London Report: Yellen’s dovish tone helps FTSE 100 to rebound

TOP shares rebounded yesterday, led higher by energy stocks after the Federal Reserve’s Janet Yellen eased worries the US central bank may start scaling back its stimulus programme this year.

Yellen, in remarks released ahead of the Senate hearing yesterday to confirm her as new Fed chair, said the central bank had “more work to do” to help the economy. That suggests she is in no hurry to start trimming the bond-buying programme that has fuelled an equity rally this year.

Having trimmed gains throughout the session, the index received another leg up as her confirmation hearing began. “There’s some hope that Yellen will prove to be the second coming of (current Fed chief) Bernanke, and that means a continuation of the easy money, long equity trade that has worked so well in recent months,” IG sales trader Will Hedden said.

With appetite for risk boosted by Yellen’s comments, cyclical stocks such as oil and gas companies rallied, adding 8.5 points to the index’s gains.

The FTSE 100 closed up 36.13 points, or 0.5 per cent, at 6,666.13. It had fallen sharply yesterday after the Bank of England gave a stronger forecast for the UK economy, bringing forward expectations of when interest rates will rise and sending sterling higher, hitting exporters.

British luxury brand Burberry was up 1.8 per cent after first-half sales exceeded £1bn for the first time.

“The results are another welcome indication of the healthy position (CEO) Angela Ahrendts leaves the firm in when she passes the reins onto Christopher Bailey next year,” Toby Morris, senior sales trader at CMC Markets, said in a note.

However, earnings remain a concern for investors in Europe. Equities have re-rated above long-term averages, even though profits and revenues continue to disappoint.

Fifty per cent of firms in Europe have missed analysts’ earnings forecasts in the third quarter so far, while 63 per cent have missed sales estimates, heaping more pressure on margins.

British Gas owner Centrica, one of Britain’s big six utilities, under fire from politicians for hiking bills, fell 5.1 per cent, topping the list of FTSE fallers. It dragged the utilities sector lower after it warned that earnings would not grow this year.

Drinks can maker Rexam fell too, down 2.1 per cent after it warned on the outlook for trading in Europe, where it generates more than 23 per cent of its revenues.