MARKET COMMENT: UK Shares Up On Doveish Fed As Miners Outperform

LONDON (Alliance News) - UK shares shot out of the blocks Thursday in response to a fairly doveish set of US Federal Reserve minutes, issued after the London close Wednesday.

After rising almost 1% at the open, the FTSE 100 trades up 0.6% at 6,518.97 about mid-morning. The FTSE 250 has risen 0.6% to 15,015.79, and the AIM All-Share index is up 0.2% to 728.8.

The Fed's minutes of the September 16-17 meeting surprised investors with its doveish tone, as members have concerns about global growth because of the impact of a strong dollar.

There was also a disagreement over the Fed's promise to keep interest rates at zero for a "considerable time", with several voting members expressing concerns that the phrase could be misunderstood as a commitment rather than as being data dependent.

"Just as things were looking bleak after the IMF lowered forecasts for global growth, the Federal Reserve stepped in to rescue stock markets again with a doveish set of minutes that put back expectations for the timing of the first US rate hike," says CMC Markets analyst Jasper Lawler.

The dollar continues to weaken against major currencies. The pound is now trading USD1.6208 and the euro at USD1.2767

The European Central Bank said Thursday it still believes that a moderate recovery for the eurozone in 2015 remains in place despite the current weakening of the region's growth momentum. In its monthly report, it said that domestic demand should be supported by the monetary policy measures of the asset-backed securities and the new covered-bond purchase programmes, the ongoing improvements in financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices supporting real disposable income.

However, it said that that eurozone recovery is likely to be dampened by high unemployment, sizeable unutilised capacity, continued negative bank loan growth to the private sector, and the necessary balance sheet adjustments in the public and private sectors. In addition, heightened geopolitical risks and insufficient progress in structural reforms in euro area countries could see downward risk to economic outlook

The report has come out ahead of ECB President Mario Draghi's speech at the Brookings Institution in Washington DC at 1600 BST.

The mining sector has posted particularly strong gains, with the FTSE 350 mining sector index the best performing sector index, gaining 2.7%. The solid performance comes despite Numis Securities reiterating its cautious stance on the sector, saying it expects analyst downgrades on their sector forecasts. However, the brokerage did say that Randgold Resources, Fresnillo and Petra Diamonds remain its sector picks, and it raised Randgold to Buy from Add.

Randgold and Fresnillo are the two best performing stocks on the FTSE 100 Thursday morning, gaining 7.0% and 6.4%, respectively. Petra Diamonds, meanwhile, trades up 2.1%.

Vodafone Group shares are the biggest faller in the blue-chip index, losing 1.2% after Nomura downgraded the company to Reduce from Neutral and cut its price target to 180.00 pence from 190.00p. Nomura is concerned about increasing competition that Vodafone faces. The stock currently trades at 201.90p.

FTSE 250 gold producer Centamin's shares have risen by 5.3% after the company said it has increased production from its Sukari gold mine in Egypt in the third quarter as its plant reached its capacity target following its expansion. Production from Sukari in the third quarter ended September 30, totalled 93,624 ounces, a 15% increase on the second-quarter and 10% higher than the same quarter in 2013.

Still ahead on Thursday is the Bank of England's interest rate decision at 1200 BST. The monetary policy committee is expected to maintain the interest rate at 0.5% and asset purchase at GBP375 billion.

US initial jobless claims for the week ending October 3 and continuing jobless claims for the week ending September 26 will be released at 1330 BST.

US futures indicate Wall Street to continue its gains from Wednesday. The DJIA is shown to open up 0.2%, and the S&P 500 and the Nasdaq Composite are both indicated to open 0.3% higher.

By Neil Thakrar; neilthakrar@alliancenews.com

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