BRITAIN’S top share index bounced off 13-month lows yesterday, along with indexes across the Atlantic, as investors hoped an announcement by the US Federal Reserve would calm nerves over global debt and growth problems.
“There has been some chatter that the Fed will bring forward the FOMC meeting to announce QE3 [quantitative easing] to the market. This is a widely held view at the moment and can be one of the reasons for an up day,” Atif Latif, director of trading at Guardian Stockbrokers.
Recent manufacturing and employment data in the US has pointed to a slowdown in the world’s biggest economy, leading some to fear the country could slip back into recession
“If the US was to fall back into recession then other countries will also face the same fate if we compare the ratios of debt to GDP,” Latif said.
Another bout of QE would be seen as supportive to growth.
“While it may well be that the [economic] numbers improve over the next few months, the market is not waiting to find out -- it is now beginning to price in a double-dip recession in the world’s largest economy,” said David Miller, partner at Cheviot Asset Management.
“QE3 may therefore be closer than the market has hitherto believed.”
The UK benchmark index rose 95.97 points, or 1.9 per cent, to 5,164.92, snapping a losing streak that has stretched back over the last seven trading sessions.
In that period the market had retreated nearly 14 per cent and fell more than 20 per cent – an amount experts technically call a bear market – since its July closing high.
Badly beaten down stocks such as miners, oil and gas companies and banks rallied as investors bought in on what they hoped was the bottom of the market.
However, the violent swings on the stock market – the index traded in a near 340 point range yesterday – suggested investors remain wary against an uncertain economic backdrop.
“For a sustainable rally, the markets need to see a credible solution to the euro debt crisis, and until that happens, markets could fall further,” said Ted Scott, director of global strategy at F&C.
Scott added, however, that unlike the 2008 credit crisis, “the valuation floor is not far below current levels because so much bad news is already discounted”.
Among the top gainers were chip designer ARM Holdings and engineer Weir Group, which rose 7.7 and 7.8 per cent, having been battered in recent days.
InterContinental Hotels jumped 8.2 per cent after the world’s number one hotelier issued a confident outlook statement and reported improved first-half trading.
Both Panmure Gordon and Numis Securities repeated “buy” ratings on the stock, while CFD specialists Prime Markets said InterContinental was an increasingly compelling leisure sector play for recovery.
Serco gained 4.9 per cent as Liberum Capital upgraded its rating for the outsourcing group to “buy” from “sell”, based on valuation and the resilience of government spending.