Britain's top shares pushed higher on Tuesday, shrugging aside uncertainties over the euro zone debt situation as investors focused on hopes for fresh economic stimulus measures from central banks, helped by a fall in British inflation numbers.
British consumer price inflation (CPI) eased unexpectedly in May to its lowest in two and a half years due to slower price rises for food and fuel, strengthening the chance of more Bank of England stimulus as the economy increasingly feels the heat of the euro debt crisis.
“I think the rally you have been seeing, at least today, is based around the broad expectation that we will see a co-ordinated effort from authorities - governments, central banks - to stimulate a growth environment,” said Henk Potts, market strategist at Barclays Wealth.
“I think it should be supportive, as there is no doubt given some of the data we have seen that it is certainly required, with the risk of doing nothing much higher than the risk of doing something, so we continue to see that as a driving force.”
Heavyweight energy stocks, miners, and banks were the top three performing blue chip sectors, lending their considerable strength to the index as investors' bought on hopes of liquidity boosts.
Adding to the hopes for action from central banks, the Group of 20 leading and emerging economies said they will “take the necessary actions” to strengthen the global economy, and if growth weakens substantially, according to a draft communique from the G20 summit in Mexico.
Investors also looked ahead to the start on Tuesday of a two-day Federal Reserve meeting, with a decision on monetary policy due after the London close on Wednesday, with many commentators hoping the US central bank will also unveil fresh stimulus measures after recent weak economic data.
US stock index futures pointed to a mixed open on Wall Street on Tuesday, after a similar showing in the previous session, with investors awaiting data on US housing starts and permits for May, due at 14:30 SA time.
At 12:55 SA time, the FTSE 100 index was up 44.61 points, or 0.8 percent, at 5,535.70, back above the 5,500 level - a technical level seen as key for spurring further buying - but still below Monday's intraday peak of 5,555.32.
Among individual gainers, Whitbread topped the FTSE 100 leader board, up 6.1 percent after the leisure group reported solid growth in first-quarter sales.
“The twin turbos of Premier Inn and Costa coffee continue to drive Whitbread's momentum,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said in a note.
“The current market consensus of the shares as a buy is unlikely to be disturbed by this update,” Hunter adds.
Pumps manufacturer Weir Group was also in demand, up 4.5 percent after it reaffirmed its full-year guidance and strong medium-term outlook.
FOOD GOES BAD
On the downside, food and household products giant Unilever was the biggest FTSE 100 faller, down 2.3 percent after french rival Danone issued a profit warning. Danone shares shed 7.8 percent in Paris.
Danone blamed the worsening economic climate in Europe, and several traders said they might still use brief rallies in the FTSE as an opportunity to take quick profits on stocks, due to worries over debt crises in Greece and Spain.
Other British food producers suffered as well, with Tate & Lyle losing 1.2 percent, and AB Foods down 0.6 percent.
The sector was also shunned as its defensive characteristics were less wanted by investors as their appetite for riskier assets returned, with drinks group Diageo and Imperial Tobacco also feeling the effect of that change in market sentiment, down 1.4 percent and 0.3 percent respectively. - Reuters