Investors shrug off Italian downgrade and disappointing Chinese data to push markets yet higher
Leading shares closed above 6500 for the first time for more than five years, as investors took comfort from Friday's positive US jobs figures and shrugged off an Italian downgraded and poor Chinese data.
The FTSE 100 finished 20.05 points higher at 6503.63, its best level since 12 December 2007, but with little corporate news trading was fairly subdued. Declines in Greek, Italian and Portuguese GDP failed to cause ructions, nor did news that Chinese inflation came in at a 10 month high and factory output and consumer spending were weaker than forecast. Even the continuing fall in the pound was seemingly brushed aside. Chris Beauchamp, market analyst at IG, said:
After all the excitement of last week, with the Dow hitting new all-time highs and then US job numbers, a degree of calm has descended on global markets. As both Europe and the US are quiet on the economic front, attention remains focused on Chinese data that came out over the weekend. Now it is apparent that inflation is running at a higher level than anticipated, Beijing will have its work cut out to stimulate the economy while simultaneously keeping a lid on prices.
Oddly, it does not feel as if this is the calm before a storm, with the general impression being of a market that is girding itself for the next push higher.
There were some notable fallers, however. Sage lost 7.5p to 341.9p after analysts at Bank of America Merrill Lynch cut their rating on the accountancy softwear specialist. Merrill moved from neutral to underperform and cut its price target from 330p to 320p.
The group's price has been buoyed by share buybacks, but on a trading level Merrill said it faced stiff competition from rival SAP, and its move into cloud computing was by no means a guaranteed success. Merrill said:
Going forward the key driver for the stock will be the company's ability to launch and gain traction with its new Cloud solutions in key geographies. This, in our view, is a slow process, and the market should remain sceptical over the next few quarters given that historically very few companies have managed to transform themselves from onpremise vendors to credible cloud players.
Matt Basi, head of UK sales trading at CMC Markets, said:
Of the 28 analysts covering [Sage] only 4 recommend buying shares, whilst the average price target of 310p falls short of current levels.
Heading in the other direction following a research note was SABMiller, lifted 47p to £34.52 after RBC raised its target price from £28 to £35.
With China a key consumer of commodities, mining shares came under pressure following the latest data, with Kazakhmys - soon to depart the FTSE 100 - closing 12p lower at 520.5p.
But Antofagasta added 10.5p to £18.61 after analysts at Societe Generale moved from sell to buy and lifted their price target from 970p to £10.80. Ahead of the mining group's results on Tuesday, the analysts said the company had scope for a special dividend this year, and its recent weakness now made its valuation attractive. SocGen also said investment plans at Kazakhmys make it a riskier prospect for investors, who could switch to Antofagasta if they wanted exposure to the copper sector.
Banks are also unwanted, not helped by Friday's downgrade of Italy by Fitch, with Royal Bank of Scotland down 4.9p to 301.3p and Barclays off 7.1p to 311.5p. Lloyds Banking Group, which announced after the market closed a placing of a 20% stake in St James's Place, lost 0.07p to 50p.
Among the midcaps, online grocer Ocado added 3.5p to 138p. Supermarket group Morrisons, which has in the past been tipped as a possible bidder for Ocado since it has fallen behind in the online world, is due to unveil its new strategy this week. Morrisons closed 5.5p to 268.5p.
Icap dropped 12.4p to 330.2p as UBS moved from neutral to sell:
We are cautious on the interdealer brokers as we expect structural pressures on banks and thus on intermediaries to remain elevated. (1) over the counter clearing goes live in the US from March and in Europe in the second quarter of 2014; this will increase the cost of trading swaps materially and also lead to volumes moving to futures (2) European banks still have 5%-10% deleveraging to do (3) consolidation in fixed income, currency and commodities is set to continue.
One of the day's biggest fallers was Anite, which supplies handset testing software to the likes of Samsung and Ericsson and technology to the travel sector.
Its shares lost 25p to 130p, or 16%, after it warned it would need a strong performance from its handset division in the final quarter to meet full year expectations. It said third quarter sales reflected a quiet seasonal period, especially compared to last year when its customers were investing in 4G systems.
Revenues and profits for the first nine months of the year were broadly in line with expectations, but order intake remained below last year's level.
Elsewhere gaming group 888 added 8.25p to 166.75p as it made further moves ahead of the opening up of the US market.
It is forming a joint venture with investment group Avenue Capital to launch and operating an online gaming business, once Federal or state legislation is finalised. The venture will be known as All American Poker Network, and 888 chief executive Brian Mattingley said:
We now have a significant financial partner for our leading B2C product - the final piece in the jigsaw, completing our US online strategy.
The company already has partnerships with Caesars Interactive Entertainment and gaming machine manufacturer WMS. It has now also agreed a deal with Las Vegas operator Treasure Island to launch online poker in Nevada, again once a licence is in place.
Elsewhere Ladbrokes climbed 14.6p to 239.8p following its move to boost its own online presence by signing a software deal with Playtech, up 18.5p to 570p. At the start of this month William Hill announced plans to buy out Playtech's stake in their joint venture for £424m.
Soco International, the oil firm with its key project in Vietnam, rose 6.3p to 383.3p after it reported a 181% rise in full year profits to $445.6m and said it expected to start making dividend payments to shareholders this year.
Finally Bahamas Petroleum jumped 26% to 6p after the government of the islands deferred a referendum on the future of oil exploration until the size of any reserves had been determined. The company said the move would help its talks with potential partners about taking a stake in its developments, and allow it to proceed with exploratory drilling.
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