, hitting two Crimean firms that were nationalised after the annexation of the peninsular, according to EU diplomats. The list of individuals has risen to 61 names overall.
The UK's blue-chip index was boosted by a strong performance by its mining constituents. Mining companies' shares rose sharply Monday after JPMorgan Cazenove upgraded the European mining sector to Overweight, from Underweight, following more than two years of being bearish on the sector.
The change in sentiment can partly be put down to signs that activity within the sector is rebounding. In a note to clients, JPMorgan flagged several triggers, including an improvement in China's steel sector purchasing managers' index, strong Chinese commodity import data, and the fact that, given that the latest Chinese consumer price inflation rose just 1.8% year-on-year, Chinese "policy-makers have free hands to focus on growth supportive measures, if needed."
The sector has performed poorly over the last few years, the bank said, currently trading at the same levels as at December 2008, while commodity prices are double December 2008 levels. The sector also has been boosted by falling capital expenditure and cost-cutting.
"We continue to believe the second half of 2014 will see the sector's free-cash flow improvement, capital returns potential, and attractive relative valuation begin to be appreciated more fully," JPMorgan said.
Rio Tinto, closing up 4.0%, Antofagasta, closing up 3.5%, BHP Billiton, up 2.7%, Anglo American, up 2.3%, and Glencore Xstrata, up 1.2%, were all among the leading risers in the FTSE 100, while the FTSE 350 mining sector index closed up 2.8%.
Overall, the FTSE 100 closed up 0.6% at 6,851.75, its highest closing level since February 24, the FTSE 250 closed up 0.6% at 15,981.35, and the AIM All-Share index closed up 0.3% at 808.4.
In Europe, the CAC 40 in Paris closed up 0.4%, and the DAX 30 in Frankfurt closed up 1.3%.
It is a similar story on Wall Street, where, at the UK equity market close, the DJIA is up 0.6%, the NASDAQ Composite is up 1.5%, and the S&P 500 is up 0.8%.
British Sky Broadcasting Group was a big faller in the FTSE 100 Monday, closing down 2.4% after it said that it is in preliminary discussions with 21st Century Fox Inc about acquiring Fox's interest in Sky Deutschland and Sky Italia.
BSkyB said the talks have not progressed beyond a preliminary stage, no agreement has been reached on terms, value or transaction structure, and there is no certainty that a transaction will occur.
Nevertheless, "at the right value, this combination would have the potential to create a world-class multinational pay TV group," the company said.
However, Berenberg analyst Sarah Simon was less upbeat, saying that, with limited synergies among the UK, German and Italian businesses, any transaction would, at least in the medium term, be very dilutive to BSkyB's earnings per share.
Lonmin, closing down 4.1%, was a big loser in the FTSE 250. The platinum mining company said it swung to a significant pretax loss in its first half as the ongoing miners strike in South Africa continued to hit production at the company.
The platinum sector in the country has been crippled by strikes at mines owned by Lonmin, Impala Platinum Holdings and Anglo American Platinum, a subsidiary of Anglo American PLC, as the Association of Mineworkers and Construction Union attempts to achieve significantly better wages.
Lonmin said that it swung to a pretax loss of USD278 million for the six months to end-March from a pretax profit of USD54 million in the comparable period of the previous year, as revenues fell 21% to USD578 million from USD735 million. It said its revenues fell as the amount of ore mined at the company dropped 43% to 3.2 million attributable tonnes, with production in its first quarter hit by safety stoppages and production in its second quarter at a virtual standstill due to ongoing strike action.
However, encouragingly, a leaked memo seen by Reuters over the weekend showed that the company is expecting a mass return to work on Wednesday.
Dignity, ending the day down 1.3%, was another big FTSE 250 faller. The funeral services provider's shares were hit after it said that it is currently assuming there will be about 2% fewer deaths in 2014 than in 2013, after deaths were down 7.5% on the year in the first quarter.
In a trading update for its first quarter, the firm said revenue rose to GBP69.1 million, from GBP67.8 million in the corresponding period a year earlier. Underlying operating profit, which excludes profit or loss on fixed asset sales, external transaction costs and so-called exceptional items, rose by GBP400,000 to GBP25.8 million.
WS Atkins was one of the index's biggest gainers, closing up 5.9%. Numis Securities upgraded the group to Buy, from Add, saying that the firm's share price is an "attractive entry point", having fallen 15% since the end of February.
The investment bank also noted that it believes that the "financials stack up" for the firm to buy Balfour Beatty's professional services division, which has recently been put up for sale. Numis expects that WS Atkins would have to pay around GBP600 million for the division, funded partly internally and partly by a GBP420 million rights issue. If the deal were to be completed, the investment bank estimates a 13% earnings per share accretion for the year to March 2016.
Polymetal International was another big riser, ending the session up 2.6%. The gold, silver and copper-mining exploration and production company has completed a reserves and resources audit for the Svetloye Gold Deposit, while its pre-feasibility study showed it could produce up to 70,000 ounces of gold at the mine a year.
In the forex market, the pound jumped Monday. The currency was lifted by an increasing expectation that the Bank of England could bring in its rate rise timetable forward later this week, as well as some increased economic growth forecasts from the Confederation of British Industry.
"The prospect of the Bank of England becoming the first of the major central banks to raise interest rates has grown after a spate of good economic data including GDP and employment data," said Kathleen Brooks, research director at Forex.com. "This contrasts with the ECB (European Central Bank), who may decide to loosen monetary policy in its next meeting in June," she added.
The CBI on Monday raised its UK economic outlook forecast as the recovery continues to take hold. The business lobby forecast 3% economic growth this year, up from a prior estimate of 2.6%. Likewise, growth for 2015 was lifted to 2.7%, from 2.5%.
At the close of the UK equity market, sterling trades at a 16-month high against the euro at EUR1.2257, and at CHF1.4972, JPY172.20, and USD1.6868.
Still to be released Monday, the US monthly budget statement for April is due at 1800 GMT.
In the data calendar on Tuesday, Chinese industrial production, retail sales, and urban investment data are released at 0530 GMT. In Europe, German wholesale price index information is published at 0600 GMT, ahead of French current account data at 0645 GMT, and Italian consumer price inflation at 0800 GMT. The ZEW surveys for economic sentiment in Germany and the eurozone are both released at 0900 GMT.
In the US, the NFIB business optimism index is released at 1130 GMT, with import and export price index readings at 1230 GMT, at the same time as retail sales data. US business inventories data are released at 1400 GMT.
In the corporate calendar, FTSE 100-listed TUI Travel is scheduled to release half-year results on Tuesday, while FTSE 250-listed Enterprise Inns is due to release full-year results. Mid-caps Interserve and National Express Group provide trading updates.
By James Kemp; [email protected]; @jamespkemp
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
InterserveBalfour BeattyAnglo AmericanRio TintoNEX.LDTY.LPOLY.LGlencoreTUI.LLonminETI.LATK.LBHP Group