U.K.'s FTSE 100 Index Advances After U.S. Home-Sales Data Tops Forecasts
July 27 (Bloomberg) -- Jonathan Stubbs, head of European and U.K. equity strategy at Citigroup Inc., talks with Bloomberg's Haslinda Amin about the results of the stress tests for European banks and his investment strategy. Stubbs, speaking in Hong Kong, also discusses the outlook for the global economy. (Source: Bloomberg)
U.K. stocks climbed to a 10-week high after a government report showed sales of new homes in the U.S. rose more than forecast in June, spurring optimism that the global economic recovery is intact.
Barclays Plc advanced after the majority of Europe’s banks passed stress tests carried out by the Committee of European Banking Supervisors. Pearson Plc surged 5.8 percent after the owner of the Financial Times newspaper raised its forecast for 2010 and as first-half net income more than tripled. Tullow Oil Plc rose 5.1 percent following a “major” discovery off Ghana.
The benchmark FTSE 100 Index climbed 38.5, or 0.7 percent, to 5,351.12 at the 4:30 p.m. close of trading in London, the highest level since May 13. The FTSE All-Share Index rose 0.7 percent and Ireland’s ISEQ Index climbed 0.9 percent.
The FTSE 100 has clawed back 11 percent from this year’s lowest level reached July 1. The measure rallied 3 percent last week after U.K. retail sales rose more than economists forecast and as Europe’s manufacturing and services industries unexpectedly grew.
“Economic data itself has continued to improve,” Gary Baker, the head of BofA Merrill Lynch’s pan-European equity strategy said at a press briefing in London today. “The real economy has been relatively good. Valuations are very supportive and continue to look favorable” for equities, he said.
U.S. Economy
Purchases of new homes increased 24 percent from May to an annual pace of 330,000, figures from the U.S. Commerce Department showed today in Washington. The rate was the second- lowest in data going back to 1963 after May’s downwardly revised 267,000 pace.
European governments used their first co-ordinated stress tests to reassure investors about the health of banks after the debt crisis pummeled the bonds of Greece, Spain, and Portugal. BofA Merrill Lynch Global Research analysts said they disagree that the assumptions behind the stress tests were too weak.
“We find the losses produced by the CEBS credible,” BofA Merrill Lynch analyst Derek De Vries wrote in a report today. “While some commentators have been critical that the stress tests didn’t include the impact of sovereign restructuring in the banking book, we applaud CEBS’ decision to force banks to disclose all of their sovereign exposure.”
The FTSE 100 remains 8.1 percent below this year’s high on April 15 amid concern that growth in the U.S. and China is slowing and that austerity measures from European governments will hurt the region’s economic recovery.
Banks Advance
Barclays advanced 4.5 percent to 315.65 pence. Lloyds Banking Group Plc climbed 3.9 percent to 66 pence.
Pearson surged 5.8 percent to 1,029 pence. The U.K.-based education and publishing company said first-half net income rose to 92 million pounds ($142.4 million) from 28 million pounds a year earlier.
Tullow Oil gained 5.1 percent to 1,239 pence after the U.K. explorer with the most licenses in Africa said its Owo-1 exploration well discovered a major oil field off Ghana.
Separately, BofA Merrill Lynch Global Research increased its price estimate to 1,785 pence from 1,725 pence and kept a “buy” rating.
GlaxoSmithKline Plc, the U.K.’s largest drugmaker, lost 1.3 percent to 1,172 pence. The company declined to comment on a report in the Wall Street Journal that it recently made a “very casual” overture to Genzyme Corp., asking the biotechnology company to keep Glaxo in mind if Genzyme considered selling itself.
Connaught Slides
Connaught Plc tumbled 69 percent to 31.46 pence after saying net debt will be “significantly in excess” of the 120 million pounds it forecast for Aug. 31, its year end, and said it needs “urgent” funding to meet the needs of the business.
The facilities management company has started negotiations with its lenders, it said.
BP Plc climbed 4.6 percent to 416.95 pence. The oil company’s Chief Executive Officer, Tony Hayward, will discuss his departure from the company with its board after the leak at its Macondo well in the Gulf of Mexico became the largest oil spill in U.S. history, two people familiar with the matter said. The company said it had yet to make a final decision on any management changes.
Pace Plc rallied 14 percent to 214 pence. The U.K. supplier of television set-top boxes to British Sky Broadcasting Group Plc said first-half pretax profit rose 46 percent to 45.4 million pounds and said it plans to acquire 2Wire Inc. for $475 million.
To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net.
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