MARKET COMMENT: London Outperforms While Pound Drops To Fresh Lows

LONDON (Alliance News) - London stocks outperformed European counterparts Wednesday, with the FTSE 100 moving back towards the 7,000 point mark, but the pound fell to fresh lows against the dollar as the Bank of England's meeting minutes showed a unanimous decision to keep interest rates on hold in March.

Meanwhile, the presentation of the last UK government budget before the May election had a big impact on some individual London stocks and sectors, while investors also awaited the conclusion of the US Federal Reserve's two-day rate setting meeting.

The FTSE 100 closed up 1.6% at 6,945.20, finally recovering all the heavy losses made on Tuesday last week, when the blue-chip index fell 2.5%. The FTSE 250 closed up 0.9% at 17,363.74, a new record high close for the mid-cap index, and the AIM All-Share closed flat at 715.52.

In Europe, the CAC 40 in Paris closed up 0.1%, and the DAX 30 in Frankfurt ended down 0.5%.

Wall Street was also lower at the close of European stock markets, with the DJIA down 0.6%, the S&P 500 down 0.4%, and the Nasdaq Composite down 0.3%.

The UK jobless rate declined in the three months to January and the employment rate hit the highest since 1971, data from the Office for National Statistics showed Wednesday. The ILO jobless rate fell to 5.7% in three months to January from 6.0% in the quarter ended October. In the same period of last year, the unemployment rate was 7.2%. The expected rate was 5.6%.

Bank of England policy makers unanimously decided to keep monetary policy unchanged at the meeting held on March 4 and 5, minutes of the meeting showed Wednesday. The monetary policy committee voted 9-0 to retain the benchmark rate at a historic low of 0.50% and quantitative easing at GBP375 billion. All members agreed that it was appropriate to leave the stance of monetary policy unchanged, although two members regarded this month's decision as finely balanced.

"The BOE minutes paint a picture unchanged from the last Bank of England meeting so markets reacted to the slight uptick in unemployment and slowdown in earnings growth. The weaker labour market data helped UK stocks to make another leg higher since it implies lower interest rates for longer," said Jasper Lawler, market analyst at CMC Markets.

While stocks were lifted, the pound fell to its lowest level against the dollar since June 2010, hitting a low of USD1.4634.

Meanwhile, Chancellor of the Exchequer George Osborne raised UK economic growth forecasts for this year and next, but warned in his Budget speech that any adverse development in Greece could significantly affect the economy.

The growth forecast for this year was raised to 2.5% from the 2.4% predicted by the Office for Budget Responsibility in the autumn statement in December. The projection for 2016 was boosted slightly to 2.3% from 2.2%. Growth is seen improving to 2.4% by 2019.

Osborne also said the OBR will revise down the inflation forecast for the following three years, owing to falling global oil and food prices. Data from the Office for National Statistics earlier Wednesday showed that the UK unemployment rate remained at the lowest level in more than six years, and the employment rate hit the highest since 1971 during three months to January.

St James's Place, up 3.1%, and Hargreaves Lansdown, up 3.0%, were two of the biggest gainers in the FTSE 100 after Osborne revealed new measures aimed at giving savers more flexibility in how they invest. The Chancellor's plans for individual savings accounts (ISA) will change rules that currently mean people lose their tax-free entitlement if they withdraw money from their accounts. He also revealed a new Help to Buy ISA designed to give a boost to the efforts of people looking to buy their first home.

The FTSE 350 Oil Equipment Services & Distribution index and the Oil & Gas Producers index also were lifted, closing up 2.9% and 2.2%, respectively, after the Chancellor said he will introduce four measures that will offer GBP1.3 billion of support to the UK oil and gas industry in the North Sea and boost production by 15% by the end of the decade.

The Chancellor said he would introduce a "single, simple and generous" tax allowance for the North Sea oil and gas industry from the start of April to stimulate investment at all stages of the industry and simplify the existing offshore field allowance and provide greater certainty for investors.

Osborne also said he will reduce the petroleum revenue tax to 35% from 50% from the beginning of 2016 in order to support continued production from older fields in the North Sea and the key infrastructure they support.

"A bit of a token gesture given that the majority of [UK Continental Shelf] producers do not pay tax due to their accumulated tax losses/credits/capital allowances," said finnCap research director Dougie Youngson, who added that a reimbursement of exploration capital expenditure would have been more effective.

While Osbourne was giving his Budget speech, Sweden's central bank unexpectedly slashed its key interest rate and said it will buy more government debt, citing deflationary concerns due to a strengthening krona. The executive board of the Riksbank, led by Governor Stefan Ingves, cut the repo rate by 15 basis points to -0.25%. Policymakers also decided to buy government bonds for SEK30 billion, with maturities of up to 25 years. The move was aimed at supporting the upturn in inflation, the bank said, also reiterating that it stands ready to do more at short notice.

In other corporate news, Standard Chartered was the day's biggest gainer in the FTSE 100, up 8.0% on the back of upgrades by Barclays and Bernstein. Barclays upgraded the emerging markets bank to Overweight from Equal Weight saying the appointment of new CEO Bill Winters could be a catalyst for shares. Bernstein meanwhile upgraded the bank to Outperform from Underperform.

Xtract Resources shares more than doubled, making it the best performer in the AIM All-Share after it said it has discovered a major gold-bearing vein at the Chepica gold and copper mine project in Chile. Xtract said the vein, found in the Salvadori prospect at the project, has a true width of 4 metres and said 200 metres of strike-length is currently visible on the surface.

Still ahead in the economic calendar, the closely watched US Federal Reserve interest rate decision is at 1800 GMT, followed by a press conference by Chair Janet Yellen at 1830 GMT.

On Thursday, the European Central Bank issues its economic bulletin at 0900 GMT, before it announces the take-up of its targeted long-term refinancing operation at 1015 GMT. In the afternoon the focus is on the US with initial and continuing jobless claims released at 1230 GMT, and the Philadelphia Fed manufacturing survey at 1400 GMT.

In the corporate calendar, fashion retailers Next and Ted Baker release full-year results as does high-end real estate adviser Savills, technology company Premier Farnell, and oil producers Ophir Energy and EnQuest. Housebuilder Crest Nicholson issues an interim management statement.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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