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November 29, 2014 - Latest:

Friday market close – five year high for FTSE 100

  • 3 May 2013
Friday market close – five year high for FTSE 100

The FTSE 100 index of the UK’s biggest firms enjoyed a five-year high on Friday as better-than-expected US employment data bolstered markets.

The top flight index leapt to 6,534.6 points, its best intraday peak for more than five years after news emerged from the US that job numbers had risen by some 165,000 last month and data for both February and January had been revised upwards.

Schroders chief economist Keith Wade commenting on the figures says he feels they highlight the underlying strength of the economy and may help quell fears about the US economy entering a soft patch and repeating the pattern seen in the past three years. Yet he cautioned: “However we still believe growth will cool from the pace of the first quarter as the inventory cycle turns, consumers react to higher taxes and the full effects of the sequester come through.”

The Footsie also enjoyed a day in the sun on Thursday, rising by 9.4 points to 6,460.7 after the widely expected interest rate cut by the European Central Bank came through. The central bank lowered its main refinancing rate by 0.25% to 0.5% in a bid to boost the struggling eurozone’s economy. The Footsie closed 1% up over the week at 6,521.46.

Imperial Tobacco’s shares crept up by nearly 4% to 2,358p after it emerged that the Government had jettisoned plans to have all cigarette brands sold in plain packaging, a policy which has already been adopted in Australia. The biggest mover on the index, driven by a strong market update was Aberdeen Asset Management. The fund management group announced that its pre-tax profits over six months had risen by 37% to £223m. Its shares firmed by 10% during the week to close at 459.6p.

Elsewhere the taxpayer owned Royal Bank of Scotland posted first quarter profit before tax of £826m. The market was unconvinced by the improving results and its shares slid by 2% to 289.8p over the week. For its part the 39% state-owned Lloyds Banking Group announced pre-tax profits of £2.04bn for the first three months of the year, a steep rise from the £280m for the same period last year. Over the week its shares rose 2% to 54.05p. As for other UK listed banks, HSBC’s share price enjoyed a 2% increase to 713.9p while Standard Chartered also saw its shares climb 2% to 1657p.

The newly formed Glencore Xstrata enjoyed its first day of trading on Friday. The newly formed resources giant, created as a result of the largest mining deal in history saw its shares over the week jump by 8% to 343.95p while Eurasian Natural Resources, managed a 9% rise to 292.7p. Fellow mining groups, Rio Tinto and BHP Billiton jumped 2% apiece to respective share prices of 3022.5p and 1847.5p.

Broadcasting giant BSkyB said its operating profits rose by 9% to £994million in the nine months to March 31 and subscriber for the first time had surpassed 30million. Its shares were 1% better over the week, closing at 860p.

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  • Anonymous

    The EC’s accounts are the least of it’s problems.

    The EC is a “rule” making body without the means of checking whether it’s rules are implemented and/or enforced. In some less law abiding parts of the EU, traffic police remind me of a quote from the book “Dangerous Places” by Fodors. “You can drive as fast as you like in Mexico, provided you have a ready supply of $20 notes”

    For all the United States faults, the FBI is a reasonably effective Federal law enforcement body. Under national vetoes, Stanishev and Berlusconi would VETO VETO VETO any move toward an accountable effective federal European police force.

    There is no accountability, and the EC demands for money will keep getting bigger.

  • Anonymous

    Hi Shaun,

    What exactly is the ECB supposed to do when politicians ignore the zombie banks and dead man walking governments ? (Eg countries like Greece that appear insolvent, but are forced to keep paying interest and maintain the pretense that all is well)

    Japan has tried supporting zombie banks for over 20 years. I wonder if the resulting financial woes have contributed to low birth rates and demographic decline. In Talking Head’s words this is the road to nowhere

  • Pavlaki

    It puzzles me why the Euro hasn’t sunk further than it has when all of the warning lights are flashing red and the ECB try to talk it down. Maybe they need to hire Merv! Certainly the slightest hint from him sent sterling through the floor.

    I read about the Eurozone economies improving and yet the feedback I get contradicts the stats that are published. It could be that the growth is so anaemic that it doesn’t register ‘on the ground’ but only in official figures. The folk I talk to in Greece and Portugal are businessmen who belong to trade organisations and I am sure that they would hear of any improvement. They tell me that things are flat – at best, if not declining slowly. Not as quickly as before, but still no real improvement. Time will tell I guess!

  • dutch

    http://soberlook.com/2014/06/markets-now-expect-shock-and-awe-from.html

    Sober Look takes a view.

    ‘ Spanish 5-yr government bond yield is now below the 5-yr treasury
    yield. Real (inflation-adjusted) yields in Spain are of course still
    higher than in the US. But just to put things into perspective, almost
    exactly 2 years ago Spain was staring down a potential collapse of its
    banking system and was actively seeking bailout funds (see post).

    Once again, without a “show of force” from the ECB, this is not going to end well.’

  • Jim M.

    Hi Shaun,

    The economic outlook is too bleak for this poor, confused soul to even contemplate, but can we have Frank back now you’ve finished with him?

  • Drf

    Hi Expatin, I agree entirely with your comment; however, I would suggest that apart from the first sentence it does not seem to be an appropriate response to my original comment, since it almost entirely raises other issues which are unrelated, and would best have stood on its own as an independent comment, making extremely valid points which stand on their own merit.

  • Anonymous

    Agreed. My comment is exclusively about the EC’s dysfunctional set up.

    I am surprised that the dysfunctional EC can maintain a strong currency. The markets treat EUR like DEM.
    Is this wise ?

  • Drf

    Indeed, Expatin, I certainly agree; it is not wise that the markets treat the Euro as if it were the DEM in another guise, but I suspect that will soon come to a head?

  • Anonymous

    Excellent column, Shaun, albeit depressing reading. The HICP without an owner-occupied housing component does not constitute a reliable measure of inflation, and I believe this is also the position of the ECB. If one excludes Ireland, which shows strong growth in house prices (6.3%; all figures four-quarter rates of change for 2013Q4), it seems that Greece (not available), Cyprus (-9.4%), Spain (-6.3%) and Portugal (-0.6%) have been undergoing deflation for some time. To my mind, any country with an HICP adjusted for OOH with an inflation rate below 0.5% is likely to have zero or negative inflation in reality, given the upward bias in inflation measurement. Martin Wolf of FT’s belief that an MUICP reading of 2% inflation is actually close to zero is clearly delusional, but the upward measurement bias may well be 0.5% or even slightly higher. So it seems that there is a problem with deflation in the euro area in Iberia and the Greek-speaking countries of the EU. Also the Netherlands (-4.5%), is probably also suffering from deflation once housing is added to the picture, largely due to the housing bubble that you have documented so well in your blogs.

    The ECB can’t run a regional monetary policy so it is not clear how they should proceed now. Arguably their existing low interest rates are creating housing bubbles in Estonia (15.6%), Latvia (7.9%), Ireland and Luxembourg (4.8%), so the ECB should be a little careful about running a looser monetary policy. Any one of these smaller euro area countries could be the next Netherlands. Andrew Baldwin

  • Anonymous

    Timescales are notoriously difficult to predict, but the results of deficits and inflation are depressingly easy to foresee

  • Andy Zarse

    A proposed 0.10% rate cut? Disappointed there was no reference to Newt from Aliens today Shaun!

  • shrimpers

    It is clear that tinkering with the headline interest rates will neither rejuvenate the economy nor remotely affect the outlook for dis- or de-flation – the die is cast, whilst millions are unemployed across the continent and millions more barely have the proverbial pot to p**s in, we are heading for another catastrophe, it is merely a matter of time.

    The ECB as part of the Troika and in cahoots with the global too big to fail banking fraternity and lickspittle politicians i.e. the elites, has enabled the destruction of the post war consensus, ensuring the rapid decline of living standards for the majority across the continent

    The ECB’s real justification for ‘forward guidance’, flooding the Eurosystem with more liquidity and/or adjusting rates is simply to reduce the overnight lending rate (Eonia), primarily to prevent the accompanying Euribor (benchmark term lending) levels from rising beyond where they were prior to the previous 2 rate cuts.

    All the LTROs/ABS/Covered Bond purchases being touted will only prolong the agony though, perhaps, as with QE/FfL/Abenomics witnessed elsewhere, asset prices will glean a further boost – you do not have to be a gambler to bet on tthe the chances of such action leading to enhanced futures for the 99.99% of people

  • Noo 2 Economics

    Hallo Shaun,
    Things are looking amber for the EZ now but any ideas on the solution?

    Unfortunately, even though I said in apost a few days ago that open mouth operations had worked well for the ECB (meaning they averted a crash in bond markets and supported the Euro) they have now become a victim of their own success and I think the market knows there isn’t much they can do to devalue the Euro whereas they did have some tools re preventing a collapse in sovereign debt.

    The EZ continues to grow, albeit slowly even with a strong Euro – possibly a pointer to an economy much stronger than we think. Every one is obesessed with inflation and has forgotten the GDP growth story, probably because authorities are worried about both public and private debt financing.

    The threat now is of course future disinflation leading to deflation but how to turn it around? Devalue the Euro is the answer says the ECB but how can they talk down something they have been talking up and they have no tools (as far as I know) to devalue it, bearing in mind that they are now fighting against a recovering economy which isn’t lost on investors and maybe it doesn’t matter anyway if low growth is entrenched as long as it is a jobs related growth?

  • Noo 2 Economics

    Sorry, just reread your comment para and realised you gave the answer but if they do what you say then:

    1. These are structural changes which will take a few years to manifest

    2. Won’t the result of these reforms be an ever strengthening Euro and how will that help them?

    I struggle to see what options any Euro organisation has to make changes that will lead to improvements in the immediate term, which is what they need right now.

  • http://theyenguy.wordpress.com/ theyenguy

    You write, The one area where the ECB could make a genuine move is to get the exchange rate of the Euro lower.

    Please consider that the evidence suggests that the investor has been the centerpiece of world central bank monetary policies since 2008, this is seen in World Stocks, VT, Nation Investment, EFA, Global Financials, IXG, Eurozone Stocks, EZU, European Small Cap Dividend, DFE, and Energy Service, OIH, soaring in value.

    The whole purpose of the Euro, has been one of currency carry trade investing and debt trade investing. Mario Draghi’s LTROs and OMT, have benefited the investor and not the citizens of nation states within the Eurozone.

    It has been carry trade investor pursuing the EUR/JPY and debt trade investors buying European Credit, EU, that has driven the Euro, FXE, higher.

    So from the investor’s perspective the ECB has had it right all along.

    I fully expect to see competitive currency devaluation come on real strong as the Bond Vigilantes have gained and are exercising greater influence with the Bow of Economic Sovereignty, that is the Interest Rate on the US Ten Year Note, ^TNX, since May 2013, and are now calling it higher from 2.49%.

    The death of currencies commenced in May 2014, as is seen in Major World Currencies, DBV, such as the Euro, FXE, the British Pound Sterling, FXB, the Swiss Franc, FXF, and the Swedish Krona, FXS, trading lower; and the death of currencies, is accelerating in June 2014, with the Emerging Market Currencies, CEW, such as the Brazilian Real, BZF, trading lower. And, the failure of credit commenced in June of 2014, as is seen Aggregate Credit, AGG, trading lower.

    Credit Investments failed on June 2, 2014, as the Yen, FXY, traded lower on the failure of Abenomics; confirmation comes from Convertible Securities, CWB, trading lower, and Floating Rate Notes, FLOT, trading lower from its late May 2014 high. Investors no longer trust in the monetary policies of the world central to provide investment gains and stimulate global growth.

    The higher Benchmark Interest Rate ^TNX, put an end to risk-on investing, and thus stimulated Social Media, SOCL, Internet Retail, FDN, Nasdaq Internet, PNQI, Cloud Computing, SKYY, and the credit sensitive Small Cap Pure Growth, RZG, and the Small Cap Pure Value, RZV, to trade lower, and as a result, the US Small Cap Stocks, IWM, IWC, traded lower on June 2, 2014.
    Look for all Equity Investments to trade lower very soon.

    Economic deflation will come like a viper out of the failure of fiat money and fiat wealth.

  • Anonymous

    Hi ExpatInBG

    The idea that this is a self-reinforcing downwards spiral unless reform and change happens has a lot of validity I think. Usually demographics gets the blame for being the cause but yes some may not have children due to their financial position and the noose tightens from the so-called effect too. A bit like Euro austerity and falling GDP isn’t it?

    I know it is a heretical idea for a central bank but the ECB could tell the truth.

  • Anonymous

    Hi Pavlaki

    Thanks for the anecdotal evidence particularly about Portugal, it is time I sat down and took another good look at the state of play there. As to the Euro there was a worrying signal today as it strengthened against the major currencies in spite of the inflation news. If it is to be a case of buy the rumour and sell the fact this is going to be a long hard road for both the ECB and the Euro area economy.

  • Anonymous

    Hi Dutch

    Yes and both yields are well below the UK 5 year Gilt which yields 1.93% and is an expensive point in the curve here. Markets have been pushing prices lower there and yields higher for a while. As to Spain it is all rather different to 5/6/7% is it not?

    But as you hint at much of this is due to promises from the ECB and how much of that/those is in the price? A lot I would suggest…

  • Anonymous

    Hi Jim M

    I suspect that some of your fellow hammers fans foiled that prospect with the chants of “fat Frank” over the years. I guess I should be thanking them as it has been a pleasure to cheer him on and Chelsea will struggle to ever spend a better £11 million.

    I remember back in the time when I was in the trading pits that the Man Utd. fans would chant “Scholes get goals” and they were right that a double-digit return per season from midfield was high quality. But in goal terms Super Frank trumped that and my only regret is that he only rarely had the same impact for England.

  • Anonymous

    Hi Andrew

    You make a good point which intrigued me but the ECB data on house prices for the whole Euro area only reaches the end of 2013. We will have to wait until September to get a proper CPIH (H=Housing).

    Actually this reinforces a possible policy option for the ECB. I know that it has looked at the Funding for Lending Scheme of the Bank of England. It could do something similar and then feign surprise when it boosts property prices but is ineffective on business lending. The catch is the issue of lighting the property burners in Spain and Italy but as you point out there are 18 members.

  • Anonymous

    Hi Andy

    You will not be falling off your chair as you read that I did indeed think of it! I found another one for potential use from that film.

    Ripley: Did IQs just drop sharply while I was away?

    Covers quite a few central bankers and politicians…

  • Anonymous

    Hi Shrimpers

    It is another form of can-kicking as opposed to actual reform and change of which there has been so little. Which is of course something which as you point out has suited the global elites.

  • Anonymous

    Hi Noo2

    Yes structural reforms do take time which is why I have been arguing for them from the beginning. There would have been much more of a case for the type of actions central bankers have instituted if the time they bought had been used to cover the gap. Instead as you point out even if we start today it will be a while before the benefits arrive in force.

    If you wanted the ECB to add to it then it could intervene against the Euro, after all it has intervened to support it in the past! If the rumours are true the Belgians could do this by simply buying more US Treasury Bonds. In reality though there are much bigger fans of currency intervention than me and the danger would be of tat for tat moves from others.

  • Anonymous

    Hi theyenguy

    How much lower do you see the exchange rate of the Euro going?

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