European indices took their cue from Wall Street’s Wednesday rally, closing more than 1% higher in most cases on Thursday, with even London’s BP receiving some respite.
The FTSE 100 index took on 59.9 points or 1.2% to close at 5,211.2, while the FTSE 250 index added 140.8 points or 1.5% to 9,801.2.
Data released in early deals revealed the Purchasing Managers’ Index for the British services sector edged up to 55.4 in May from 55.3 in April. A reading above 50.0 marks expansion of the sector. Investors also had a slew of data to digest from the US, where the ADP reported that the private sector added 55,000 jobs in May, while initial unemployment claims fell a more-than-expected 10,000 to 453,000 in the latest week. Not all the economic news was good, however. US first-quarter productivity was revised lower, increasing 2.8% versus the consensus 3.2%. Factory orders rose 1.2% in April, but economists had expected a 1.7% gain. And retail sales results were also only somewhat encouraging, giving further evidence of a timid recovery in consumer spending.
In the UK, the broad-based rally saw even riskier assets, which have been shunned of late in cautious trade, attract buyers. Miners Eurasian Natural Resources, Kazakhmys and Rio Tinto closed 4.3%, 1.6% and 1.1% higher, having each gained around 5% in intraday deals.
Randgold Resources bucked the trend, however, to top the FTSE 100 casualty list with a fall of 2.5% as investors switched out of the ‘safe haven’ of gold. Miners with large operations in Australia were also under the cosh after Xstrata announced it is to halt spending on two projects in Australia due to a proposed mining tax. The Australian Prime Minister Kevin Rudd reacted to the statement saying it was “strange” and that he had reason to believe there are other existing issues at Xstrata’s project developments. Anglo-Australian miner BHP Billiton was also in the red on Thursday, sliding 0.9%.
Returning to the climbers, oil explorers and related services companies were in fine fettle, with Petrofac the top index performer, up 5.2%, Cairn Energy 2.7% firmer, and Royal Dutch Shell adding 1.7%. Even BP, shares in which have been in the doldrums since the scale of the Gulf of Mexico oil spill first registered with investors, saw its stock trickle 0.6% higher. Watch this video (or read the transcript) for our view of the potential outcome for BP shares.
Turning to financials, banks and miners were back in favour. Aviva jumped 4.1%, while competitor Prudential managed a tentative 0.8% rise as investors weighed the cost of pulling out of its planned AIA acquisition against the original $35.5 billion price tag. Morningstar analyst Bill Bergman has adjusted his fair value estimate following the move, read his take here. Rumours circulated today that Generali could be interested in buying AIG’s Asian life operations instead, though the Italian insurer denied the rumours, calling the idea "premature".
Moving away from news of environment disasters and international takeovers, Kingfisher ticked up 2.6% on the back of first quarter results, which showed that despite declining sales due to poor weather, retail profit is up 14.5% on an annual basis (12% at constant currencies).
