By This Is Money Reporters
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17.30 (CLOSE): Life and pension firms’ shares enjoyed mixed fortunes at the start of the week after sharp falls in the previous session prompted by the disclosure of a new regulatory probe into the sector were described as exaggerated by some analysts.
Aviva benefited from more positive sentiment but Legal & General and Prudential both fell again in the wake of the investigation being confirmed on Friday by the Financial Conduct Authority (FCA).
Meanwhile the wider FTSE 100 Index saw early session gains evaporate as it ended in the red, down 17.2 points to 6598.4.
Drop: Legal & General shares fell again today, though there was better news for Aviva, which rose slightly.
Blue-chip shares had started the day on the front foot as they followed overnight gains on Asia markets, prompted by hopes of a stimulus boost for China.
But they levelled off, before turning negative, as markets contemplated continuing global uncertainties including ongoing tensions over Ukraine and the prospect of deflation in Europe.
Remarks from Janet Yellen – chair of the US Federal Reserve – that the below-par US jobs market would continue to need the help of low interest rates “for some time” failed to have a positive impact in the City, despite boosting Wall Street.
New York’s Dow Jones Industrial Average was up around half a percentage point at the time of the close in London.
But Germany’s Dax and France’s Cac 40 were down as eurozone inflation fell to its lowest level in more than four years, raising the prospect of a fall in consumer prices – or deflation – which would risk choking off growth.
On currency markets, sterling held firm at 1.67 US dollars and 1.21 euros.
In London, some insurers saw a partial paring back of declines last week after the FCA confirmed plans for an inquiry into 30 million financial policies sold between the 1970s and 2000 amid fears of ‘rip-off’ charges and sub-standard service.
But analysts at Societe Generale said: ‘The market seems to have over-reacted on Friday to a leaked announcement from the UK’s FCA which initially suggested far-reaching reforms could be on the agenda in a summer review on legacy products.’
In a note on Aviva, they pointed out that the FCA had indicated that the review would not seek to remove exit charges on the “legacy” insurance products covered by the probe.
‘The FCA review is unlikely to be as far reaching and aggressive as initially feared,’ they added. ‘We think panic had set into the market following the pension reforms in the UK budget – which were unexpectedly far reaching.’
The improved sentiment helped Aviva climb more than 1 per cent, or 6.8p, to 477p, while Friends Life insurer Resolution – which had plunged 7 per cent in the previous session – was up 2.5p to 298.8p.
But elsewhere in the sector, Legal & General, which lost more than 3 per cent on Friday, edged another 0.3p lower to 204.7p, while Prudential dipped 12p to 1268.5p.
The biggest FTSE 100 risers were Babcock International up 55p to 1347p, Pearson up 24p to 1063p, Mondi up 23p to 1049p and ARM Holdings up 20.5p to 998p.
The biggest FTSE 100 fallers were SSE, down 42p to 1469p, Shire down 76p to 2945p, St James’s Place down 19p to 825p and Associated British Foods down 49p to 2781p.
14.55: The Footsie resumed its upwards path following a lunchtime wobble in mid afternoon trading as US stocks jumped higher at open excited by expectations for economic stimulus measures from China and Europe, and ahead of a speech today from Federal Reserve boss Janet Yellen.
With just over an hour and a half of trading to go on the final session of March and the first quarter, the FTSE 100 index was up 44.6 points at 6,632.9.
Over the quarter, however, the index is set to post a near 2 per cent decline, its first quarterly fall since June 2013.
US boost: Early strong gains on Wall Street helped the Footsie push higher in late afternoon trade
In early deals on Wall Street, the Dow Jones Industrial Average gained 124.0 points to 16,447.1 roughly set to end the quarter where it started, with investors awaiting any comments on the path for US interest rates when Janet Yellen speaks.in Chicago at a conference on community reinvestment.
Jasper Lawler, market analyst at CMC Markets said: ‘Fed Chair Janet Yellen will have her first major speech since her dramatic FOMC press conference in which she suggested a much closer time horizon for the first rise in US interest rates.
‘Most of her peers in the FOMC have since largely defended her comments describing them as not a mistake, with the Fed’s Bullard even saying they were in line with private surveys.
‘That being the case it seems likely she will reiterate her comments, though any signs of a back-track could definitely light markets up.’
Meanwhile, a key gauge of sentiment among business in the Chicago-area businesses in March hit its lowest level since August, led by falls in new orders and employment, maintaining hopes that US interest rates will remain on hold for a while.
The Chicago purchasing-managers index fell to 55.9 in March, down 3.9 points from February, well below the expected March reading of 60.
Miners were in demand again in London after the Chinese Premier said last week that China could act to support infrastructure investment as it acts to revive the flagging economy of the world’s biggest consumer of metals.
Meanwhile stimulus measures are expected after this Thursday’s European Central Bank council meeting after euro zone inflation in March hit its lowest level since November 2009, with a shock drop to 0.5 per cent which raised expectations the European Central Bank will take radical action to stop the threat of deflation in the currency bloc
12.50: London shares drifted back from an earlier two week high in early afternoon trade, tracking weakness in European markets as the spectre of deflation was raised by weaker than expected Eurozone inflation numbers.
At lunchtime, the FTSE 100 index was up 13.1 points at 6,628.7, having fallen back from a session peak of 6,658.4 hit on the final trading day of the month and the quarter.
European stock markets reversed into the red after euro zone inflation in March hit its lowest level since November 2009, a shock drop that raised expectations the European Central Bank will take radical action to stop the threat of deflation in the currency bloc when it next meets on Thursday.
Deflation spectre: Weaker than expected eurozone inflation numbers spooked European stock markets today and helped erode gains in London
Annual consumer price inflation in the 18 countries sharing the euro was 0.5 per cent in March, with the pace of price rises cooling from February’s 0.7 per cent reading, Eurostat said. Economists had predicted a 0.6 per cent reading.
In reaction, Germany’s DAX 30 index lost 0.1 per cent, and France’s CAC 30 index fell 0.2 per cent.
But in London, strength in heavyweight mining stocks on continuing hopes for economic stimulus measures from top metals consumer China helped keep the FTSE 100 index positive.
And shares in insurance firms bounced back after taking a hammering last week after the Financial Conduct Authority (FCA) confirmed plans for an inquiry into 30 million financial policies sold between the 1970s and 2000 amid fears of ‘rip-off’ charges and sub-standard service.
The sector had already been hard hit by far-reaching changes to pensions announced by George Osborne in the Budget earlier this month.
But analysts at Societe Generale said: ‘The market seems to have over-reacted on Friday to a leaked announcement from the UK’s FCA which initially suggested far-reaching reforms could be on the agenda in a summer review on legacy products.’
In a note on blue chip insurer Aviva, they pointed out that the FCA had indicated that the review would not seek to remove exit charges on the ‘legacy’ insurance products covered by the probe.
‘The FCA review is unlikely to be as far reaching and aggressive as initially feared,’ the analysts said.
‘We think panic had set into the market following the pension reforms in the UK budget last week – which were unexpectedly far reaching.’
The improved sentiment helped Aviva shares climb 2 per cent, or 8.1p, to 478.3p, while Friends Life insurer Resolution – which had plunged 7 per cent in the previous session – was up 4.8p to 301.2p.
Elsewhere in the sector, Legal & General climbed 2.1p to 207.1p while Prudential added 7p to 1,287.5p.
Meanwhile, on the second line, Phoenix Group, which plunged 12 percent on Friday and is the UK’s largest consolidator of closed life assurance funds, recovered 15.2p to 667.2p.
Away from the insurers, engineering group Babcock International was the top blue chip gainer, adding 4 per cent, or 52.0p at 1,344.0p after news the firm, alongside US partner Fluor, has been appointed preferred bidder for a 7billion, 14 year contract to manage the decommissioning of 12 UK nuclear sites.
The contract includes old power stations such as Hinkley, Sizewell and Dungeness, currently under the ownership of Magnox and Research Sites Restoration.
Babcock shares dropped last week after the firm launched a 1.1billion cash call to fund the 950m acquisition of helicopter company Avincis, amid concerns about the cost of the deal.
And shares in ARM Holdings gained 13.5p to 991.0p as analysts at Barclays raised their target price for the chip designer to 1,200p from 1,125p.
‘After 6-9 months of estimate pressure, particularly around royalty revenue, we anticipate a return to positive estimate momentum during the coming quarter,’ the Barclays’ analysts said in a note.
‘ARM’s long-term prospects are also improving, as its gains in networking and servers are becoming clearer and supportive of around 20 per cent revenue growth for the foreseeable future.’
But drug makers bucked the positive blue chip trend, led by GlaxoSmithkline which came under pressure after further disappointing drug trial results.
Glaxo shares fell 19.5p to 1598.5p after its darapladib treatment for heart disease failed the main goal of a phase 3 study, although the trial said there could still be benefits from the drug.
Further down the food chain, recently AIM-listed online fashion firm Boohoo.com got a boost from a brief trading update which said that in the year to February 28 it had met market expectations by achieving sales of more than 109million.
Boohoo.com shares were up 2.25p at 53.25p. The stock has been volatile since soaring 70 per cent above its 50p a share offer price when I floated on March 7, knocked by a warning over margins from peer ASOS and concerns over a tech float valuation bubble following a disappointment debut from Candy Crush games developer King Digital.
ASOS shares also benefited from the Boohoo.com update today, jumping 124.6p to 5,148.6p, with Barclays bullish on the stock today raising its target price to 8,000p from 5,000p.
The bank said in its ‘best case scenario’ ASOS shares could be worth 10,000p.
10.15: A rebound by hard-pressed insurance stocks and further gains by heavyweight miners helped the Footsie advance on the final session of the first quarter, supported by overnight gains in Asia amid hopes of a stimulus boost for the Chinese economy.
By midmorning, the FTSE 100 index was up 29.2 points to 6,644.8, just off a two week high. However, the index was still down 1.5 per cent for the year on the last day of the first quarter, and set for its first quarterly fall since June last year.
Concerns over the economic impact of ongoing tensions between Russia and the West over Ukraine, as well as weaker data from the United States as well as China, hit stocks in the early part of the year.
Miners lead: Ongoing hopes for economic stimulus measures from top metals consumer China drove miners higher once again
But markets today contemplated the welcome possibility that a feared military escalation in Ukraine, which has been weighing on sentiment, may not materialise after a weekend meeting between Russian and US ministers.
And while recent data has shown that China is still not performing as well as hoped, it has led investors to bank on speculation that the world’s second biggest economy will take action to stimulate growth.
The Chinese Premier said last week that China could act to support infrastructure investment. Miners benefitted the most from such speculation, given that China is the biggest global consumer of commodities, with Rio Tinto a top gainer, ahead 81.0p at 3,360.5p as Credit Suisse reiterated the stock on its ‘focus’ list.
‘Potential for shareholder returns at Rio Tinto is larger and could be sooner than any of its peer group including BHP,’ analysts at Credit Suisse said in a note.
A clutch of life and pensions firms – bouncing back from steep falls last week prompted by the launch of a probe into the sector by new City watchdog, the Financial Conduct Authority (FCA) – were also among the top risers.
The life insurance sector fell as much as 7.1 percent on Friday on concerns about the extent of the leaked investigation by the UK regulator into 30 million financial policies sold between the 1970s and 2000 amid fears of ‘rip-off’ charges and sub-standard service, before regaining some of its losses after the regulator said the investigation would be limited.
And traders returning to their desks after the weekend saw value in the sector today, driving Legal & General up by 2.5p to 207.5p, Aviva, ahead 4.6p to 474.8p, and Prudential up 14.5p to 1,295p.
Friends Life insurer Resolution was the top blue chip performer, up nearly 3 per cent, or 8p to 304.3p – after it plunged 7 per cent in the previous session.
Chris Beauchamp, market analyst at IG said: ‘Insurers are trying their hardest to pretend nothing happened on Friday, and we’re seeing 1 per cent+ gains across the sector.
‘Still, the psychological damage has been done, and while the buyers have come back this morning it looks like insurance – hitherto one of the safer bets in the market rally – is currently not a market for the faint-hearted.’
Beauchamp added: ‘We’re gearing up for a busy period in economic terms, with global manufacturing and services PMIs due later on this week and then non-farm payrolls on Friday. In case that wasn’t enough, there’s also an European Central Bank meeting.
‘While no change is expected, the careful double-act of Mario Draghi and Jens Weidmann may continue, especially after the consumer price index estimate came in this morning below expectations at 0.5 per cent.
‘Deflation fears stalk the eurozone, but the ECB doesn’t yet seem ready to tackle it,’ he concluded.
08.45: The Footsie bounded higher in early trade this morning as tensions surrounding Ukraine continue to ease and traders focused on hopes for the global economy ahead of some key data due late this week.
In opening deals, the FTSE 100 index jumped 68.5 points higher to 6,656.8, extending Friday’s 27.26 points advance on the final session of the month and the first quarter.
Miners again led the early rally in London, with Rio Tinto the top performer with a 67.5p gain to 3.347.0p as the sector continues to benefit from hopes that top metals consumer China could introduce stimulus measures to revive its flagging economy.
The sector was boosted on Friday by Chinese Premier Li Keqiang’s move to reassure jittery global investors that Beijing was ready to support the cooling economy, saying the government had necessary policies in place and would push ahead with infrastructure investment.
Global gains: Stock markets pushed higher on the final session of the first quarter of 2014
Traders were also focused ahead to a busy week which includes the latest Bank of England and ECB rate decisions, as well as the US March jobs report on Friday – a key pointer for new Federal Reserve boss Janet Yellen.
Joshua Mahony, research analyst at Alpari (UK) said: ‘Today marks the first of five very notable days which should help spell out exactly where we stand in relation to almost all major current market themes. This includes gaining a better perspective of growth slowdown fears within China, along with potential deflationary fears within the eurozone, and whether the US jobs market remains accommodative enough for further tapering by Janet Yellen & co.
‘The main event of note today comes in the form of the eurozone CPI flash estimate for March. The potential expansion of monetary policy became the hot topic last month following the increased conviction that the ECB had to take steps to curb the heavy disinflation see throughout late 2013 and 2014
‘Unlike back in November, Mario Draghi decided to play it safe, insisting that the current low levels of inflation are likely to be in place for some time yet. However, Draghi will be pushed to his limits should CPI continue to fall as is predicted today.
‘Later into the US session, Janet Yellen takes to the stand in Chicago for a conference on community reinvestment. However, it is the reinvestment in forward guidance which will be of most interest following her seemingly ill thought through decision suggestion at the February FOMC meeting that rates would rise six months after the end of the current asset purchase scheme.
‘Given the clear pathway which points towards an end of QE in December, this shacked markets given it’s clarity and straight-forward nature. Markets will be on the look out for any further clarity on this statement and whether Yellen stands by such a bold claim,’ Mahoney added.
Stocks to Watch include:
ROYAL MAIL GROUP – The National Audit Office will publish this week its findings on last autumn’s 3.3 billion sell-off of the deliveries group by the Government. Ministers, investment bankers and senior civil servants are bracing themselves for government auditors’ verdict on the flotation of Royal Mail, which appears to have lost taxpayers in excess of 1billion, the Times reported.
GLAXOSMITHKLINE – GlaxoSmithKline plans to make new investments in additional factories and drug research in Africa, its chief executive said on Sunday, as the pharmaceuticals group broadens its bet on promising emerging markets.
GLENCORE XSTRATA – The commodities giant has reached a preliminary deal for a $ 1billion contract for access to railway and port facilities with Mauritania as part of its plans to expand into iron ore mining, the Financial Times reported on Sunday. In other news, Glencore Xstrata and Tohoku Electric Power Co have settled the first Japanese annual Australian thermal-coal import contract at $ 81.80 per tonne, sources said on Monday.
BABCOCK INTERNATIONAL – The owner of the dockyard assembling the Royal Navy’s new aircraft carriers, has warned that Scottish independence would bring at least two years of ‘complete uncertainty’, the Sunday Times reported.
YOUGOV – The British-listed polling company reported a 9 per cent rise in revenue and a 31 per cent rise in adjusted operating profit, saying it was well placed to deliver further growth in the second half of the year.
POLYMETAL – Russian precious metals miner Polymetal said on Monday it had recorded a net loss of $ 198million last year compared to a $ 428million profit in 2012 on lower gold prices, non-cash foreign exchange losses and impairment charges.
IGAS – UK shale gas explorer IGas Energy said it had encountered parts of the promising Sabden and Bowland Shale formations in its drilling programme at Barton Moss, near Manchester in northern England.
GLOBAL TRANS – Russian freight company Globaltrans Investment said its 2013 net profit fell 19 per cent year-on-year, hit by depreciation costs related to its recent acquisitions.