FTSE 100 charges to fresh one-year high

London’s FTSE 100 charged to a fresh 2016 high and its highest level in over a year as investors continued to cheer the Bank of England’s larger-than-expected post-Brexit stimulus package.

The blue chip index soared to its highest level since July 21 last year after plunging to a three-week low before the central bank cut rates. This afternoon the FTSE 100 hit 6,802.41 thanks to the stimulus injection and a stronger-than-expected US jobs report. It last hit this level on July 20 2015 when it touched 6,813.41. Meanwhile, the domestically-focused FTSE 250 soared to its highest level since December 31.

How low can the pound go?

Yesterday, the pound skidded to an eight-day low against the dollar, falling by as much as 1.6pc to $1.3112, its steepest intraday slide since July 5.  Today, the pound has slipped a further 0.3pc in afternoon trade after a stronger-than-expected US jobs report.

Since plunging almost 13pc  to a 31-year low of $1.289 in the wake of the Brexit vote, it has gained 2pc. But there is little optimism, if any, about the direction the pound will take as we head towards the end of the year. StanChart and HSBC are the most bearish with forecasts of $1.18 and $1.20, respectively, by year end. Meanwhile, BNP Paribas and JP Morgan have the highest forecasts at $1.33 and $1.31, respectively.

The fall of UK bond yields is going to be the main driver for pound weakness. As markets believe that the Bank of England can do more in the future, which is keeping the downward momentum for the currency.

Bank of England stimulus sledgehammer

Yesterday, the Bank of England unveiled a four-pronged stimulus package designed to boost the economy and prevent a recession following the vote to leave the European Union. In what economists described as a “forceful response” to an expected UK slowdown, policymakers voted unanimously to cut rates to 0.25pc, from a previous record low of 0.5pc.

The central bank also announced  £70bn of asset purchases,  comprising £60bn of government bonds and £10bn of corporate bonds, and a low-rate funding scheme for banks.

Bumper US jobs reports raises probability of Fed rate hike

US employment increased more than expected in July and wages picked up, which should bolster expectations of an acceleration in economic growth and raise the probability of an interest rate hike from the Federal Reserve this year.

Non-farm payrolls increased by 255,000 jobs last month as hiring rose broadly after an upwardly revised 292,000 surge in June, the Labor Department said on Friday.

Market Report: Cairn Energy jumps on UBS rating upgrade

A bullish broker note catapulted Cairn Energy towards the top of the mid-cap index.

UBS hiked its rating to “buy” from “neutral” as it believes many “several potential” sources of option value are emerging following its recent underperformance.

The FTSE 250 company’s North Sea projects will not ramp-up until the second half of next year and so weak spot prices will impact sentiment, but not value, the investment bank said. As such, Daniel Ekstein, of UBS, highlighted: “Investors get paid to wait for the oil price recovery”.

Meanwhile, drilling in Senegal, where wells are cheap, will resume drilling this year. The bank also thinks the shape of Cairn is “more attractive” thanks to its discoveries in Senegal, which have opened “an exciting new basin”.

However, UBS notes the investment case for Cairn is clouded by the $1.6bn retrospective tax claim in India, which is currently in arbitration. Eskein added: “Visibility on a resolution is low”.

Nevertheless, the mid-cap stock enjoyed its best day since June 29, jumping 11.3p, or 6.2pc, to 193p.

On the broader market, the post-Brexit stimulus package injected into the economy by the Bank of England and a stronger-than-expected US jobs report lifted the FTSE 100 to highest close since July 16 last year. The blue chip index jumped 53.3 points, or 0.79pc, to 6,793.47. Meanwhile, the domestically-focused FTSE 250 index smashed through 17,400 to its highest level since December 31, up 1.3pc on the day.

However, the euphoric reaction to the US jobs data wasn’t widespread. Gold tumbled to a one-week low, falling as much as 1.9pc to $1,336.95 an-ounce, as the bumper jobs report, which showed nonfarm payrolls increased by 255,000 last month, raised the probability of a Fed rate hike this year. In its wake, shares in Randgold Resources and Fresnillo dropped 3pc and 3.6pc, respectively.

gold

Elsewhere, Royal Bank of Scotland became the biggest laggard, down 13.8p to 178.2p, after it posted a £2.05bn loss in the first half of the year, compared with a £179m a year earlier.

Engineer Rolls Royce shrugged off a rating downgrade from UBS. Shares nudged up 1.5p to 759p despite the investment bank lowering its rating to “neutral” citing its recent outperformance compared to its aerospace peers following the Brexit vote.

rolls royce

Meanwhile, negative read-across caused weighed on Pearson. The FTSE 100 stock took a knock, down 11p to 882.5p, after one of its US rival’s lowered its full-year profit guidance.

On the mid-cap index, Bellway rallied  108p, or 5.3pc, to £21.37 on the back of a reassuring trading update. The housebuilder it expects revenue to increase by around 27pc to £2.2bn in the year ended July 31. Its peers Barratt Developments added 11.3p to 436.7p and Persimmon edged up 51p to £17.23.

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