14th Nov 2013 17:53
LONDON (Alliance News) - UK stock indices closed higher Thursday, while the Dow Jones Industrial Average and the S&P500 hit new all time highs, buoyed by comments from incoming Federal Reserve Chairman Janet Yellen suggesting the central bank will keep pumping cheap money into the economy for a while yet.
Yellen warned that unemployment remains too high for the Fed to consider significantly scaling back its USD85 billion-a-month in asset purchases.
"Under the wise and skillful leadership of Chairman Bernanke, the Fed helped stabilize the financial system, arrest the steep fall in the economy, and restart growth," Yellen told the Senate Committee on Banking, Housing, and Urban Affairs. "We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she added.
"A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," Yellen said. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
European equities rose from the start after a statement containing some of her speech to the committee was released overnight, and US stock markets followed on, gaining further as she started talking.
"The market love affair with Fed stimulus continued today as European markets shrugged off this weeks? growing pessimism to post gains, as incoming Chair Janet Yellen gave her strongest indication yet that an accommodative stance will be held into 2014," CMC Senior trader Toby Morris said.
The FTSE 100 closed up 0.7% at 6,673.60, the FTSE 250 closed up 0.5% at 15,261.25 and the AIM All-Share closed up 0.7% at 808.47. The S&P500 and the DJIA were both up about 0.3% and trading at all time highs after the European market close, while the CAC40 and the DAX ended up more than 1.0%.
Gold rose almost 1.0% to a high of the day at USD1,294.30 per ounce, and was still trading close to those levels at the close of the equities markets.
Weak European GDP data couldn't dent the enthusiasm. Growth across the whole eurozone came in at 0.1% for the third quarter, slightly slower than the 0.2% expected, while the yearly GDP shrank by 0.4%, slightly more than the 0.3% contraction expected. Both the French and Italian economies contracted by 0.1% in October, while growth in Portugal was 0.2%, less than the 0.3% expected. In the powerhouse of Europe, Germany, third-quarter growth was 0.3%, in-line with expectations.
Within the FTSE 350 sector indexes, Personal Goods was the top gainer, closing up 1.8% after strong interim results from Burberry and a positive management statement from Ted Baker.
Burberry closed up 1.8% after first-half pretax profit beat the company's prior guidance and it also increased its dividend by 10%. Ted Baker shares closed up 5.4% after its revenues rose significantly in the third quarter, driven by new space and a strong performance across the business.
Centrica was the biggest faller on the FTSE 100, closing down 3.8% after the company gave a weak trading update that prompted some analysts to downgrade earnings forecasts. It expects to report adjusted earnings per share at similar levels to last year. Market conditions for the utility group seem to be "tougher than expected," said Liberum Capital analyst Peter Atherton, who sees a 5% downgrade to previous 2013 earnings guidance.
On the FTSE 250, Serco closed down 12% after warning that it had been hit by the UK government contract issues and the impact of October's US government shutdown, with margins under pressure as contract awards are delayed or lost. The company has cut its full-year profit expectations and warned that profits in 2014 are set to be even lower. Liberum Capital cut Serco Group's price target to 430.00 pence from 540.00p, saying that after an "awful statement," it expects further weakness.
Pace PLC closed down 3.4% despite the pay-television and broadband service technology developer saying that its trading performance progressed well in the third quarter. Although the update was positive, the stock price was hit by US peer Cisco posting a drop in first-quarter earnings overnight. The Silicon Valley company said that although revenue grew by 2.0% year-on-year, profits dropped 5.0% due to increased competition from competitors such as China's Huawei. "There's clearly a problem at Cisco, and it seems there's an unfortunate read across to Pace this morning", said analyst Simpson.
The pound fell initially Thursday after UK retail sales came in worse-than-expected, declining 0.7% month-on-month in October, down from the 0.6% rise seen in September. On a yearly basis, sales were up 1.8%, again worse than the 3.1% expected and down from the 2.2% rise seen last month.
However, by the end of the day sterling was up against both the dollar and the euro, trading at USD1.6075 and EUR1.1940, as traders focused on Wednesdays Bank of England report suggesting interest rates may go up sooner than it had previously expected after it upgraded growth forecasts.
"We continue to think that the outlook for GBP is bright and we doubt that this data will change the Bank of England?s bullish outlook for the UK economy this quarter, thus the market may choose to take advantage of any temporary weakness in the pound", said FOREX.com Research Director Kathleen Brookes.
Friday brings a much lighter day of scheduled corporate releases, with statements expected from Vendata Resources and Rotork among others.
In the Economic calendar Friday, EU Inflation data will provide the morning focus given the concern over slowing growth in the region. EU CPI numbers are due at 1000 GMT.
By Jon Darby; [email protected]; @jondarby100
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