18th Oct 2013 16:59
LONDON (Alliance News) - UK stocks closed broadly higher Friday as a short-term resolution to the US budget stand-off, the likely continuation of cheap money in US, and positive Chinese growth figures all combined to increase investor appetite for equities.
London's main equity indices closed higher Friday as "investors celebrate the fact that the uncertainty of the last three weeks coming from the US has finally been concluded in the short term," says senior market analyst at CMC Markets, Michael Hewson. Although very few investors actually believed the US would default on its debt, the imminent possibility distracted market attention. "The sentiment in the market today is one of mild relief and back to business as usual," comments Spreadex trader Davis White.
Positive sentiment also was generated by a report from the Chinese National Bureau of Statistics showing that Chinese GDP picked up in the third quarter.
The report said China's GDP rose 7.8% year-over-year in the third quarter, in line with estimates and faster than the 7.5% growth in the second quarter. As growth for the first nine months came in at 7.7%, unless there are is a surprise set-back in the fourth quarter, the Chinese government will hit its growth target of 7.5% for the year.
Stocks also were given a boost as investors considered the likelihood that the US Federal Reserve will start tapering US quantitative easing anytime soon. It is now widely expected by market analysts that the Fed will vote to maintain its stimulus measures at its next meeting, amid greater uncertainty about US economic growth following the US government shutdown. Charles Evans, president of the Chicago Fed, pushed back expectations of ending quantitative stimulus program in the near future, citing fragile labour market recovery. "We need more information about how the economy is proceeding, how we are going to weather the most recent government shutdown," Evans said on Thursday in Madison, Wisconsin. The Fed holds its next meeting on October 29-30.
Whilst lifting stocks, the prospect of continued quantitative easing means that the dollar is under pressure. Christopher Vecchio, currency analyst at DailyFX commented that, "the US dollar is the worst performing currency for the second day in a row as market participants continue to price in another non-taper at this month's Federal Reserve policy meeting." At the close of the UK equity markets, the pound trades at USD1.6184 and the euro at USD1.3693.
At the London close, the FTSE 100 finished up 0.7% at 6,622.58, the FTSE 250 ended up 1.1% at a 2013 high of 15,391.18, while the AIM All-Share index closed up 0.8% at a 2013 high of 799.14.
The stock indices all closed the week firmly higher. The FTSE 100 was up 2.1% from last Friday's close, the FTSE 250 was up 2.8%, and the AIM All-Share up 1.6%.
Household goods stocks, up 2.6%, were the biggest winner on the FTSE 350 sector index. Data from the Council of Mortgage Lenders reported that gross mortgage lending in the UK remained broadly unchanged in September, although these figures are set to soon spike, according to analysts, in the aftermath of the introduction of the UK government-backed Help to Buy mortgage assistance scheme. Mortgage loans with a total value of GBP16.2 billion were disbursed by British banks in September, broadly unchanged from the previous month's figure. Compared to September 2012, mortgage lending surged by 41%.
While the Help to Buy scheme is already gaining traction, CML Chief Economist Bob Pannell warns that with the "guarantee scheme becoming fully operational in January and firms implementing the mortgage market review in April 2014, it may be several months into 2014 before we get a true gauge of the scale and reach of Help to Buy... For now, the scheme has launched against an already recovering UK housing market with several quarters of improving credit availability, growing competition, and strengthening demand."
At the individual stock level, Prudential, closing up 4.1% at 1,264 pence, was the biggest riser on the blue-chip index. Shares in the insurance group were boosted by an upbeat statement from rival AIA overnight, as well as the positive growth data from China.
William Hill, closing 3.2% lower at 403.5p, was by far the biggest faller on the FTSE 100. The share price fell after the bookmaker received a ratings downgrade from JPMorgan Cazenove to Underweight from Overweight. The shift of online gambling to mobile presents a problem of how to cross-sell from sports to gaming, says JPMorgan, given mobile-gaming development is well behind mobile sportsbook development. JP Morgan also commented that the sector is becoming increasingly competitive and, although it sees long term potential, has reduced William Hill's price target by 27% to 400p, from 550p.
SABMiller, closing down 0.5% at 3,152.2645p, was also a big faller. Having been a big riser Thursday, the company started to re-trace Friday. The shares also were knocked by Numis downgrading the company to Add from Buy, lowering its target price to 3,500p from 3,700p and revising down its 2014 earnings per share forecast by 1% after the company cut its own 2013 EPS forecast to 237.2p from 238.7p, on the back of accounting rule changes. The brokerage noted weakness in some of the brewer's high-margin countries such as Columbia, which has been hit by social unrest and faces elections later this year. Volumes also were down 7% in the Czech Republic and 10% in Poland, two of SABMiller's most important markets.
UK Business Secretary Vince Cable Friday defended the pricing of the Royal Mail float. Cable said that there was not enough demand from long-term investors to price it above the 330 pence per share issue price, in part because of the ongoing threat of industrial action, reports Sky News City Editor Mark Kleinman.
Cable and the government's investment-banking advisers have been accused of undervaluing the company after seeing its share price rise by 38% on its first day of trading. However, the Business Secretary said that the initial price range for the flotation, which attributed a value of between GBP2.6 billion and GBP3.3 billion to Royal Mail, was recommended by Goldman Sachs and UBS, the lead banking advisers, and endorsed by Lazard, which provided independent advice to ministers, reports Sky. The timing of the disclosure that unions would ballot Royal Mail workers for strike action, which was approved this week, meant that some potential investors in the company indicated that they would opt not to buy shares, the Business Secretary added.
Royal Mail shares performed strongly Friday, closing up 4.8% at 502.863p.
At the close of the UK equity markets, Wall Street was trading mixed. The Nasdaq was up 0.9% at 3,897.84, and the S&P was up 0.4% at 1,740.45, while the DJIA was flat at 15,367.6.
Investors will be watching for a large number of economic reports from the US next week. With the federal government back up and running, all of the data that was due to be released during the shutdown will begin to make its way out. The closely watched monthly jobs report for September will be released on Tuesday.
In Monday's data calendar, Japanese import and export figure are released at 0050 BST. German PPI data is scheduled for 0700 BST, ahead of Italian industrial orders and sales information at 0900 BST. In the US, existing home sales numbers are expected at 1500 BST.
By James Kemp; [email protected]; @jamespkemp
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