28th Nov 2013 16:52
LONDON (Alliance News) - All the main UK equity indices ended higher Thursday, despite the listed housebuilders tumbling after the Bank of England withdrew its Funding for Lending scheme for mortages, a move that sent the pound close to its high for the year against the dollar.
With the US markets out for Thanksgiving, a relatively quiet session had been expected, but there was plenty of domestic news to drive the markets.
In a move backed by George Osborne, central bank Governor Mark Carney announced that the Funding for Lending scheme will be extended next year for lending to small businesses, but will be withdrawn for household lending including mortgages.
"Although the growth in household loan volumes remains modest, activity in the housing market is picking up and house price inflation appears to be gaining momentum. As a result there is no longer a need for the FLS to provide further broad support to household lending," the Bank of England said.
That sent housebuilder stocks plumetting, although the losses need to be put into the context of the sharp gains the shares have made so far this year on the back of the house market recovery.
FTSE 100 listed Persimmon closed down 6.2%, leading the blue chip fallers. In the FTSE 250, most of the biggest fallers are house builders. Bovis homes closed down 5.5%, Taylor Wimpey closed down 6.1%, Barratt Developments closed down 4.8% and Bellway closed down 5.4%.
"UK house builders have had a torrid day, the withdrawal of the availability of this cheap source of funding appears to have acted as a spur for a bout of profit taking on a sector that has enjoyed stellar gains since the March budget", said CMC Markets Chief Analyst Michael Hewson.
Carney reiterated that the bank was keeping a close eye on the housing market after the recent price gains. "We did not see an immediate threat coming from the housing market but we are concerned about the prospective evolution of the housing market," Carney told reporters. "The concern is where this could go," Carney added. "We definitely see some short-term momentum."
However, the move sent the pound soaring, as traders took the announcement as another positive sign for the UK economy. "It means that the BoE may be underestimating the pace of economic recovery, which could warrant tighter policy sooner than anticipated", said DailyFX Analyst Christopher Vecchio.
The pound rallied up to a high against the dollar of USD1.6358, just 22 points from the yearly high in the cable made on January 2, at 1.6358. Against the euro the pound also moved higher, with the euro currently quoted at GBP0.8320.
The policy shift "appears to have been interpreted as a form of fiscal tightening by currency traders as the central bank turns off a liquidity channel that it feels is no longer warranted", said CMC's Hewson.
In a coincidental data release, a survey from the Land Registry revealed residential property prices in England and Wales decreased for the first time in seven months in October. The house price index dropped 0.2% in October from the previous month, when they recorded a 0.8% increase.
The other big decliners Thursday were tobacco stocks, after an apparent surprise U-turn by David Cameron. According to a report in the Times, cigarettes in the UK will be sold in plain packaging by the time of the next election. The FTSE 350 tobacco index closed down 1.0% on the report, with Imperial Tobacco down 1.9% and British American Tobacco down 0.6%.
It wasn't all bad news for stocks however, and all the main indices ended the day higher. The FTSE 100 closed up 0.1% at 6,654.88, the FTSE 250 up 0.2% at 15,438.49, and the AIM All-Share up 0.3% at 822.05.
Thomas Cook was the stand out performer on the FTSE 250, closing up 15% after Chief Executive Officer Harriet Green reported the company's first operating profit since 2010, gave a confident outlook, and raised the company's growth, profit and cash targets for 2015.
The travel company has now risen more than eightfold over the past two years as it rebounded from the brink of bankruptcy by paying down debt, selling assets and revamping its offering. Green says phase one of the recovery is over and the company is now setting its sights on a growth phase.
Thomas Cook had planned GBP110 million of cost savings in 2013 but actually achieved GBP134 million. Management now expects to achieve GBP340 million of cost savings by 2014 and GBP440 million by 2015. The combination of the much better-than-expected cost savings and increased revenue targets is likely to drive up consensus earnings forecasts by 5% to 10%, said Jefferies analyst Ian Rennardson.
Rio Tinto was the top blue chip gainer, closing up 4.1%. The mining giant said it plans to invest USD400 million to increase its iron-ore production in Western Australia by 24% to 360 million tonnes a year. Rio Tinto said that from a base run rate of 290 million tonnes per year by the end of 2014, it plans to expand by more than 60 million tonnes a year between 2014 and 2017.
With the US markets closed, the data releases were all European, and were mainly received well by the markets. In a big positive, the EU economic sentiment indicator came in at 98.5 in November, up from 97.7 in October, the highest level in more than two years.
However, the number of unemployed people in Germany increased for a fourth consecutive month in November to its highest level in two-and-a-half years, amid a faltering economic recovery, the latest figures from the Federal Labor Agency showed. The number of unemployed increased by 10,000 people in November from a month earlier to 2.985 million. This is the highest figure since April 2011. Economists had forecast no change in the figure. In October, the number of unemployed recorded an increase of 3,000.
More positives came though, with the latest German inflation data exceeding economists expectations. German CPI for November came in at 1.3% year on year, up from 1.2% in October and higher than unchanged reading that had been expected. On a monthly basis the inflation reading was 0.2%, higher than the 0.1% expected.
A drop in the Eurozone's October CPI inflation to just 0.7% year-on-year provided the catalyst for the surprise interest rate cut by the European Central Bank earlier in the month, so the tick up in inflation in Europe's biggest economy will go some way to fears of deflation in the currency bloc.
The data provided a boost for European equities. In Germany the DAX has closed 0.4% and in France the CAC40 has closed 0.2%.
The price of gold has steadily edged higher throughout Thursday, now quoted at USD1,244.30 per ounce. Meanwhile the price of oil has slid slightly lower, now quoted at USD110.85 per barrel.
A raft of Japanese data is set to be released overnight and may provide the early driver for European markets given the US holiday. Japanese CPI, industrial production, unemployment, housing starts and vehicle production data will all be released before Friday's market open in London.
The UK housing market will remain in focus Friday, with Nationwide UK house price data due out before the equity markets open and mortgage approvals and lending data due at 0930 GMT. German retail sales data is due at 0700 GMT, ahead of the main release of the day, EU CPI numbers at 1000 GMT.
In corporate news, newly-listed Infinis Energy reports interim results and there's an interim management statement from JD Sports.
US traders will return for a morning session before the markets close for an extended holiday weekend. Happy Thanksgiving.
By Jon Darby; [email protected]; @jondarby100
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Related Shares:
Rio TintoBovis HomesBellwayThomas CookBritish American TobaccoBarratt DevelopmentsPersimmonTaylor WimpeyIMT.L