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LONDON (Alliance News) - UK equities are trading higher Friday as huge volumes of new Royal Mail shares change hands, economic indicators come in strong, and global investor sentiment is improved by the prospect of an increase in the US debt ceiling.
By mid-morning Friday, the FTSE 100 is up 0.6% at 6,470.70, the FTSE 250 is up 0.1% at 14,913.20, and the AIM All-Share is up 0.3% at 783.30.
The UK conference board leading economic index increased to 1.2% in September, accelerating from an increase of 0.7% in August and a decrease of 0.4% in June. The index aggregates seven economic indicators that measure activity in the UK and shows continued optimism in the pace of the UK recovery.
Royal Mail shares opened sharply higher, jumping more that a third above its IPO price in conditional trading by institutional investors. Some 102 million Royal Mail shares changed hands within the first hour of trading. The Government is continuing to come in for criticism as it looks like it has missed out on an extra GBP1 billion for tax payers by pricing the shares too cheaply, at 330p. Shares are now up 34% at 440.888, by far the biggest mover on the London market.
Outside of Royal Mail, bank shares are performing well, the FTSE 350 sector up more than 2%, led higher by Lloyds. Following an upgrade earlier in the week to Buy from Investec, on the back of the perceived benefit to the banking group from stage two of the Help to Buy scheme, Lloyds announced Friday that it has sold its Australian operations to Australian bank Westpac. Australia was probably the worst example of "adverse asset selection" in the entire ill-fated HBOS international debacle, says Investec analyst Ian Gordon. Llouds shares are up 1.4%.
The aerospace and defence sector is the heaviest loser, down 1.1%, led lower by Chemring Group. The builder of defence systems is down a huge 21% after issuing a profit warning due to the ongoing US shut down. BAE systems also is losing as the shutdown continues, down 2%. Shares in the aerospace and defence giant are under performing following Thursday's announcement that it is still trying to renegotiate a better price for its deal to sell 72 Typhoon jets to Saudi Arabia.
While the US shut down continues to drive sector preferences, the proposal of a temporary increase in the debt ceiling being discussed in Washington gave a huge boost to sentiment overnight, leading US stocks to rally more than 2%. "The consensus is that a deal will be done, that it represents a de-facto capitulation by the Republicans as a result of voters blaming them for the stalemate, and that the temporary deal will become permanent before Thanksgiving," comments Societe Generale strategist Kit Jukes in a morning note to clients.
There is little movement in the forex markets. Currently the pound trades at USD1.5985 and the euro at USD1.3570. Gold and oil are both little changed.
There's no more UK data scheduled for release this week. From the US, the Reuters/Michigan Consumer Sentiment Index is due at 1455BST, while more announcements about a deal over the US debt ceiling are anticipated.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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