FTSE rally continues despite earnings woes for retailers

THE FTSE 100 closed higher for a sixth consecutive session yesterday, its best run since August 2010, as investors ditched retailers over earnings worries in favour of growth sectors such as industrials and mining.

Dixons issued a profit warning and gloomy outlook as a survey from the CBI showed the underlying trend for retail sales remained weak.

Dixons, Britain’s top electricals retailer, fell 18.3 per cent, while the country’s biggest pizza delivery firm, Domino’s Pizza, fell 4.2 per cent as it reported a slowdown in sales growth.

Next shed 2.6 per cent and Marks & Spencer dropped three per cent as MF Global initiated its coverage on the latter with a “sell” rating, arguing it has a “history of boom and bust”, while Oriel cut its earnings forecasts.

Traders said banks weighed on gains ahead of Irish banking stress-test results today.

Barclays potentially dealt UK Plc a blow, after it was reported to be considering moving its headquarters to the United States due to the UK threat of higher capital requirements.

Despite the retail gloom, London’s blue-chip index closed up 16.13 points, or 0.3 per cent, at 5,948.30.

The index has risen six per cent since its year-low of 5,591.59 on 15 March, rebounding from sharp falls after Japan’s earthquake, political trouble in the Arab world and European debt worries.

Miners, which now trade above their 20- and 50-day moving average, led the gains as investors refocused on stocks that provide hopes for earnings growth.

Vedanta Resources added 3.4 per cent, with traders citing a bullish note from Morgan Stanley - in which the broker says the miner’s industry-leading growth is not recognised by the market - as the catalyst.

Rolls Royce gained 1.7 per cent after HSBC upgraded the aerospace and defence firm to “overweight”, citing growth prospects and shrugging off concerns over the impact of high oil prices.

Rolls Royce shares are flat on the year but trade just above their 50-day moving average of around 619p, on a forward price-earnings ratio of 13.8 times compared with a sector average of 10.4, Thomson Reuters data showed.

“The updates companies have been giving investors since the oil price picked up have indicated that price can be passed on and that demand is holding up,” Colin McLean, managing director at the £650m Scottish Value Management in Edinburgh, said.

He said industrials, tech stocks and chemicals producers look well placed.

Industrials such as IMI and Weir Group, up 1.9 and 1.2 per cent respectively, benefitted from an upbeat note on the sector from RBC Capital Markets.

IMI was RBC’s top pick but it said Invensys and Smiths Group, down 2.3 and 1.1 per cent respectively, may underperform UK peers.

Smiths, Anglo American, British Land, British Sky Broadcasting, Eurasian Natural Resources and Prudential all traded without their dividend attractions.

Traders said bid talk boosted Centrica, up 2.5 per cent on strong volume, with traders citing talk that Spanish peer Iberdrola was set to make a bid.

Traders also cited talk of bid interest in fashion group Burberry, which added two per cent.

Technical analysts said the index looked set to retest the 6,000 level.