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Leading shares were on the climb again today, and the momentum shows no sign of slowing. Growing confidence in the economy is being matched by the enthusiasm from brokers anxious to talk the stock market higher.
Citigroup was telling clients today: “Macro data is improving. Earnings downgrades are ending. European equity valuations appear undemanding. Risk appetite is returning.”
Fund manager James Bevan with CCLA Investment Management says it is back to fundamentals with profits from companies starting to improve as the recovery gathers pace. He says there is less risk of a double-dip — or W-shaped — recession.
Credit Suisse says the rally will also be fuelled by a pick-up in merger and acquisition activity. “Some indicators of corporate optimism have rebounded sharply, suggesting that corporates are more willing to spend.”
Analyst Ben Potter at spread bookie IG Markets says: “Approaching the first anniversary of the Lehman Brothers collapse with equity indices close to having recovered, there's certainly good reason to be feeling positive.”
While Joshua Raymond, a market strategist at City Index, says: “If investor appetite for risk remains, there is every possibility that indices could head higher from these levels.” Mike Lenhoff, chief strategist at Brewin Dolphin, adds that with the global economy remaining weak and inflation low, that means a large and rapid rise in short term interest rates seems improbable. “So for now, it looks like one-way traffic for equity markets.”
It was a message which most investors were happy to heed.
The riskier shares were once again to the fore. The UK's biggest hedge fund operator Man Group jumped 23½p to 291p and miner Fresnillo added 42½p at 742¾p. Oil explorer Cairn Energy was up 90p to 2796p.
Investors generally were spurred on by five consecutive days of gains in New York. Shares in London wasted little time in climbing back above the 5000 level, and looked to be ending the week on a firm note.
The FTSE 100 index sported a rise of 23.61 to 5025.29 — its highest closing level in almost a year. The index has now risen 45% since its low point back in March.
Lloyds Banking Group continued to edge nearer the 120p a share paid by the Government for its 43% stake with a rise of 1.6p to 106.8p.
But there is still no sign of the often mooted £15 billion rights issue the bank is said to be contemplating in order to avoid the expensive premiums the Government wants to charge for underwriting £260 billion worth of toxic debt. SG Securities has begun coverage of the shares with a buy rating and a 160p target. But the broker is not so keen on Royal Bank of Scotland, up 0.6p at 56.4p, where it has a hold rating and a 55p target.
British Airways added a further 5.3p to rise to 220.9p. Since July the shares have come up from the 128p level they were languishing at.
Dealers are hoping that the proposed merger with Spain's Iberia can be quickly concluded.
BG Group added a further 37p to reach 1142p as dealers continued to reflect upon news of this week's major oil find off the coast of Brazil. There has also been revived talk again about a bid by ExxonMobil. BG has a price tag of £37 billion.
Smith & Nephew touched an intraday high of 584½p before seeing its lead pared back to 9½p at 569p. Dealers attributed the rise to revived bid talk. Once again, disposable-nappies maker Johnson & Johnson in the US is being tipped to bid. That story has being doing the rounds for years.
Pali International moved quickly in the wake of results from Home Retail Group to raise its rating on the shares from underperform to neutral. But retail analyst Nick Bubb at Pali has delivered a backhanded compliment by saying: “Despite worse-than-expected gross margin pressures, Home Retail has still delivered more profit upgrades and the rating now looks less demanding. We still much prefer Kingfisher, however.” Kingfisher firmed 0.6p to 208p.
He points out that the share price for the Homebase and Argos owner has enjoyed a strong run ahead of yesterday's second-quarter sales update and some profit-taking had taken the shine off what was otherwise another commendably solid performance on the bottom line.
ING has raised its target price for Home Retail from 220p to 255p, but continues to rate the shares a sell. The shares retreated 9.7p to 297.9p.
