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Market report: Stocks respond to better news on debt and earnings

Gideon Spanier
Friday 27 January 2012 01:00 GMT
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Almost four weeks into January and traders are feeling optimistic. Talks on resolving Greece's debt crisis have resumed. Ben Bernanke, Federal Reserve chairman, says ultra-low interest rates will last another three years – a year longer than expected – and US corporate earnings continue to surprise on the upside. Little wonder stocks have responded worldwide.

The FTSE-100 briefly pushed through the 5800 level yesterday, and still closed up 72.2 points, or more than 1 per cent, at 5795.20 – a six-month high. The Cac-40 in Paris and the Dax in Frankfurt also both jumped more than 1 per cent.

The Footsie is now back at the same level as the end of July 2011, before the markets tanked on eurozone fears and US corporate jitters. There is serious talk on dealing-room floors that the market could breach 6000 soon, with some traders seeing 6100 as a realistic target – a 10 per cent rise since the start of the year.

Banks did well as the Greek government signalled growing confidence that a deal on its debt "haircut" could be reached, and Italy had to pay slightly less than in recent days to borrow money at a bond auction.

Lloyds Banking Group was the big winner, surging more than 6 per cent or 1.9p to 32.82p. Shares have risen more than 20 per cent since Antonio Horta-Osorio's return from sick leave on 9 January, and have recovered all their losses since the chief executive went on leave in the autumn. The stock is still down more than half on a year ago.

Barclays was up 5.6p at 222.85p and Royal Bank of Scotland also climbed 0.92p at 27.67p.

The miners and commodity stocks were the best performers on the FTSE-100. Strong fourth-quarter production figures suggested that any global slowdown is not as bad as feared, while low interest rates mean investors want big-cap equities that can pay well-covered dividends.

Vedanta Resources flew up to the top of the FTSE-100 leaderboard, rising 8.7 per cent or 100p to 1152p. Other notable miners to rise in the region of 4-5 per cent included Anglo-American up 82.5p at 2737p, Rio Tinto climbing 181.5p to 3893p and XStrata shooting up 50.5p to 1129.5p.

Smaller-cap stocks also enjoying a commodities lift were Petropavlovsk, soaring 75.5p to 772p at the top of FTSE-250 leaderboard, and Avocet Mining, climbing 14.25p to 226p – also on the strength of a strong last quarter.

Back on the Footsie, the cruise line operator Carnival was the biggest loser, sinking 2.2 per cent or 42p to 1901p. Fears about the wider impact on consumer sentiment of the cruise liner disaster off the Italian coast continue to weigh on the sector.

Elsewhere in the travel business, shares in easyJet really took off, rising 10 per cent or 41.7p to 445.5p, as analysts rushed to back the strategy of Carolyn McCall, the former Guardian newspaper boss who moved into the airline cockpit just over 18 months ago. She is forecasting a better-than-expected loss for the past six months, the toughest period of the year, as business travellers have splashed out on meals and other extras such as speeding boarding.

The broker Investec was impressed, upgrading its profits forecast by 9 per cent, and it rates the airline as its "key buy" in the sector with a 500p target price. "The macro backdrop remains difficult," said Investec. "However, the strength of the easyJet model is seeing it once again take share and improve margins whilst others are struggling."

At the other end of the FTSE-250 board, the IT firm Misys was the biggest loser, tumbling 6 per cent or 20p to 305.3p after sales disappointed some analysts and it warned on the outlook as customers delay decisions in the present climate. "Following these results and associated downgrades, shares are coming down," declared the broker Panmure Gordon, although it said "takeover talks will keep the 'pep' in the share price".

On AIM, shares in Vince Power's Music Festivals Group tumbled 3p to 55p after it signed up the Eighties electronic band New Order as another headline act for his four-day music festival in Benicassim, Spain, in July. Traders don't tend to let their musical tastes influence their market-making, but earlier this week Music Festivals' shares had risen a half-penny when it announced Noel Gallagher's High Flying Birds as another headline act for the same event.

Looking ahead to next week, BSkyB shares slipped 1p, to 671.5p, ahead of half-year results on Tuesday. Sky's 10.3 million customer base means it is closely watched as a consumer bellwether, and the broker Numis Securities warns in a preview: "Given macro challenges, we believe gross additions and HD [high-definition TV] upgrades will be hard to come by and churn [the rate that subscribers quit] could increase." But Numis rates the shares a buy, reckoning Sky remains strong and should see off any threat to regain its Premier League football rights.

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