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FTSE rallies 1.7% on oil and gold after Swiss shock

(Update) Energy stocks lift FTSE 100 after oil breaches $50 mark, erasing losses from shock Swiss currency move.

 
FTSE rallies 1.7% on oil and gold after Swiss shock

Energy stocks have lifted the FTSE 100 higher as the oil price added to overnight gains to breach the $50 mark, offsetting market panic prompted by Switzerland's shock removal of its currency cap against the euro.

The price of Brent crude breached the $50 per barrel mark before edging lower to $48.57.

The UK blue-chip index closed 110 points, or 1.7%, higher at 6,499, with oil stocks among the big winners:

  • BG (BG) +3.6% at 823.1p
  • Weir (WEIR) +3% at £16.56
  • Tullow Oil (TLW) +3.8% at 371.6p
  • Shell (RDSb) +3% at £21.23

Gold miners also rose, as the price of the precious metal jumped amid the market panic, and is trading at $1,260.73 an ounce. Fresnillo (FRES) was trading 4.7% higher at 854.4p and Randgold Resources (RRS) up 6.4% at £52.65.

Switzerland's stock market, which had been as much as 15% down, was trading 8.7% lower, after the country's central bank removed a cap against the euro, which has prevented the Swiss franc from rising above 1.20 against the eurozone currency.

Swiss pharmaceutical stocks, which have plummeted on the news, are favourites of many big-name UK funds and managers. However, the huge rise in the Swiss franc, up 12.7% against the pound, means many UK managers will be registering gains on their holdings.

Star fund manager Neil Woodford holds Roche (ROG.VX), down 8.6% in Swiss franc terms, in his CF Woodford Equity Income fund, while Mark Barnett holds the stock in his Invesco Perpetual Income and High Income funds.

The £9.5 billion Newton Real Return fund, managed by Iain Stewart, holds pharmaceutical stocks Novartis (NOVN.VX), down 8.7% and Roche in its top 10, as does the £9.5 billion M&G Global Dividend fund, run by Stuart Rhodes.

FTSE falls as Swiss abandon euro cap

10:16 The FTSE 100 has fallen after the Swiss central bank dropped its currency's cap against the euro in a shock move.

The Swiss National Bank (SNB) said it would give up trying to stop its currency appreciating against the euro by dropping the cap which prevents the Swiss franc from rising above 1.20 against the eurozone currency.

Pressure had been growing on the bank due to the tumbling euro, which is expected to fall further should the European Central Bank launch quantitative easing this year. The SNB also cut interest rates to -0.75%.

That sent the Swiss franc soaring 30% against the euro, before trimming gains to stand at 0.88 Swiss francs.

The SSMI Swiss Market Index tumbled 7.7% on the news. The FTSE 100, which had been trading as much as 80 points higher ahead of the news, slumped into the red, down 22 points, or 0.4%, at 6,366.  

'SNB's decision today deepens Switzerland's experiment with unconventional monetary policy,' said Alex Dryden, global market strategist at JPMorgan Asset Management. 'Only a few weeks ago the SNB imposed its first negative deposit rate since the 1970s and now they have abandoned its floor of 1.20 for the EUR/CHF exchange rate.

'This announcement is yet another item that can be added to a growing list of developments that is driving volatility across global financial markets in the early weeks of 2015.'

Oil and India rise

The Swiss move proved a setback to the FTSE 100, which had been making gains following yesterday's meltdown. An overnight surge in the oil price helped energy stocks rise, with the price of Brent crude jumping around 5% last night to hit $49.16 a barrel before retreating to $47.30.

'Oil prices have moved higher from near six-year lows to test $48/49 a barrel despite a much bigger build in US inventories (to 80-year high), creating a potential base around $44/45. Beware though of prior recoveries which came to nothing,' said Mike van Dulken, head of research at Accendo Markets.

BP (BP) edged a penny higher to 382.5p. The oil group is expected to brief staff in Aberdeen on expected job losses in its North Sea business today, according to reports.

But Tullow Oil (TLW) fell 2.8% to 347.9p after writing off $2.3 billion (£1.5 billion) on its assets and exploration work after the oil price rout.

India-focused investment trusts also rose, as the country implemented a surprise interest rate cut, trimming its rate by 0.25% to 7.75%. 

JPMorgan Indian (JII ) rose 3.3% to 551.5p, India Capital Growth (ICG ) jumped 3.4% to 68p and New India (NII ) was trading 3.5% higher at 353.8p.

'Inflation has been pushed downwards by lower food prices and global commodity prices, which are feeding into a broad range of domestic prices,' said Craig Botham, emerging markets economist at Schroders. 'This gives the central bank the room it needs to cut rates in support of growth, which struggled in 2014.'

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