MARKET COMMENT: FTSE 100 Ends Up For Second Day, Taking US Lead

LONDON (Alliance News) - The FTSE 100 closed higher for a second consecutive day Tuesday, again recovering from early falls, as it took a lead from higher US equity indices that were buoyed by some positive earnings from big names including Citigroup.

The FTSE 100 managed closed up 0.4% at 6,392.68, the FTSE 250 closed up 0.9% at 14,669.76 and the AIM All-Share closed up 0.1% at 697.87.

At the London close, the DJIA was trading up 0.6%, the S&P 500 up 0.8% and the Nasdaq Composite up 1.1%, while European equity markets also reversed their losses, with the French CAC 40 and German DAX both closing up 0.2%.

"Earnings from big US banks have been greeted with a sigh of relief, and are a welcome distraction from the troubles of the eurozone and other parts of the world. Even the abysmal ZEW reading from Germany has been shrugged off, with some investors reasoning that if things really are as bad in the eurozone as the data suggests, then European Central Bank quantitative easing has just taken a step closer to becoming reality," said Chris Beauchamp, a market analyst at IG.

Shares of Citigroup moved notably higher after the financial giant reported third quarter results that exceeded analyst estimates. Not all companies have reacted positively to their quarterly results, however, with JP Morgan and Wells Fargo all moving to the downside.

The German ZEW survey of economic sentiment slipped into negative territory for the first time since November 2012. The survey results from the Centre for European Economic Research/ZEW showed that Germany's investor confidence deteriorated for the tenth successive month in October to a 3.6 fall from a 6.9 rise in September, falling considerably short of economists' forecasts of a 1.0 rise.

Germany's economy ministry also cut its growth forecasts for 2014 and 2015, citing weaker demand in export markets due to rising geopolitical tensions and sluggish global growth. The growth forecast for 2014 was slashed to 1.2%, from 1.8% in April, and the outlook for 2015 was reduced to 1.3%, from 2.0%.

The pound fell sharply against the dollar after the release of UK inflation figures. At the close of the European equity markets, it was trading at USD1.5928.

UK inflation slowed to a five-year low, giving more space for the Bank of England to delay its first rate hike. Year-on-year consumer price inflation eased to 1.2% from 1.5% in August, coming in below economists' expectations of a 1.4% rise. Core CPI showed a 1.5% rise from last year, slowing from August's reading of 1.9% and below the consensus of 1.8% growth.

"From the Bank of England’s perspective, the drop in core prices suggests a more general easing of price pressures and probably allows them to hold off on a rate hike until after the general election in May," said Jasper Lawler, markets analyst at CMC Markets.

The price of Brent Oil fell to a near four-year low at USD86.15 a barrel on Tuesday afternoon. Oil producers such as Tullow Oil, down 2.1%, BG Group, down 1.4%, Royal Dutch Shell 'A', down 1.2%, and BP, down 0.7%, dominated the FTSE 100 top fallers. The FTSE 350 oil and gas producers index was the worst-performing sector index, declining 1.0%.

Miners continued to perform well. Shore Capital analyst Yuen Low said the stocks have continued to benefit from Monday's better than expected Chinese export data, which signalled some strength in the country's economy. In addition, the recent weaknesses in mining stocks could make them an attractive buy for investors. Rio Tinto, up 2.7%, Anglo American, up 2.5%, and Glencore up 1.7% were amongst the best performing stocks on the FTSE 100, while the FTSE 350 mining sector index rose 1.9%.

Burberry Group was the worst performing stock in the blue-chip index, with its shares declining 3.7%. The British luxury fashion retailer said sales growth slowed in the second quarter as its key travelling Chinese consumers splurged out less on its clothes and leather goods, and it warned that weak consumer confidence in Europe and slower Asian growth would weigh on its second half.

FTSE 250-listed recruitment company Michael Page International ended the day as the worst performing stock in the mid-cap index, falling 8.3%. The company took a seven percentage point hit to its gross profit and said adverse currency movements will contribute to the group's operating profit growth coming in below market expectations.

Wednesday's economic calendar starts with Chinese CPI inflation data at 0230 BST and German CPI and harmonised CPI at 0700 BST, both before the London open.

The focus will then turn to the UK, with ILO unemployment, claimant count and average earnings figures to be released at 0930 BST, before the US releases a host of data, the highlight being retail sales for September at 1330 BST.

ECB President Mario Draghi will be a busy man Wednesday, making a speech at the seventh Statistics Conference organised by the ECB in Frankfurt, before giving another speech at the grand opening event of the European Cultural Days 2014, also in Frankfurt.

The highlights of the corporate calendar are a third quarter production report from Rio Tinto and an interim management statement from Fresnillo.

By Neil Thakrar; neilthakrar@alliancenews.com

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