FTSE retakes 6500 as sentiment improves

The caution felt in equity markets in the early part of the week has dissipated somewhat this morning, with European investors manifesting a degree of confidence that the bullish run is not yet over.

Having hit a two-year low yesterday on rumours that management was reducing long-term earnings forecasts, Petrofac has been besieged by bargain-hunters this morning, adding 3.26% in early trade. The share moves in the oil company, coupled with a broker upgrade for the London Stock Exchange, have helped the FTSE 100 retake the 6500 level today.

In the UK, the notion of a housing bubble continues to gather steam owing to a higher-than-expected house price index from Halifax. Prices rose 1.1% in the month versus the 0.8% anticipated.

Fashion label Burberry has seen its share price under duress lately, mainly due to the fact that its trademark tartan pattern has lost its validity in China. Given that the nouveau riche in Asia have been the key driver of the share price since the recession in western economies took hold, there is room for further downside for the iconic brand as a result of this turn of fortune. The stock has shed 4% in the past week.

While the chancellor of the exchequer was reasonably upbeat about the fortunes of the British economy during the autumn statement yesterday, consumer inflation expectations remain above the 3% level despite the marginal pull-back in CPI witnessed recently. This does not bode well for consumer confidence when, despite the best efforts of Mark Carney to maintain a low-interest environment for the foreseeable future, any fears that the base rate will be hiked sooner than guided may adversely impact consumer spending.

Despite what many are saying, the release of the non-farm payrolls number this afternoon may not be the catalyst for a scaling-back of asset purchases by the FOMC. The correction in US indices, which has seen the benchmarks decline below some key metrics, is mainly due to fears that tapering could take place this month. All this proves is that much of the upside in equity indices has been based upon a highly liquid market rather than key underlying fundamentals.

Certainly, some of the US macro data has been reasonably upbeat, and in particular the ADP data earlier this week. Expectations today are that 180,000 jobs will be added. Anything higher than the consensus may have the ironic effect of sending markets lower.

The Dow is currently set to open up 65 points at 15,885.

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