The FTSE rallied toward the 5700 level today following a bullish run on Wall Street last night.
Wall Street shrugged off global tightening concerns and gained on the back of a rally across US drug makers, which rose after the House of Representatives passed a historic healthcare overhaul that will ensure tens of millions of uninsured Americans will receive medical treatment. Analyst upgrades and M&A news also contributed to last night's rally. The upbeat mood spilled over into Asian markets as well, which gained on signs that the region's economic growth is accelerating.
Meanwhile, evidence of waning UK inflationary pressures, robust earnings reports from the likes of Legal & General and Cairn Energy and domestic takeover news helped power the blue-chip index toward the 5700 level this morning.
By 10:40am (London time) the FTSE 100 Index was trading at 5691.53, representing a 46.99-point (+0.83%) rise from its previous close. In addition, the broader FTSE 250 Index advanced 60.13 points (+0.60%) to 10052.05.
An ONS report today indicated that the cost of living in the UK has slowed over the month of February following a fall in the prices of games and toys. The Consumer Price Index (CPI) slowed to a 3% year-on-year gain in February from January's 14-month high of 3.5%. This development adds credibility to the BoE's recent comments about inflation eventually falling back to its 2% target by the end of the year. The drop in the CPI also suggests that the central bank won't have to worry about raising interest rates any time soon. Meanwhile, a separate inflationary gauge known as the Retail Price Index (RPI) held steady at 3.7%, in line with expectations.
Earnings news also spurred risk appetite, with insurer Legal & General rallying 4.5% to 84.95p after unveiling a 2009 operating profit of £1.3 billion, exceeding the £1.1 billion predicted in a Reuters survey. The stronger bottom line results were predominantly attributable to cost cuts of £69 million, achieved in part by a 17% reduction in the company's workforce and also by the generation of new business.
Investors were also surprised to see a 33% rise in L&G's final dividend, which came in at 2.73p per share. This gives a total annual payout of 3.84p per share, representing a historic dividend yield of around 4.5%. 'There is a prospect of reserve releases to look forward to and the capital position is looking increasingly attractive. We believe that these results address many of the concerns that have hung over L&G over the past 12 months,' said Barrie Cornes of Panmure Gordon. Sector peers Aviva, Old Mutual, Prudential and Standard Life, meanwhile, gained between 0.2% and 0.5%.
Separately, Cairn Energy rallied to the top of the FTSE leader board this morning, surging 12.1% to 424.7p after upping output forecasts at its Rajasthan field in India. The company said that Rajasthan could produce up to 6.5 billion barrels, with the potential for it to produce 240,000 barrels of oil per day.
Rajasthan is expected to produce 125,000 barrels a day in the second half of this year. Cairn Energy also said that it will start drilling in Greenland. Gains among sector peers ranged between 0.35% and 0.72%.
Takeover news also added to the excitement today. It transpires that Babcock International Group has agreed to buy government services company VT Group for approximately £1.33 billion, sending VT's shares up by 5.8% to 730p this morning. 'We forecast that the deal will be broadly earnings-neutral in 2011, but will enhance earnings by about 5% in 2012,' said John Lawson at Investec, who reiterated a 'buy' rating and put its target price under review. Shares of Babcock International Group climbed 6.2% to 565.5p.
Looking ahead, the US existing home sales figures and Richmond Fed manufacturing index are due at 2pm (London time) today, followed by the house price index at 3pm and the American Petroleum Institute's oil inventory report at 8:30pm. June Dow and S&P 500 futures have traded between 0.1% and 0.15% higher, suggesting that Wall Street will open higher this afternoon.
