The FTSE 100 rose after encouraging manufacturing data, a positive retail survey and sparkling half-year results from Lloyds Banking Group added to confidence in the UK’s economic recovery.
The blue chip index gained 17 points or 0.3% to 6,638, despite downward pressure from Royal Dutch Shell (RDSb.L), which tumbled 5% after disappointing second quarter results.
Second quarter earnings slumped 21% to $4.6 billion, much lower than forecast, as oil thefts and sabotage, a weakening Australian dollar and higher exploration costs took their toll. However, Helal Miah, research analyst at the Share Centre, rated Shell a ‘buy’ for its underlying strength and 5.3% dividend yield.
Lloyds (LLOY.L) led the FTSE 100 higher, soaring 8% or 5.3p to 73.8p after bouncing back to a first half profit, declaring its recovery was ahead of schedule and expressing its interest in resuming a dividend.
Although the Treasury batted down expectations of an early sale in the government’s 39% stake in Lloyds the good news helped lift Royal Bank of Scotland (RBS.L) which has much further to go to escape state ownership.
Its shares rose 3.6% or 11.7p to 329.3p on reports it wanted to appoint Ross McEwan, its head of retail banking, as a successor to outgoing chief executive Stephen Hester.
There was further good news in the financial sector as Jupiter Fund Management (JUP.L) shares leaped 8% or 25p to 350p after it hiked the interim dividend by 40% and beat half-year earnings forecasts by 6%. The group’s cash generation offset the slowdown in sales caused by the abolition of commission payments to advisers at the start of the year.
By contrast, Aggreko (AGGK.L) fell 105p or 6% to £16.74 after the provider of portable power equipment reported subdued demand from many of its emerging markets.
But the bigger picture buoyed sentiment after yesterday’s news that the US economy actually grew by 1.7% in the second quarter, rather than the earlier downwardly revised figure of 1.1% growth.
Positive PMI reports from data provider Markit showed UK manufacturing hit a 28-month high of 54.6 in July. ‘The PMI has remained above the neutral 50 mark – signalling expansion – since April, with its level improving in each of the past five months,’ it said on the gathering momentum in a sector that accounts for 10% of the economy.
In Europe seasonally adjusted manufacturing PMI hit a two-year high of 50.3 in July, its first positive reading since July 2011.
The situation in China was more mixed with official PMI data showing a rebound in factory activity last month although the ‘flash’ PMI report from HSBC showed output falling to its lowest level in nearly a year.
Ian Kernohan, economist at Royal London Asset Management, said: ‘Markets are unsure how the MPC will react to the data though, given the degree of uncertainty surrounding the new Carney-led regime at the Bank of England.’
As expected the Bank of England held interest rates at 0.5% following the second monthly meeting of its monetary policy committee under new governor Mark Carney. There was no statement on Carney's policy of providing 'forward guidance' on interest rates, which is expected at next week's inflation report.
The European Central Bank will announce its rate decision shortly. No change is expected.
In Europe the French Cac 40 rose 0.3% to 4,005 and the German Dax 30 leaped 1.1% to 8,369. Earlier in Asia Hong Kong’s Hang Seng index closed nearly 1% up at 22,088 while in Japan the Nikkei 225 soared 2.5% to 14,005.
On currency markets the pound slipped to $1.5195 to the dollar.