LONDON (Alliance News) - UK stocks indices are holding on to strong gains Thursday, having opened much higher on the back of a broadly dovish message from the US Federal Reserve on Wednesday and subsequent record high made by US equity markets.
By mid-morning Thursday, the FTSE 100 is up 0.8% at 6,834.14, the FTSE 250 is up 0.9% at 15,756.80, and the AIM All-Share is up 0.3% at 785.85.
Major European equity markets are also catching up to the strong gains made in the US on Wednesday, with the French CAC 40 up 0.8% and the German DAX up 0.8%.
Rolls-Royce is the stand-out gainer in the FTSE 100, up 6.4%. The British engineering group allayed investor fears Thursday by reiterating its full-year guidance, despite the recent 3.5% reduction in its order book due to the cancellation of an Airbus aeroplane order by Emirates, for which Rolls-Royce would have supplied the engines.
Rolls Royce said it has no plans for merger and acquisition activity, which leaves its cash position strong enough to undertake a GBP1 billion share buyback, equivalent to about 5% of its market capitalisation, subject to the completion of the sale of its Energy business to Siemens. Liberum Capital analyst Ben Bourne calls the move "a massive vote of confidence in their cash flow".
BT Group shares are up 1.8% after regulator OFCOM announced that it has provisionally decided to drop TalkTalk Telecom Group PLC's complaint that BT had failed to maintain a sufficient margin between its wholesale and retail prices, as there is "no grounds for action". In the FTSE 250, Talk Talk Telecom shares are down 1.0%.
Man Group are big winners in the FTSE 250, up 5.2% after saying it has agreed to acquire Numeric Holdings LLC, a Boston quantitative equity manager that had USD14.7 billion in funds under management at the end of May, for up to USD494.0 million, as it looks to diversify its flagship AHL fund and expand in North America.
Go-Ahead shares are also chugging higher, up 3.5% after the travel operator steered earnings expectations for its rail operations higher.
The overall market sentiment remains positive towards equities following the message that the world's largest economy is recovering, but not fast enough to lead to a policy tightening any time soon, meaning US interest rates are likely staying low for longer.
The Federal Reserve was forced to downgrade its 2014 US economic growth forecast, in light of the 1.0% first-quarter GDP contraction, but the Fed Chair Janet Yellen still managed to balance her press conference with a little hawkishness, saying that the committee believes that US economic activity is expanding in the second quarter.
"Indeed, one could argue that we are dealing with Janus, not Janet Yellen when the Fed manages to claim the US economy has bounced back, yet also slashes both its 2014 growth forecast and its long-run trend growth rate," said Rabobank analyst Michael Every in a morning note to clients, referring to the Roman deity with two faces, one looking forward and one backward.
The pound has rallied to a fresh recent high against the dollar on the back of the message, reaching USD1.7025 Thursday, the highest level of the currency pair since august 2009. Slightly weaker-than-expected UK retail sales data gave a knock to the pound back below USD1.70, but any weakness was short-lived.
UK retail sales contracted by 0.5% month-on-month in May, in line with expectations and down from a downwardly revised 1.0% rise in April. On a yearly basis, retail sales were up by 3.9% in May, less than the 4.3% that had been expected and down from 6.5% in April.
The Office for National statistics noted that, at 29%, growth in sporting goods over the month was the highest since January 2009. "Feedback from retailers in these stores has suggested that the increase in sales in May 2014 is due to the build-up of the FIFA World Cup," the ONS says. While a better picture of this trend may be available with next month's numbers, sales may also be directly linked to the performance of the England team in their upcoming game against Uruguay Thursday evening.
The price of Brent oil has moderated a little over the European session so far, as Congressional leaders in the US continue to weigh their options in dealing with the growing crisis in Iraq, after being asked by officials there to mount air strikes to help the Iraqi government to maintain control of its country and its oil refineries.
Having reached a fresh nine-month high of USD114.77 overnight, Brent trades off the high, although still elevated, at USD114.35 per barrel.
Still to come Thursday, US initial jobless claims for the week ended June 13 are expected to fall to 314,000 from 317,000 in the previous week, with the data due at 1330 BST. Following that, the Philadelphia Fed manufacturing survey is due at 1400 BST.
Ahead of the data, US futures markets indicate that stocks there will continue higher, but at a much more moderate rate following Wednesday's strong gains, with the DJIA and the S&P 500 set to open fractionally firmer.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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