Britain's blue-chip stocks rose on Wednesday, led by banking stocks and miners, as a reassuring start to the US earnings season boosted investors' appetite for riskier assets.
Miners were set for their first gains in a week as investors welcomed news that Alcoa, the largest aluminium producer in the United States, posted in-line fourth-quarter earnings after the Wall Street close on Tuesday and offered a positive outlook for 2013.
“This uptick on the FTSE is a reaction to Alcoa, and people's expectations for earnings in the US,” said James Butterfill, global equity strategist at Coutts.
“As has been for quite a few quarters now, analysts are overly bearish for fourth quarter results. So it seems that we'll see earnings beat expectations for another quarter in the US, and that will help to support stocks.”
Butterfill said that if earnings came in ahead of expectations for the fourth quarter, it would be the 15th consecutive quarterly earnings beats in succession on the S&P500, bar a minor earnings miss at the end of 2011.
Banks added 12.5 points to the index, with Lloyds Banking Group the best performer, up 5 percent as traders cited the impact of a UBS upgrade to “buy” from “neutral” with an increased target price of 60 pence.
“We think Lloyds will deliver rising margins, falling costs and falling provisions, which will provide a very strong upswing to profitability and EPS momentum over the next few years,” UBS said in a note.
The FTSE 100 was up 23.60 points, or 0.4 percent, at 6,077.23 by 13:58 SA time, resuming a rally that took it to its highest closing level since early February 2011 on Friday, having slipped on Monday and Tuesday of this week.
The index is now up 3 percent for 2013 only a week into the year, just over half the total 2012 gain of 5.8 percent.
“We continue to have a constructive outlook for equities. It's a combination of a pick-up in economic activity... ongoing policy support and lower systematic risk, relative to the last year or so,” Christopher Ferrarone, global equity strategist at UBS in Hong Kong, said.
UBS' Risk Appetite Indicator hit 20-month highs after US politicians reached a fiscal compromise on New Year's day, and Ferrarone expected growth to support equity prices so long as outstanding issues in the US budget negotiations were resolved without drama.
“After a fairly broad-based deterioration in economic activity last year, we have seen economic activity pick up, initially in the US but also notably in China. The improvement in economic activity that we've seen develop over the last several months is fairly broad-based, and we do look for that to continue in the months ahead.”
However, sluggish growth from last year had a hangover on UK retailers, with J Sainsbury losing 2.9 percent and relinquishing the previous session's advance as it issued a trading update which prompted Seymour Pierce to cut its rating on the stock to “reduce”.
Britain's No. 3 supermarket met forecasts for underlying sales in the Christmas quarter but growth slowed from its first half in a highly competitive festive market.
“We suspect Sainsbury will struggle to outperform in 2013 as Tesco continues its fight back and there is some margin vulnerability as momentum slows,” Seymour Pierce said in a note.
For a graphic showing UK retailers' share price performances click on: http://link.reuters.com/mat94t - Reuters