The FTSE 100 was predominantly supported by gains in the heavyweight banking and mining sectors this morning.
UK banks and miners advanced after their US counterparts rallied on the back of better-than-expected GDP figures last night. House builders were in demand as well this morning, following further evidence of a recovery in UK house prices.
Lloyds was the best performing bank so far, rallying 5.1% to 90.42p after Credit Suisse upgraded the lender from ‘underperform’ to ‘neutral’ and raised its price target by 73% to 95p. Credit Suisse said it feared that Lloyds would have been forced to sell significant assets by the European Commission. The broker said that Lloyds' statement on Thursday, which implied that the remedies required by the EC would not have a material impact, was a positive surprise, however.Lloyds also benefited from an upgrade from BNP Paribas today, which upped its recommendation from ‘underperform’ to ‘neutral’.
In the meantime, the Financial Times today reported that Lloyds may commence a £21 billion ($35 billion) fundraising by November 4, while the Daily Telegraph said that Lloyds has gained backing from European competition commissioners and British regulators for a fundraising and restructuring independent of the government’s costly Asset Protection Scheme.
Royal Bank of Scotland, which is also thought to be looking at plans to reduce its exposure to the government’s Asset Protection Scheme, climbed 3.2% to 44.76p, while Barclays added 1.3% to 334.2p.
Elsewhere in the financial sector, Investec’s shares climbed 2.8% to 451.3p after UBS upgraded the company from ‘neutral’ to ‘buy’.
Mining shares gained on the back of rising metal prices. Rio Tinto jumped 1.8% to 2835p after announcing that its capital expenditure for 2009 will be approximately $5 billion, as previously indicated, and will be at least $5 billion with the potential to rise to $6 billion in 2010. The mining giant also said its operating cost savings are on track for the targeted $2.5 billion reduction in 2010 and that net debt, as at September 30, was 42% lower than last year’s comparative at $22.3 billion.
‘Coupled with early signs of economic recovery, we are now well-placed to look ahead to 2010 and beyond,’ said chief executive Tom Albanese in a regulatory news announcement.
Anglo American rose 1.4% to 2331p, Antofagasta gained 0.7% to 827p and Lonmin climbed 0.8% to 1577p.
UK house builders were also in the limelight today after Nationwide reported that UK house prices are now higher than a year ago. The mortgage lender said UK house prices rose 0.4% in October and 2% higher than the prior year.
Persimmon was 0.2% higher at 416.6p while Bovis Homes added 0.6% to 420.3p. Barratt Developments advanced 1.3% to 140.9p and Redrow jumped nearly 5% to 142p.
Home improvement retailer Kingfisher also gained, rising 1.2% to 227p after Ian Cheshire, the company’s chief executive, told Sky News that he is ‘confident’ the company can continue to trade profitably amid the UK recession.
Also in today’s retail news, employee-owned department store chain John Lewis reported that overall department store sales were up by 9.1% on the year to £56.84 million in the week ended October 24. The company said that it experienced stronger-than-expected sales at its home furnishings and electrical products segments.
By 10.30am (London time) the FTSE 100 was up by 19.59 points (+0.38%) to 5157.31 while the broader FTSE 250 was 68.63 points (+0.77%) above its previous close at 9031.04. December Dow and S&P 500 ticked 0.30% lower, however, suggesting that the market expects Wall Street to open lower today.
Looking ahead to this afternoon, US personal income and expenditure data are scheduled for release at 12.30pm (London time), followed by the Chicago Purchasing Managers’ Index at 1.45pm and the Reuters/Michigan Consumer Sentiment Index at 2pm.
Interestingly, the Bank of Japan today announced that it will end its corporate debt purchases at the end of the year, and I suspect that many other central banks may soon follow suit. The removal of quantitative easing programmes and other government stimuli may, in turn, taint sentiment and reignite growth concerns during the fourth quarter and drive volatility. I would not be surprised to see further stock market consolidation in the near term.
