UK market returns to its gaining ways

The FTSE blue-chip and mid-cap indices both returned to gains on Wednesday as financials helped fuel markets around Europe

Holly Cook 29 July, 2009 | 6:05PM
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UK markets returned to their gaining ways on Wednesday, after a brief sojourn into red territory yesterday, pushed higher by financials--both banks and broader industry plays.

Both the FTSE 100 and FTSE 250 indices ticked up 0.4%, closing 18.7 points higher at 4,547.5 and 31.4 points ahead at 7,762.6, respectively. European indices also regained upward momentum, with France’s CAC 40 climbing 1.0% and Germany’s DAX jumping 1.9%. The latter’s performance was particularly strong following positive reactions to results from Bayer and Daimler.

A weak start on Wall Street failed to offset market gains on this side of the pond as UK and European financials rode high following upbeat numbers from Spanish bank Santander.

“Today's rises have been dictated largely by the financial sector, helped by good earnings from Santander which have boosted EU markets and UK banks,” market strategist Joshua Raymond at City Index commented. “Investors seem to have shrugged off recent poor macro economic data and are clearly focusing on company earnings. This means they are looking for the great news and ignoring the disappointing news, so the market could be in for a reality check soon.

Figures from the Bank of England earlier in the session revealed weaker-than-expected consumer credit data, but news that mortgage approvals last month hit their highest level since April of last year helped to overshadow the smallest rise in consumer lending ever recorded.

Among financials, Santander’s first-half results were well-received, particularly after its British arm, which includes Abbey National and Alliance & Leicester, said bad debt continued to decline.

Royal Bank of Scotland added 3.6%, Lloyds Banking Group took on 3.1% and Standard Chartered rose 3.0%, but it was asset manager Schroders that topped the leaderboard with a gain of 4.6% after Morgan Stanley raised its estimates and upgraded its recommendation on the stock to Overweight.

Bullish broker comment from Deutsche Bank also helped the insurance sector, with Aviva 3.3% higher as analysts upgraded it to Buy and RSA Insurance Group and Standard Life adding 2.6%-3.0% after the broker said it believes industry consolidation is on the cards.

Elsewhere, aerospace and defence group BAE Systems saw its shares rise by 2.1% ahead of the signing on Friday of the contract for the next wave of Eurofighter Typhoons and ahead of tomorrow’s first-half results. Among those reporting results today, Cadbury shares ticked up 1.9% as investors cheered the confectioner's latest update. Click here for more on this item.

Energy stocks had also helped fuel the broader market earlier in the session but a $4 drop in the price of crude to below $64 per barrel in afternoon trade following an inventories surprise dragged Royal Dutch Shell back to close only 1.0% higher, while BP ended just 0.2%. RDS will announce its results tomorrow.

BG Group stood out amongst energy plays—but for the wrong reasons—after the gas producer said it would not meet its 2009 output target due to lower demand for the resource. BG shares were 2.7% lower by close of play.

Miners also gave up morning gains as commodity prices weakened, with BHP Billiton among the worst off in the blue-chip sector, down 2.4%, after announcing an agreement to slash prices for contracted iron ore by 33%-44% for customers accounting for 23% of its total sales volumes.

The FTSE 100’s main casualty was drinks can manufacturer Rexam, which plunged 8.1%, bringing the overall decline so far this week to more than 20%, after the packaging producer accompanied what should have been a pleasing set of first-half numbers with the shock news that it is passing on its interim dividend and launching a rights issue to raise £334 million. Click here for more on this item.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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