Market Report: BA takes off as traders eye recovery

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British Airways led the blue chips higher last night, with traders piling in amid hopes of a recovery in air passenger demand.

The optimism was triggered by the latest air traffic figures from the International Air Transport Association, with both passenger and freight statistics strengthening in January. Passenger demand was up 6.4 per cent from a year ago, while air freight traffic jumped by more than 28 per cent.

The numbers compare favourably to December, when passenger demand rose by 4.5 per cent and freight climbed by 24.4 per cent. The IATA figures were supplemented by better-than-expected results from Germany's Lufthansa and positive traffic statistics from US peer Continental Airlines, helping BA to rally by more than 6 per cent or 13.1p to 225.5p.

Overall, the FTSE 100 continued to strengthen, rising by 78.12 points to 5484.06 as commodity stocks built on Monday's gains. The FTSE 250 was also strong, adding 118.82 points to 9598.65. The insurance group Prudential held on to the wooden spoon on the benchmark index, retreating by 42.5p to 487.5p amid rumours that it may end up as a target for a large European peer. The chatter, which was based on the sharp decline in the Pru's share price this week, was dismissed by traders, who attributed the weakness to the recent announcement of the rights issue required to fund the company's takeover of AIG's Asian unit.

The banking sector was on a firmer footing, with Standard Chartered advancing to 1590p, up 4.2 per cent or 64.5p, as investors bought in ahead of its full-year results this morning, while HSBC, which came under pressure after updating the market at the beginning of the week, attempted a recovery, rising by 18.6p to 700.6p last night. Barclays, Lloyds and Royal Bank of Scotland were also higher, gaining 9.65p to 321.8p, 1.15p to 51.41p and 1.05p to 37.74p respectively.

The silver producer Fresnillo led the miners, gaining 35p to 817.5p after issuing what Liberum Capital termed "very strong" preliminary results. Randgold Resources was just behind with a rise of almost 4 per cent or 185p to 5015p, while Kazakhmys added 36p to 1446p after Nomura raised its target price for the stock from 1275p to 1500p. Antofagasta, the target price for which was upped to 1100p by the same broker, gained 17p to 933p.

Over in the oil & gas space, Tullow Oil rallied by almost 3 per cent or 32p to 1231p on late rumours of bid interest from BP, which was 4.2p ahead at 600.2p after issuing a strategy update.

Despite some scepticism among traders, speculators pegged their hopes on talk of a 1500p per share proposal. Tullow was also supported by the read-across from Anadarko Petroleum Corporation's annual investor conference. Anadarko is Tullow's partner in a number of key West African licences, and its presentation outlined a bullish view of the upside in the region – something which "remains a central plank of the Tullow investment case", according to RBS analysts.

Elsewhere, UBS boosted sentiment around ICAP, the money broker, which gained 4.6 per cent or 15.2p to 343p after the bank initiated coverage with a "buy" stance and a 420p target price, citing the company's positive exposure to regulatory moves and upbeat industry trends. UBS was more cautious on sector peer Tullett Prebon, which was 5.2p higher at 290.7p, adopting a "neutral" view. The bank said it was worried about regulatory and competitive headwinds. "On all metrics, Tullett appears cheap, but we believe that this reflects risks on the downside," UBS analysts said, setting a 300p target price on the shares. "Given the uncertain changing landscape, we prefer to be positioned for growth."

Further afield, the same bank lifted the mood around ARM, the chip maker, which gained 4.3 per cent or 8.9p to 218p after it named the company as one of its top picks in the sector and upped the global semiconductor revenue growth forecast for 2010 from 12 per cent to 18 per cent. Further out, however, UBS trimmed its estimate for 2011 from 7 per cent to 5 per cent. Besides the bank's views, ARM drew steam from the read-across from US peer SanDisk, which upped its revenue forecasts at the end of last week.

On the downside, Brit Insurance was 3p behind at 742p after Morgan Stanley, while upgrading the stock from "underweight" to "equal weight", expressed a preference for fellow Lloyd's of London insurer Amlin. "While Brit's results [which were published last week] came in better than consensus, mainly driven by stronger than expected investment returns, we believe the earnings outlook remains unexciting (pricing environment is still weak) and we are reducing our price target... and earnings to reflect a lower yield," the broker said, trimming its target to 892p. At the close of play, Amlin was 8.2p firmer at 413.1p.

Back on the upside, HMV gained 1.85p to close at 70.95p after the Adren Partners analyst Nick Bubb raised the prospect of deal interest from private equity groups.

"Management are very focused on realising shareholder value and ultimately we expect the market to give the group more of the benefit of the doubt," he said. "If not, then HMV will be very vulnerable to a private equity bid."