LONDON (Alliance News) - Concerns about the potential for Brexit were put to one side Wednesday as stocks rebounded ahead of the US Federal Reserve's policy decision and press conference with Chair Janet Yellen later in the day.
The blue-chip FTSE 100 index closed up 0.7%, or 43.27 points at 5,966.80, snapping a run of four sessions of losses. The mid-cap FTSE 250 ended up 0.4%, or 66.07 points, at 16,298.32 and the AIM All-Share was up 0.3%, or 2.15 points, at 717.05. In mainland Europe, the CAC 40 in Paris closed up 1.0% and the DAX 30 in Frankfurt up 0.9%.
On Wall Street at the London stock market close, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite were all up 0.2%.
The market was preparing for the Fed's decision at 1900 BST and its subsequent press conference at 1930 BST. The focus will be on the Fed's statement and Yellen's comments in her conference after chances of an interest rate increase in June were all but killed by a weak jobs report for May, which was released earlier this month.
Thu Lan Nguyen, an analyst at Commerzbank, said the Fed is likely to pay close attention to risks of a Brexit, which has been an important reason why market expectations for Fed funds rate have declined.
In the run up to the vote, Nguyen said, the options market has shown investors are expecting the dollar to appreciate considerably versus the euro in the event the UK votes to leave the EU.
"It is quite well known that an excessively strong US dollar is a problem for the Fed in view of still subdued US inflation. In fact, [Federal Open Market Committee] members have repeatedly pointed out that their optimistic inflation outlook is based on a relatively stable US dollar exchange rate," the analyst said.
"If Fed Chair Janet Yellen confirms at today's press conference that a Brexit might influence the Fed's future rate path, the US dollar will come under pressure short term," Nguyen added.
Ahead of the announcement, the euro traded the dollar at USD1.1249, which was higher than the USD1.1207 seen at the London equities close on Tuesday.
Similarly, the pound also traded higher against the dollar at USD1.4195 at the close Wednesday, versus USD1.4108 at the same time on Tuesday. Sterling also won a boost as UK unemployment reached its lowest level in more than a decade in April and the employment rate hit a record high.
The ILO jobless rate came in at 5.0% in the three months to April, data from the Office for National Statistics showed, hitting its lowest level since October 2005 and below the expected rate of 5.1%. In the same period of last year, the rate stood at 5.5%.
The employment rate was 74.2%, the joint highest since comparable records began in 1971. In the three months to April, average earnings including bonus increased 2.0% and excluding bonuses climbed 2.3%.
On the London Stock Exchange, mergers and acquisitions were at the forefront, with Poundland Group attracting interest from South African furniture retailer Steinhoff International Holdings, and AVEVA Group ending preliminary talks with France's Schneider Electric about a potential reverse takeover of the FTSE 250-listed engineering software developer.
Steinhoff said it is considering a possible offer for discount store chain Poundland, which would be Steinhoff's third run at a London-listed company in 2016 so far. Poundland responded, "strongly" advising shareholders to take no action.
"The company will issue a further statement if and when appropriate," Poundland said. "There can be no certainty that a firm offer will be made, nor as to the terms on which any firm offer might be made."
Steinhoff previously had been involved in bidding unsuccessfully for Home Retail Group, the owner of Argos which was sold to supermarket chain J Sainsbury, and for electricals retailer Darty, which is being acquired by France's Groupe Fnac.
Poundland shares closed the day up 2.2%, having risen 24% on Tuesday. The retailer is scheduled to release its full-year results on Thursday.
After the London equities close, Steinhoff said it has acquired 61.2 million shares in Poundland, equivalent to a 22.78% stake in the company, and confirmed that any possible offer it makes will be in the form of cash. There can be no certainty that an offer will be made, Steinhoff said.
AVEVA shares sunk 12%, making it the worst performer in the FTSE 250 after it said preliminary talks with Schneider about a potential reverse takeover have been terminated, just two days after confirming it had renewed talks with the French industrials group.
Shares in AVEVA were suspended from trading Monday after it said it had received a conditional proposal from Schneider for a reverse takeover, following a previous reverse takeover deal between the two which collapsed in December last year.
Jimmy Choo was the best performer in the FTSE 250, up 14%. The high-end shoemaker and luxury goods retailer said it has made a good start to 2016 and is trading in line with its expectations, in a statement ahead of its annual general meeting on Wednesday.
The company acknowledged "headwinds facing the majority of the sector in 2016", but said its "successful growth strategy continues to deliver". Liberum, which upgraded the stock to Buy from Hold, said Jimmy Choo's trading statement showed the retailer is showing resilience in a difficult market.
Structural steel company Severfield said it swung to a pretax profit thanks to one-offs not recurring in the financial year to the end of March, while underlying profit was robust, resulting in a tripling of its payout to shareholders.
Pretax profit for the year to March 31 was GBP9.6 million, compared to a GBP191,000 loss booked a year earlier, which had been primarily due to writedowns booked on unprofitable contracts. Underlying pretax profit, which strips out the exceptional items, was up to GBP13.2 million from GBP8.3 million.
The group said it will pay a 1.0 pence per share final dividend, meaning its total dividend rises to 1.5p from 0.5p the year earlier. The stock closed up 11%.
Software company Servelec Group said its operating profit for 2016 is set to significantly miss its expectations amid contract delays in some of its divisions.
Servelec said its Social Care and Nuclear & Power businesses have both continued to trade in line, but market challenges facing its Healthcare, Technologies and Oil & Gas divisions will result in operating profit in 2016 being significantly lower year-on-year. The stock was the heaviest faller in the FTSE All-Share, down 30%.
Oil prices leapt late Wednesday after the US Energy Information Administration said its crude oil stocks declined by 933,000 barrels in the week ending June 10. This was lower than consensus expectation of a 2.3 million barrel decline, and the prior week's reading of a 3.3 million barrel fall.
Nevertheless, oil prices moved higher, with Brent crude trading at USD49.24 a barrel at the London stock market close, but still lower than the USD49.65 seen at the same time on Tuesday.
The price of gold eased slightly Wednesday, trading at USD1,284.20 an ounce against USD1,285.77 on Tuesday.
Central banks remain the main focus in the economic calendar for Thursday. The Bank of Japan makes its interest rate decision at 0400 BST, followed by the Swiss National Bank at 0830 BST and the Bank of England announces its monetary policy decision and releasing its meeting minutes at noon.
Elsewhere, UK retail sales are at 0930 BST and eurozone consumer price index is at 1000 BST. Later in the day, expect US initial and continuing jobless claims at 1330 BST, the same time as US inflation numbers and the Philadelphia Fed manufacturing survey.
In the UK corporate calendar, aside from Poundland there will be full-year results from design, engineering and project management consultancy WS Atkins, online and catalogue fashion retailer N Brown Group and luxury handbag maker Mulberry Group. There is also a trading statement from technology products distributor Premier Farnell, two days after agreeing to be taken over by Swiss manufacturing company Datwyler Holdings.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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