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FTSE regains momentum on rates reassurance

FTSE regains momentum on rates reassurance

(Update) The FTSE 100 edged higher after a day of nervous trading, with an initial boost from the US Federal Reserve's calming of interest rate rise fears evaporating before the UK blue-chip index regained some momentum.

Approaching close the FTSE traded 28 points, or 0.4% higher, at 6,663 points. It had amassed gains of 0.8% in early morning trades, after minutes from the latest Fed policy meeting reinforced the central bank's reluctance to raise rates. However, it then swung into the red after a big sale in Euro STOXX 50 futures led to selling pressure on other indices.

The Bank of England's decision to maintain interest rates at 0.5% confirmed the consenus opinion on when the cost of borrowing will start to rise. 'Comments from officials suggest that they are comfortable with the market's assessment that it will be the first or second quarter of 2015 when rate hikes start, but that the eventual peak in interest rates will be lower than in previous cycles,' said James Knightly, economist at ING.

Marks and Spencer (MKS.L) mirrored the market's swings as it initially advanced 3% after a better-than-expected trading update. However, the shares reversed after chief executive Marc Bolland unsettled analysts on a conference call with comments about profit margins and a delay in its strategic review until May. The stock fell to the bottom of the index, down 11.1p, or 2.4% at 444.9p.

Mining stocks suffered after Chinese premier Li Keqiang ruled out short-term stimulus measures despite fresh signs of slowing growth. Antofagsta fell 16p, or 1.9%, to 832p, while BHP Billiton (BLT.L) shed 14.5p, or 0.7%, to £19.28 and Rio Tinto (RIO.L) dropped 8p, or 0.2% to £33.85. However, Randgold Resources (RRS.L) and Fresnillo (FRES.L), held onto gains on the back of a positive analyst note (see below) to trade up 1.7% and 0.7% at £47.05 and 890.5p respectively. 

FTSE dips in jittery trading despite US Fed boost

11:13 The FTSE has erased early gains after the UK blue-chip index was initially buoyed by minutes from the US Federal Reserve's latest policy meeting calming fears of interest rate rises.

Federal Reserve chair Janet Yellen has been attempting to calm markets ever since her off-hand remark that rates could rise ‘around six months’ after the end of the US’s money printing programme, earlier than had been anticipated.

Minutes of the Fed’s Open Market Committee March meeting have further reinforced the message of a central bank reluctant to raise interest rates. They show that ‘almost all’ members of the committee agreed to scrap the 6.5% unemployment threshold, below which the Fed would consider interest rate rises. ‘Participants agreed that the existing forward guidance, with its reference to a 6.5% threshold for the unemployment rate, was becoming outdated as the unemployment rate continued its expected gradual decline,’ the minutes read.

Michael Hewson, analyst at CMC Markets UK, said: ‘Last night’s Fed minutes didn’t provide too much in the way of surprises, reinforcing the dovish tone articulated by Janet Yellen in remarks over a week ago when she clarified her “about six months” remark in the post meeting press conference on the 19 March.'

The FTSE 100 initially posted strong gains, rallying 0.8% higher to 6,685 points. Those were quickly erased in jittery trading however, with the index then falling into negative territory. It is currently trading 10 points, or 0.1% lower at 6,626.

Traders said a big sale in Euro STOXX 50 futures had led to selling pressure on other indices, according to Reuters. Concerns over valuations ahead of earnings season, and worries about the state of global economies given central banks' dovish stances, could also have played a part, according to Angus Campbell, analyst at FXPro. 'There's a bit of nervousness down to earnings season and if central banks are remaining very dovish, there are concerns there are still considerable risks,' he said. 

Associated British Foods (ABF.L) was among the biggest risers, adding 39p, or 1.5%, to hit £26.42. An analyst note from Morgan Stanley boosted sentiment towards the stock, arguing the hit it had taken to its share price due to the deteriorating European Union sugar market had created an ‘attractive entry point’.

ABF slid earlier this week after a profit warning from German sugar producer Sűdzucker. But analyst Audrey Borius Gunning said the problems with the EU sugar market could drive ABF further towards a business model driven by its Primark clothing store. ‘We continue to believe that Primark will be the key driver in 2014/15, delivering 8%+ top-line growth and 12-15% earnings-per-share growth from 2015, and we remain firmly overweight,’ she said.

Randgold Resources (RRS.L) rose 93p, or 2%, to £47.20 after analysts at Numis upped their target price for the gold miner from £55 to £62. They also upped their rating for platinum miner Fresnillo (FRES.L) from ‘hold’ to ‘buy’ and increased their target price from £10 to £11. Fresnillo rose 8.5p, or 1%, to 892.5p. Cailey Barker said the stocks remained key picks for the metals and mining sector as, alongside Petra, they boasted ‘superior growth profiles to counteract flat-to-falling commodity prices, high quality assets to weather any downturn and strong management to deliver on business plans’.

Royal Bank of Scotland (RBS.L) rose 0.8p, or 0.3%, to 310.3p, after it announced last night it would pay £1.5 billion to cancel an arrangement that gives the government priority over dividends, clearing an obstacle to the lender’s privatisation.

Shailesh Raikundu, analyst at Espirito Santo Investment Bank, said the agreement was ‘a welcome step in the road to RBS becoming a normal bank with the ability to pay dividends to shareholders, which should help in making the share a more attractive proposition to investors.’

Marks and Spencer (MKS.L) dropped 10.4p, or 2.3%, in choppy trading to reach 445.6p despite reporting a 1.9% increase in group sales.

Today’s Bank of England meeting is unlikely to deliver any surprises, with markets expected monetary policy to be left unchanged.

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