Moderate gains were seen across the UK market on Wednesday, compounding suspicions that last week’s sell-off was overdone, as mining sector strength on the back of a new record gold offset banking and oil sector falls.
The FTSE 100 index took on 15.2 points to close 0.3% higher at 5,327.4, while the FTSE 250 index added 33.9 points or 0.4% to 9,169.0. European indices put in similar performances but Wall Street was little changed at the time of markets closing on this side of the Atlantic.
Positive sentiment in the UK was assisted by a stronger-than-expected performance from the nation’s construction industry in November. The Chartered Institute of Purchasing and Supply and Markit Economics index of construction showed the industry’s contraction slowed last month for the first time since August, coming in at 47 compared to 46.2 the month before. A reading of 50 represents the line between industry expansion and contraction.
The report, in conjunction with fading fears over Dubai World’s debt, helped fuel the value of the pound, which rose to its highest level against the dollar in almost a week. The dollar, meanwhile, extended its recent fall as investors continued to pull their money from the ‘safe haven’ investment.
On the equity front, oils and banks did their best to hold the UK benchmark index under but gold’s rally to more than $1,200 per ounce created a firm floor under metal extractors. As such, Lonmin, Rio Tinto, Vedanta Resources and Kazakhmys each took on between 2.4% and 3.2%.
But the strength of defensive stocks provided an insight into investors’ psyche, indicating that sentiment hangs in the balance and the market remains unconvinced that equity markets will hold. Tobacco giants Imperial and British American added 1.2% and 0.3%, respectively, utility providers United Utilities and Scottish & Southern Energy rose 1.4% and 0.2% and index heavyweight Vodafone climbed 2.2%.
On the flipside, oil producer Cairn Energy tracked the crude price lower and took an additional hit from Citigroup slashing its target price, sliding 2.6% to the top of the blue-chip casualty list. BG Group, Royal Dutch Shell and BP followed suit, easing 0.2%-0.8% each.
Banks and other financials were down in the dumps. Royal Bank of Scotland’s publicised spat with the government over its bonus payments policy took its toll on the stock after management said in a report to shareholders that government control over 2009 bonuses could deter top talent from joining the bank. RBS shares fell back 2.1%, while peers remained under pressure from Dubai concerns. Lloyds Banking Group, Standard Chartered and HSBC each dipped 0.5%-1.9% lower. All four UK-listed banks are reported to have joined a committee of creditors that will meet with Dubai World next week to discuss management of the sovereign investment group’s its liabilities. Read this article for our take on Dubai’s impact on European banks.
A handful of stocks trading exclusive of dividend rights also weighed, with London Stock Exchange, which is 21%-owned by Borse Dubai, National Grid, Severn Trent and AB Foods all shedding 1.5%-2.6%.
