The FTSE 100 Index continued to build on the prior day's gains this morning, after optimism about growth in Asia and fresh takeover activity in the domestic equity market enticed bargain hunters back to shares.
By around 11.00am (London time), the FTSE 100 index was trading at 5175.16, representing a 42.66-point (+0.83%) increase from yesterday's close. In addition, the broader FTSE 250 Index advanced 68.70 points (+0.71%) to 9678.38.
FTSE 250 constituent Brit Insurance Holdings rallied 20.5% to 878.5p today after receiving an unsolicited takeover offer from a private equity group. Brit Insurance rejected the offer, however, saying it significantly undervalued the firm and that it is 'not prepared to engage in any further discussions'. This means that a substantially improved offer would have to be made in order for the deal to go through. This helps explains the surge in the company's share price today.
Resource shares added the most points to the blue-chip index this morning, with BP topping the leader board, rallying 7.5% to 393p following supportive comments from the UK government. BP's shares climbed despite reports that the Gulf of Mexico oil spill is much bigger than previously thought and news of a potential cut or deferral in the company's second quarter dividend payment. The Wall Street Journal, citing an interview with BP's Chief Executive Officer Tony Hayward, today reported that the company was 'considering all options' on the dividend that is due to be announced on 27 July.
'Given the broad range of criticism from (US President) Obama and others in the United States, BP has been under pressure to take action,' said Huw Williams, an oil and gas analyst at Arden Partners. 'It appears the company is now preparing the ground to shift funds away from dividends towards putting more money into the clean-up operation.'
The White House yesterday announced that US president Barack Obama and senior administration officials will meet with BP's chairman Carl-Henric Svanberg next Wednesday.
Sector peer Shell gained 1.7% to 1791p, Tullow Oil gained 1.8% to 1141p and Cairn Energy added 2% to 416.1p.
Meanwhile, miners had recovered from earlier lows by late morning. The sector was predominantly in the red during the early morning session after Australian Prime Minister Kevin Rudd ruled out a quick compromise on the controversial mining tax.
'We've got weeks and probably months of consultation yet with the major mining companies,' Kevin Rudd said today. 'We've got the rate of this tax about right,' ruling out the possibility for any material move in the 40% tax rate on resource projects.
Banks retreated this morning on news that the Office for Fair Trade (OFT) will investigate the prices UK investment banks charged for equity underwriting and other associated services. The prospect of tighter regulation and uncertainty about a UK banking sector tax, which is likely to be announced in the upcoming Budget, weighed on UK banks as well today. Lloyds, RBS and Standard Chartered fell between 0.5% and 1.5% this morning. Barclays and HSBC seemed to buck the negative trend and rise 1.8% to 293.1p and 0.4% to 646.9p respectively.
Meanwhile, Spanish banks were predominantly higher today, after Caja Madrid and Bancaja began a merger process that would create the biggest Spanish saving bank today. A number of small Spanish savings banks are in the process of merging with larger peers before a deadline that expires at the end of this month. The merger is meant to reduce the threat that small savings banks impose on the Spanish economy since lenders will be able to pool their earnings and guarantee each other's solvency.
Progress on the Spanish merger initiatives, a successful government bond auction yesterday and optimism surrounding Jean Claude Trichet's plan to bolster liquidity in the eurozone region helped restore confidence and support the euro this morning.
Sterling was more responsive to domestic macroeconomic issues, however, with the currency seen paring all of its earlier gains following unexpected declines in UK industrial and manufacturing production for April.
The Office for National Statistics (ONS) reported that total UK manufacturing output declined 0.4% in April. This follows a 2.2% rise in March. On a year-on-year basis, manufacturing output was 3.4% higher, however. The broader industrial production gauge also showed a surprise 0.4% drop in April, confounding forecasts for an increase of 0.4%. The ONS also said that the prices of goods leaving UK factories, known as output producer prices, rose 0.3% in May and were up 5.7% from the same period a year ago.
Looking ahead, US retail sales figures are due out at 1.30pm (London time), followed by the Reuters/Michigan consumer sentiment index at 2.55pm and the business inventory figures at 3pm.
