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FTSE clings to gains after Yellen hints at policy error

Markets steadied as bank shares rallied despite admission by Federal Reserve boss Janet Yellen that US economy was vulnerable.

 
FTSE clings to gains after Yellen hints at policy error

(Update) Investors held their nerve and the FTSE 100 maintained today's rally despite an admission by Federal Reserve chair Janet Yellen that the US economy could be knocked off course by global turbulence.

The UK's leading index closed 55 points or 1% higher at 5,687 after Yellen used prepared testimony for the Congress to say that falling share prices, tightening credit markets and uncertainty over China could damage the US economy.

'These developments if they prove persistent could weigh on the outlook for economic activity and the labour market,' Yellen said in remarks prepared for her semi-annual visit to the House Committee on Financial Services this afternoon.

Her carefully balanced script held out scope for further US interest rate rises this year, however. This reassured investors who had almost given up hope in further interest rate 'normalisation' after the first increase in nine years in the Fed's funds rate in December.

Augustin Eden at Accendo Markets said the remarks proved the Fed had raised rates too early. 'Nothing had fundamentally changed in December, but the Fed decided to ignore the fundamentals and move US monetary policy to a place that’s less supportive of growth.

It now appears the markets chose to ignore the Fed in January, preferring the fundamentals, and what do you know? The markets were right – they’ve been reacting to this testimony for the past four weeks.'

On Wall Street the S&P 500 gained 0.55% or 10 points to 1,862 with technology stocks Alphabet (GOOGL.O), Microsoft (MSFT.O) and Facebook (FB.O) reversing recent losses with rises of between 1.5% and 3%.

The dollar also recovered from recent weakness with the pound slipping to $1.4470 after an ICM poll showed the UK remained split on whether Britain should remain in the European Union with 41% wanting 'in' and 42% supporting 'out'.

In Europe the FTSEurofist 300 closed 1.8% after Deutsche Bank soared 10% following a report that it was considering buying back some of its bonds at cheap prices in order to book a gain to bolster its balance sheet.

This bolstered banking stocks after recent falls in share prices raised the spectre of another eurozone banking crisis. Shares in payments processor Worldpay (WPG) bounced back 6% to lead the FTSE 100 higher.

Tesco and banks help FTSE bounce back

10.22: The FTSE 100 has rebounded from lows, led by Tesco on fresh revenue data showing signs of improvement at the supermarket and a recovery in banking stocks.

The UK blue-chip index rose 52 points, or 0.9%, to 5,685, snapping a three-day losing streak. Tesco was among the biggest risers, up 3.6% at 180p, after research from Kantar Worldpanel showed the supermarket was slowing a fall in revenues.

'Tesco showed signs of improvement – while revenues fell by 1.6% these are the best numbers posted by the retailer since September of last year,' it said.

Financial stocks were also among the risers, as they recovered some ground from a heavy sell-off. Insurer Prudential (PRU) was the biggest riser on the index, up 4.9% at £11.81, while rival Old Mutual (OML) added 3.7% to 159.7p, Legal & General (LGEN) was up 3.9% at 210.2p and Aviva (AV) added 2.8% to 418.4p.

Banks also rebounded. Royal Bank of Scotland (RBS) rose 2.5% to 231.3p, Barclays (BARC) added 1.5% to 158.6p and HSBC (HSBA) rose 1.4% to 438.1p.

The biggest faller on the index was Hikma Pharmaceuticals (HIK), which tumbled 10.4% to £17.87 after saying it would pay $535 million less than an earlier offer for rival Boehringer Ingelheim's US generic drugs business after discovering revenues from the unit would be lower than expected.

ARM (ARM) was another big faller, down 3.2% at 910p, as the chip maker issued a lukewarm outlook statement, despite strong fourth quarter figures.

"For 2016 boss Simon Segars forecast that sales would be "broadly in line" with market forecasts in dollar terms and the key word here is "broadly", which leaves some margin for error,' said Russ Mould, investment director at AJ Bell.

2 comments so far. Why not have your say?

Roger Savage

Feb 10, 2016 at 19:08

"Augustin Eden at Accendo Markets said the remarks proved the Fed had raised rates too early. 'Nothing had fundamentally changed in December, but the Fed decided to ignore the fundamentals and move US monetary policy to a place that’s less supportive of growth"

Less supportive of growth? If an economy can't withstand rates of 0.75%, that economy is a basket case and one whose growth can only be driven by cheap credit, feckless bankers, feckless politicians and those living beyond their means.

Ditto the above for the UK also. Classic Ponzi scheme / Enron stuff - create the illusion of growth / success whilst all the time a vacuum exists behind the propaganda.

Nothing was learnt from 2008. To the contrary, the steps taken since then - a crisis caused by the liberalisation of debt - have only sought to normalise excessive debt even further and to also normalise expectations of perpetuating it ad infinitum. The drug addict analogy is a bit hackneyed but totally apt.

It's too easy to label central bankers lunatics or incompetent (and perhaps this is the perception they conveniently hide behind to some extent).

Maybe they are just that but I can't help but think what we're seeing is part of a very considered plan to crash major economies (and/or currencies). Perhaps as part of a wider move towards a 'new world order' in league with those that really dictate political priorities and policies in so-called Western democracies (i.e. investment bankers, powerful party donors, etc...)

report this

JohnR

Feb 10, 2016 at 20:33

The notion central banks are in control of anything beyond the ability to dictate to hopelessly indebted governments, transfer what ever wealth is left in their fiat pyramid schemes by counterfeiting their way to infinite balance sheets, buying real assets and socialising their private banking clients losses, is absurd.

Err.. hold on a minute...

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