LONDON (Alliance News) - UK equity markets have broken out of last week's sideways trend. The FTSE 100 is up nearly 1% and every FTSE 350 market sector is making gains, sparking some commentators to refer to the "Larry Rally" after the front-running candidate for the job of US Federal Bank chairman, Larry Summers, stepped out of the race.
Having accepted Summers's decision, President Obama now seems more likely to chose Janet Yellen to take charge of the US central bank. Yellen is seen by many as being less of a monetary hawk and therefore less inclined towards immediate or large-sized scaling back of quantitative easing, or tapering.
Equity markets, which have arguably become addicted to the cheap money stimulus program took the news positively when markets opened on Monday. The FTSE 100 is up nearly 1%, at 6,640. The FTSE 250 is up 0.6%, at 15,313.40 and the AIM All-Share is up 0.6%, making yet another 2013 high, at 785.74.
Major European indices are also about 1% higher, while global 10-year bond yields ease slightly and oil and gold prices fall, both on the increased hopes of extended QE and on weekend news that a diplomatic solution to diplomacy around Syria is progressing. Brent Oil is now back to mid-August prices of about USD109.70 per barrel.
The proposal agreed between the US and Russia is for Syria to hand over full details of its chemical weapon stockpile within a week and for them to be destroyed by mid-2014. However, US Secretary of State John Kerry reiterated a warning to the regime on Sunday, saying "the threat of force is real" if it did not comply with the new proposals.
As investors put risk back into portfolios, the dollar has weakened against other currencies. The pound has extended its recent strong run further, now at USD1.5930. The euro trades at USD1.3340, while in the cross between the euro and sterling, the pound gains slightly, currently 0.8375.
Airline stocks, heavy users of fuel, are gaining in the lower oil price environment. EasyJet and International Consolidated Airlines are top blue chip gainers, up 2.5% and 2.3% respectively. Gold miners are losing on the lower price of the yellow metal. Mexico focused Fresnillo is down 12% both on the lower gold price and the prospect of increased tax levies on miners in Mexico. Hochschild mining is down 17% and African Barrick Gold down 14%.
A light afternoon of data is ahead Monday. Due before the New York open are the NY Empire State manufacturing Index and US industrial production numbers.
Monday's improved sentiment comes ahead of the main economic event later in the week. On Wednesday the latest policy decisions of the FOMC will be made public. The exit of Summers from the race for a Bernanke replacement doesn't change the market expectation of near-term QE tapering, with many expecting a USD10-15 billion reduction in monthly bond buying. Anything larger that USD15 billion would be negative for the equity market, says shore Capital.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
Copyright 2013 Alliance News Limited. All Rights Reserved.
Hochschild (HOC)
International Airlines (IAG)
Fresnillo (FRES)
easyJet (EZJ)