A combination of upbeat economic news and corporate data, in addition to a number of broker upgrades, boosted equity markets on Tuesday and UK indices bounced back from yesterday’s lows.
The FTSE 100 index gained 1.0% or 58 points today and hit 6,014 at close and the FTSE 250 index added 1.4% or 11,735%.
London markets opened strong after US aluminium major Alcoa reported better-than-expected results on Monday evening and boosted expectations for fourth-quarter corporate earnings.
Risk appetite was further supported by Japan’s pledge to purchase eurozone bonds from the European Financial Stability Facility (EFSF). The Japanese finance minister told reporters that Tokyo plans to buy over 20% of the approximately EUR 5 billion worth of EFSF bonds scheduled for issuance later this month and aimed at funding Ireland’s bailout.
In the mean time, the Portuguese Prime Minister Jose Socrates reassured markets that his country has no plans to ask for a bailout. The credibility of this statement will be evaluated tomorrow, when Portugal will offer sovereign bonds for sale.
Among individual market movers in London, ARM Holdings (ARM) rallied 7.0% to the top of the FTSE 100 amid bid rumours. Last week, the company jumped 10.1% between Wednesday and Thursday after announcing that Microsoft's next version of Windows will be developed for ARM-based chips – a deal which yields more headlines than cash flows according to Morningstar’s equity analyst Brian Colello, CPA.
Strong corporate results from the US supported both commodity prices and commodity companies in today’s trade. The sector’s top gainers, Cairn Energy (CNE), Eurasian Natural Resources (ENRC) and Kazakhmys (KAZ) added 5.5%, 4.1% and 3.9% respectively. Amid higher global growth hopes, miners waved worrying news of worsening floods in the Australian state of Queensland.
Elsewhere, a number of broker upgrades added to the political news of today and helped UK financials gain. Barclays (BARC) gained 5.5% after an upbeat UBS note, while HSBC (HSBA) added 2.4% having been upgraded by Citigroup.
Stronger broker outlook on a number of other equities also contributed to blue-chip index gains. Both outsourcing group Serco Group (SRP), up 2.6%, and distributor Bunzl (BNZL), up 1.8%, were upgraded to buy from neutral by UBS.
On the flipside, Smith & Nephew (SN.) was the standout loser. Having gained 9.5% on the announcement of a rejected bid from Johnson & Johnson (JNJ) yesterday, it was hit by profit taking and fell 5.9%.
Marks and Spencer (MKS) was the second worst performer on Tuesday, down 2.8%. The company’s shares had risen 4.1% since the start of the year in an anticipation of a solid trading update and after M&S announced today that year-end sales have offset the impact of the bad UK weather on its sales for the 13 weeks to January 1, shares dipped.