15th Oct 2013 16:30
LONDON (Alliance News) -UK stock indices closed higher for a fourth consecutive day Tuesday as hopes grew the US political deadlock will be broken and a debt ceiling extension agreed before Thursday's deadline.
The FTSE 100 closed up 0.6% at 6,459.11, the FTSE 250 up 0.5% at 15,128.44 and the AIM All-Share up 0.5% at 790.88.
European indices also closed higher, with the CAC40, up 0.8%, and the German DAX, up 1.0%, both hitting new highs for 2013. The rise was helped by a survey showing confidence among German investors surged to its highest level in three-and-a-half years in October as the economy began to turn the corner and Europe shows signs of recovery. The economic sentiment indicator from the Centre For European Economic Research, or ZEW, increased to 52.8 in October from 49.6 in September. The index reading was the highest since April 2010.
However, the global stock market rally looks to have stalled in the US as latest comments from US politicians suggest a deal isn't imminent just yet. At the London close, the DJIA was trading down 0.2%, the S&P500 down 0.1% and the Nasdaq Composite close to flat.
House Republican Speaker John Boehner held a press conference just before the UK market close, saying "there have been a lot of opinions but no decisions about exactly what to do". With less that 48 hours to go before the US government exhausts its legal authority to borrow any more money and potentially risks default on some sovereign debt payments, Boehmer added: "I have made clear for months and months that the idea of default is wrong and we shouldn't get anywhere close to it".
The House of Representatives is currently working on a bill that would end the government shutdown and raise the debt limit, but add new restrictions to the Affordable Care Act, President Barack Obama's signature healthcare law. The House bill would also suspend a tax on medical devices for two years. The White House has called the bill a "partisan attempt to appease a small group of Tea Party Republicans" and is still rejecting any attempt to add any conditions to a deal on the budget and debt ceiling.
Burberry provided the big UK corporate story Tuesday, its shares closing down 6.2% after Chief Executive Angela Ahrendts surprised markets by announcing that she will leave to join technology giant Apple as head of its retail and online operations in the middle of next year. That overshadowed another strong trading update from the fashion house and retailer.
Ahrendts will be succeeded by creative director Christopher Bailey, who will do both roles, raising fears he will struggle to cope with driving both the creative and business side of Burberry.
The history of creative directors running the business of fashion houses is not strong, and the company has already had to defend Bailey's record as a businessman. It said the promotion was part of long-standing succession planning.
There is always disappointment when a successful CEO leaves, but it was Bailey who was actually was behind a lot of Burberry's recent digital push and "has been more instrumental in the company operations than the market is giving him credit for," Berenberg retail analyst John Guy said.
As it stands, the Burberry CEO's departure will leave easyJet's Carolyn McCall and Alison Cooper of Imperial Tobacco as the only remaining female chief executives in the FTSE 100.
Royal Mail had a good day, the first in which its shares traded unconditionally, allowing retail investors to join the fray. Last week's huge price rise, to over 450 pence per share, from the IPO price of 330p, left retail investors that has been allocated GBP750 worth of shares with a paper profit of about GBP300, leading to speculation that some may be tempted to take profit as soon as possible. This didn't appear to be an issue and the shares ended up 1.9%, finishing at 483.868p.
Chancellor George Osborne has been in China this week, plugging London as a global foreign exchange capital and the UK as a perfect destination for Chinese investment. Tuesday, he said Britain and China have agreed on measures to develop London into a global hub for investments using China's Renminbi currency.
"A great nation like China should have a great global currency," Osborne said following talks with Chinese Vice Premier Ma Kai. The British government said Osborne and Ma agreed to a pilot plan for licences to invest renminbi directly from London into China, removing the need to invest via the Chinese territory of Hong Kong. The agreement gives London an initial investment quota of 80 billion yuan, or USD13.1 billion.
Under a separate agreement, British regulators will hold talks with Chinese banks on allowing them to open wholesale branches in Britain. The Prudential Regulation Authority has wanted to tighten the regulatory framework, which is currently more lenient on branches than subsidiaries of foreign banks, and this agreement suggests the PRA may be capitulating to political pressure, say strategists at Brown Brothers Harrimen. "It is understandable that the UK would not want to miss the opportunity to participate in the growing Yuan trade. Yet it is precisely that competitive desire that weakened the regulatory environment previously."
The Office for National Statistics showed that house prices hit a record in August with rising demand across London. House prices increased 3.8% from a year earlier, after rising 3.3% in July.
Shortly after the data release, Bank of England Monetary Policy Committee member Martin Weale told a Treasury Committee he is concerned about the housing market. "People who are taking on mortgage debt do need to be sure that they can afford to look after it, even if interest rates return to normal levels," he said. That echoed incoming Deputy Governor Jon Cunliffe, who Monday warned that households risk becoming "overextended" as a result of taking part in the government's Help To Buy scheme.
UK consumer-price inflation remained unchanged at 2.7% in September, the ONS said, compared with economist forecasts for a drop to 2.6%. Retail price index figures were up 3.2% year-on-year, in line with consensus forecasts.
Hopes for a US debt deal lifted the dollar Tuesday, with both the pound and the euro hitting October lows. Currently the pound trades at USD1.5978 and the euro at USD1.3500.
The UK claimant count and ILO unemployment rate is out at 0930 BST Wednesday and at 1000 BST EU CPI data and trade numbers are due. The US earnings season got underway Tuesday with results from the likes of Coca-Cola, Citigroup and Omnicom, but the UK hasn't yet started. Wednesday brings full-year results from Smiths News, a production report from Hochschild Mining and key performance indicators from 888 holdings.
By Jon Darby; [email protected]; @jondarby100
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