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FTSE extends rally as jobs data add to cheer

FTSE extends rally as jobs data add to cheer
  • Tesco upgraded to 'buy' by UBS; analysts say retailer is focused on generating cash for shareholders
  • RBS shares buoyed by bank's exit from asset protection scheme
  • UK employment rises to record high
  • Bank of England's monetary policy committee split on 'QE'
  • Europe cheered by Moody's retaining Spain's investment grade rating.

(Update) The FTSE 100 has stretched out its latest rally in response to encouraging UK employment figures and good news overnight about Spain and the US.

After a volatile start the blue chip index settled 12 points or 0.2% higher at 5,882 having advanced on both Monday and Tuesday.

According to the Office for National Statistics the number of Britons claiming unemployment benefit fell by 4,000 in September, the second month it has declined, possibly as a result of the Olympics. The employment level rose to 29.59 million, the highest since records began in 1971, with 212,000 people taking jobs in the three months to August.

Debate has raged about the relative strength of the jobs market compared with the deteriorating economic picture drawn by business surveys. Chris Williams, chief economist at Markit, a financial data provider, suggested 'the good news on employment may fade as we move towards the end of the year'.

MPC divided on quantitative easing

This could prompt the Bank of England to extend its controversial 'quantitative easing' policy, although the latest minutes from the monetary policy committee show the Bank's policymakers continue to be split on the issue. The central bank has already created £375 billion in new money to buy government bonds as a way of stimulating the economy and the stock market.

According to the minutes, the nine MPC members this month voted unanimously to maintain QE at its current level and to hold interest rates at 0.5%. However, external member Martin Weale joined the Bank's chief economist Spencer Dale and Ben Broadbent, another external member, in expressing scepticism about the policy.   

Moody's could still downgrade Spain

Meanwhile, Moody’s decision late yesterday to reiterate Spain’s investment grade rating added to the cheer generated overnight by the latest third-quarter results in the US.

The credit rating agency had been expected to cut Spain to ‘junk’ or non-investment grade. The near miss boosted the euro, sending it 0.26% up against the pound at 81.24p and up 0.5% against the dollar at $1.3113.

However, Moody's indicated it expected Spain to apply for a bailout from the European Central Bank under its OMT programme. If that does not happen the implication is that Moody's will follow rival Standard & Poor's, which downgraded Spain to 'junk' last week.

The pound also strengthened against the dollar, up 0.17% at $1.6138.

Poor results from French food group Danone this morning underlined the recessionary forces sapping consumer demand in Europe. The Euronext 100 firmed just 1.5 points to at 667. 

In London miners dominated the FTSE 100 leader board with Eurasian (ENRC.L), Evraz (EVRE.L), Rio Tinto (RIO.L) and Anglo American (AAL.L) gaining between 2% and 3.75%.

RBS marks a milestone

Royal Bank of Scotland (RBS) gained 1.6% to 284.3p after the state-owned back said it would leave the government's asset protection scheme tomorrow. Although it has had to pay at least £2.5 billion to leave the scheme, which provided credit insurance against toxic loans and derivatives, the move marks a milestone in the bank's 'radical' transformation, according to chief executive Stephen Hester.

Vivek Raja, banking analyst at Oriel Securities, agreed, maintaining a 'hold' on the stock though noting that RBS remained exposed to the Libor fixing scandal, with the threat of litigation and heavy fines. 

Tesco tipped to return loadsamoney

Tesco (TSCO.L) was another prominent riser, jumping 1.9% to 314p after UBS upgraded the supermarket chain to ‘buy’ from ‘neutral’ and lifted its price target to 370p from 350p. The shares have fallen from 341 since the end of September. UBS analysts believe Tesco is turning to a more cash generative strategy to win back investors upset by its historic profits warning in January. They say it could return as much as 60% of its current market value of £25 billion (ie, around £15 billion) via increased dividends and share buybacks over the next six years.   

Other company news

BHP Billiton (BLT.L) added 1.3% to £19.74 after announcing plans to boost output by 5% by the end of June 2013.

Xstrata (XTA.L) advanced 1% to 974.5p after reporting a fall in third-quarter copper volumes. This was caused by a shift to new operations but also by problems at its Collahuasi mine in Chile. The company is in the process of being taken over by Glencore (GLEN.L), up 1.1% to 342.5p.

BAE Systems (BAES.L) was the biggest FTSE 100 faller, down 2.7% to 320.6p, after shares in the defence contractor traded ex-dividend.

Also ex-dividend was Capital Shopping Centres (CSCG.L), off 1% or 3.7p at 336p.

Standard Chartered (STAN.L) shed 9.5p or 0.6% to £14.69 after Peter Kay, the bank’s head of leveraged finance syndication, resigned as part of the fallout from the lender’s problems in selling on a $1 billion loan to Indonesian businessman Samin Tan. Tan used the money to buy a stake in the troubled miner Bumi (BUMIP.L), up 3.5p to 253p, of which he is chairman.

BP (BP.L) added 1.6% to 442.25p after the oil giant set a deadline of tomorrow for all bids for its stake in TNK-BP joint venture in Russia.

Cable & Wireless Communications (CWC.L) gained 1.4p or 4% to 37.6p after confirming it was in advanced talks to sell its controlling stake in Macau's largest telecoms group to Citic Telecom International.

International Personal Finance (IPF.L) gained 5.5p or 1.7% to 328.5p on satisfactory third quarter results from the consumer credit company which operates in eastern Europe and other emerging markets.

Among smaller companies 888 Holdings (888.L) leaped 9.4p or 10.2% to 101.65p as the gaming group said it expected full-year earnings to be significantly ahead of market expectations after momentum from a strong third quarter continued into the fourth. Numis, which rates 888 a ‘buy’, raised its price target to 120p from 100p.

Speedy Hire (SDY.L) dropped 1.35p or 4.4% to 29.6p after the tool hire group said it would meet expectations  for the full year.

Shanta Gold (SHG.L) plunged 18% to 17p after launching an share offering to raise at least $30 million (£18.6 million).

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