29th Oct 2013 17:29
LONDON (Alliance News) - UK stocks closed higher Tuesday, with the FTSE 100 up for a fourth consecutive day, as investors grew increasingly confident that the US Federal Reserve's policy committee will not taper its USD85 billion-per-month bond-buying stimulus Wednesday, ensuring the continuing availability of cheap money.
Predictions of when the Fed may start to reduce its economic stimulus programme have been pushed out in recent weeks in the wake of the long battle among US lawmakers to come up with a short-term solution to the country's budget and debt ceiling. Indifferent US data Tuesday served to strengthen those predictions.
A Commerce Department report showed an unexpected drop in retail sales due to sharply lower auto sales. Retail sales dropped 0.1% in September, following a 0.2% increase in August, missing expectations of 0.1%. Excluding the steep drop in auto sales, however, retail sales rose by 0.4% in September compared with a 0.1% uptick in the previous month, beating expectations for a 0.3% rise.
The Conference Board, meanwhile, reported a substantial deterioration in US consumer confidence in the month of October thanks to the long-running budget talks that shutdown central government for two weeks. It said its consumer confidence index tumbled to 71.2 in October from an upwardly revised 80.2 in September. Economists had been expecting the consumer confidence index to fall to 75.0 from the 79.7 originally reported for the previous month, according to FXStreet.com.
"Fairly indifferent US economic data has increased the probability that tomorrow's Fed meeting could well see growth forecasts for the US economy nudged downwards, with the likely outcome that any tapering prospects getting pushed out further into the middle part of 2014," said Michael Hewson, chief market analyst at CMC Markets.
Christopher Vecchio, currency analyst at DailyFX, echoed the sentiment. "In the context of the earlier weak US sales data from September, it's clear that the US economy was losing momentum before the government shutdown further harmed the economy, putting the Federal Reserve on the spot to keep QE3 on hold," he says.
The data helped drive European markets higher. The FTSE 100 closed up 0.7% at 6,774.73 having hit another five-month high, the FTSE 250 closed up 0.7% at 15,535.51, and the AIM All-Share index closed up 0.1% at 805.29, also a fourth consecutive day of gains. On the continent, the French CAC closed up 0.6%, while the German DAX closed up 0.5%.
At the close of the UK equity markets, Wall Street was also mostly higher. The DJIA was up 0.6% at 15,656.91, the S&P was up 0.4% at 1,769.43, while the Nasdaq was flat at 3,940.02.
Oil and gas producers was the biggest rising FTSE 350 sector index, closing up 2.4%, lifted by BP's decision to increase its shareholder payouts. BP, up 5% at 474.4898 pence, was the biggest gainer on the FTSE 100 after it increased its quarterly dividend by 5.6% to 9.50 US cents per share. Total revenues and other income increased 3.8% to USD98.20 billion in the third quarter, although pretax profit fell 36% to USD5.17 billion from USD8.06 billion due to asset sales, lower refining margins and a big tax bill in Russia. It's going to keep selling assets, saying it plans to divest a further USD10 billion in assets before the end of 2015.
Housebuilders were also big gainers after being upgraded by Liberum Capital. Analyst Charlie Campbell is confident that the current rise in UK house prices is sustainable without getting out of hand. Prices are likely to continue to rise because of government help, subdued interest rates, and good affordability, while subdued real incomes and more rigorous mortgage market supervision will ensure that increases don't run out of control, the brokerage said as it upgraded FTSE-250 listed Bovis Homes and Redrow to Buy from Hold, and raised price targets across the sector.
Positive sentiment on the housebuilders was helped by strong UK mortgage figures. UK mortgage approvals in September increased to the highest level since February 2008, adding to signs of a strong recovery in the housing market even before the launch of a government-backed mortgage scheme. Lenders granted 66,735 mortgages in September, up from a revised 63,396 in August, the Bank of England said. The September figure also exceeded the expected level of 66,000 and the average of 58,473 over the previous six months.
FTSE 100-listed Persimmon, closing up 1.9% at 1,246.6187p, was one of the biggest risers on the blue-chip index. On the FTSE 250, Bovis, closing up 3.6% at 787.122p, Redrow, closing up 3.3% at 263.216p, Bellway, closing up 1.9% at 1,504.50p, and Barratt Developments, closing up 1.5% at 337.287p, were amongst the top gainers.
Tullow Oil, closing down 1.5% at 942.2626p, was one of the biggest fallers on the FTSE 100. The company abandoned its Wisting Alternative Well offshore Norway after failing to find a significant oil discovery. The company said the well reached total depth and encountered oil shows in deep formations, but the reservoir rock was of poor quality when penetrated.
Lloyds Banking Group, down 3.5% at 76.87p, was another big loser. The company reported interim results that showed the bank's provisions for payment protection insurance claims have risen to more than GBP8 billion. The new GBP750 million provision helped widen its pretax loss to GBP440 million in the third quarter, compared with a GBP151 million loss for the same quarter in 2012. The costs of spinning out TSB and simplifying the bank also hit, widening to GBP408 million in the third quarter from GBP218 million a year earlier.
Barclays will give its third quarter management statement Wednesday, joined by retailer Next and media company Pearson. Insurer Standard Life will publish a trading statement, while FTSE 250-listed African Barrick Gold reports third quarter results and AIM-listed Advanced Computer Software Group gives an interim management statement.
In the data calendar Wednesday, German unemployment data is released at 0855 GMT, ahead of a raft of EU data at 1000 GMT, including consumer and industrial confidence figures. In the US, mortgage application data is released at 1100 GMT, before a sequence of CPI information at 1230 GMT. The much-anticipated Federal Bank's monetary policy statement is scheduled for 1800 GMT.
By James Kemp; [email protected]; @jamespkemp
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