LONDON (Reuters) - The FTSE 100 rose on Tuesday, boosted by banks and commodity stocks, as investors' appetite for riskier assets improved thanks to better-than-expected U.S. corporate results and macro data.
Over two-thirds of U.S. companies who have already reported third quarter results have beaten or met expectations, with earnings on average 5.9 percent higher than forecast, according to Thomson Reuters Starmine data.
That, along with forecast-beating data from the United States and Germany this week, bodes well for UK corporates looking abroad for growth while the domestic economy stumbles.
Mid-cap home shopping group N Brown is among those cashing in on the U.S. market, with a strong trading update boosting its shares 9.6 percent.
The UK general retail sector was one of the top performers, up 0.9 percent. The FTSE 100 gained 36.10 points or 0.6 percent by 1048 GMT to 5,841.71 points, adding to the previous session's 0.2 percent gain.
"We expect this rally to continue," said Robert Parkes, equity strategist at HSBC Securities, who targets 6,500 for the FTSE 100 by end-2013."
"We feel investors have become too pessimistic on the earnings outlook, and if you view that alongside the fact valuations are compelling - both in an absolute and relative sense - and then you consider the monetary policy loosening that you're seeing globally, you've got three reasons to be more optimistic."
The German ZEW survey pointed to a bigger than expected pick up in analyst and investor sentiment this month. Risk appetite was also supported by growing expectations that Spain could some ask for a bailout, thus triggering the European Central Bank's crisis rescue plan to buy sovereign bonds.
That has helped pull down implied volatility on the FTSE 100 - a crude gauge of investor fear - by around 9 percent so far this month after a 15 percent fall in September.
Low implied volatility means it is cheaper to buy options, with derivatives strategists at UBS suggesting trades for both sides of the market.
"Bears should consider June 2013 5,300 puts offered for 197.5 points (3.4 percent) while bullish investors might like to own June 2013 6,200 calls for 92.5 points," they said in a note.
Underscoring the potential for downside risks, GKN fell 4.3 percent in hefty trading volume, after the car and plane parts maker said a sluggish European automotive market weighed on third quarter profit and that a continued slump could hurt the group for the remainder of the year.
Volume in GKN stood at 170 percent of its 90-day daily average, compared with 36 percent on the FTSE 100.
"Today's (update) alerts us to trends that are likely to deteriorate further in the fourth quarter and to spread to other geographies," Panmure Gordon said in a note downgrading its rating for GKN to "hold" from "buy".
"We have yet to see the word 'restructuring' but with strong comparables for first half 2013 earnings there is no let-up for GKN for at least another two quarters," the broker said.
(Additional Reporting by Toni Vorobyova; Editing by Ruth Pitchford)
Source: http://news.yahoo.com/strong-energy-miners-lead-stocks-higher-071504722--finance.html
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