London close: Best day for FTSE 100 since April after Yellen speech

London's top flight index bolted higher, registering its biggest one-day gain since April, after the head of the US central bank appeared to reinforce expectations for a more gradual pace of rate hikes.

The FTSE 100 tacked on 1.19% to close at 7,416.93 after Federal Reserve chief Janet Yellen said that the "federal funds rate will not have to rise all that much further to get to a neutral policy stance."

Over on the FTSE 250 on the other hand, which is more domestically focused than its larger sibling, gains were more muted, with the index clocking in with an advance of 0.25% to 19,267.86.

Traders and analysts were left somewhat divided over their interpretation of Yellen's testimony to her country's Congress, but the market reaction was clear.

Following the release of her prepared remarks, the yield on the benchmark 10-year US Treasury note dived five basis points to 2.31%.

Commenting on the Fed chief's remarks, Chris Beauchamp and Joshua Mahony at IG said: "To some extent Yellen provided a relatively hawkish statement given her declaration that rate hikes should continue despite falling inflation.

"However, in speculating that it would not take many more hikes for the Fed funds rate to be neutral, Yellen has essentially signalled that there will be a finite amount of rate rises around the corner. Markets are now looking for a December rate hike at the earliest, and crucially just one rate rise in 2018."

Ian Shepherdson, chief economist at Pantheon Macroeconomics had a different take on matters.

"We see little new in the core of Chair Yellen's Testimony. The Fed's base case is that the labor market is improving enough that the current degree of accommodation needs to be reduced gradually, though the end-point of the tightening is uncertain because the neutral funds rate likely will rise over time," he said.

Back in the UK, earlier in the day Bank of England deputy governor Ben Broadbent had sounded a cautious note.

In an interview with the Press & Journal newspaper, Broadbent argued now was not yet the time for an interest rate hike.

"In my opinion, it is a bit tricky at the moment to make a decision. I am not ready to do it yet."

Broadbent was being seen as the proxy for whether the consensus has shifted and his comments suggest "there may still be some way to go", said market analyst Craig Erlam at Oanda, "although future MPC votes are likely to be very close".

Yet the weakness in the pound following his remarks was short-lived, with the currency receiving a boost as the UK unemployment rate edged down to a 42-year low, falling to 4.5% for the three months to May, down from the 4.6% the month before, where it had been expected to remain.

However, data from the Office for National Statistics also showed wage growth remained soft, which prevented a bigger reaction from Sterling.

But the weaker US dollar against most other major currencies was continuing to feed a rally in commodity prices, putting miners such as Antofagasta, Glencore and BHP Billiton at the top of the FTSE 100, while a resurgence in oil prices meant that BP and Shell were not far behind.

Mediclinic topped the leaderboard on the back of rumours that it was plotting a bid for the shares in Spire Healthcare it did not already own.

Burberry also did handily after releasing an encouraging first quarter update, with new chief executive Marco Gobbetti promising to create "new energy to drive growth". Retail was up 13% compared to the same period last year or up 3% on an underlying basis if currencies rates are ignored. Like-for-like retail sales rose 4%, accelerating from 1% in the last full year.

Barratt Developments was also on the up, continuing the recent run of strong updates from housebuilders with full-year profits ahead of expectations.

Discount retailer B&M led the mid-caps throughout the bettr part of the day as it began its new financial year at an impressive pace, buoyed by strong sales of garden furniture in the recent hot spell. Total sales rose 18.3% to £656.3m over the three months to 30 June.

London-based property business Daejan's preliminary results showed its investment property figure had risen to £2.26bn from £2.01bn at the same time last year, as profit before tax rose to £198.4m from £173.2m despite income falling to £64.8m from £68.2m.

Micro Focus shares were down more than 8% and are now 25% off their May all-time high as the software group posted full year adjusted numbers which had been well flagged earlier. Management confirmed the HPE Software reverse takeover is on track to complete on 1 September, while management also said they remained keen to continue to do more deals and see long term shareholder returns of 15-20%.

"I think the pro forma growth underwhelmed the market," said Jamie Constable at broker N+1Singer, who said the talk of more M&A to come when they haven’t even completed the HPE deal yet was likely to have put the willies up investors too.

Kingfisher was down despite a double upgrade from Morgan Stanley who put out a slightly cryptic note saying it still expects management's One Kingfisher plan to fail. "However, when this becomes clear, probably in 2018, we expect investors to start valuing the company on its assets, not its earnings," analysts said, but upgrading to 'overweight' as the shares "look cheap on that basis".

Market Movers

FTSE 100 (UKX) 7,416.93 1.19%
FTSE 250 (MCX) 19,267.86 0.27%
techMARK (TASX) 3,493.93 0.58%

FTSE 100 - Risers

Mediclinic International (MDC) 742.50p 4.72%
Burberry Group (BRBY) 1,630.00p 3.16%
Antofagasta (ANTO) 854.00p 3.14%
Shire Plc (SHP) 4,270.00p 2.67%
Glencore (GLEN) 315.00p 2.44%
InterContinental Hotels Group (IHG) 4,316.00p 2.40%
CRH (CRH) 2,820.00p 2.36%
Babcock International Group (BAB) 869.50p 2.35%
Coca-Cola HBC AG (CDI) (CCH) 2,251.00p 2.27%
Compass Group (CPG) 1,594.00p 2.25%

FTSE 100 - Fallers

Micro Focus International (MCRO) 2,020.00p -8.10%
Pearson (PSON) 624.00p -4.73%
Kingfisher (KGF) 293.60p -2.78%
Marks & Spencer Group (MKS) 316.20p -2.14%
Royal Bank of Scotland Group (RBS) 251.50p -1.95%
Royal Mail (RMG) 405.00p -1.46%
BAE Systems (BA.) 619.00p -1.20%
easyJet (EZJ) 1,400.00p -1.13%
Taylor Wimpey (TW.) 177.30p -0.78%
Legal & General Group (LGEN) 257.80p -0.69%

FTSE 250 - Risers

Evraz (EVR) 233.60p 5.13%
Kaz Minerals (KAZ) 588.00p 4.44%
Daejan Holdings (DJAN) 6,400.00p 4.29%
Hochschild Mining (HOC) 267.70p 4.04%
Spire Healthcare Group (SPI) 343.00p 3.94%
Rotork (ROR) 241.80p 3.73%
Nex Group (NXG) 647.50p 2.86%
Riverstone Energy Limited (RSE) 1,237.00p 2.74%
Domino's Pizza Group (DOM) 274.50p 2.58%
IMI (IMI) 1,246.00p 2.55%

FTSE 250 - Fallers

Carillion (CLLN) 57.20p -26.57%
Amec Foster Wheeler (AMFW) 430.00p -5.49%
JD Sports Fashion (JD.) 327.50p -4.04%
Wood Group (John) (WG.) 601.00p -3.53%
Dixons Carphone (DC.) 261.40p -3.11%
FirstGroup (FGP) 115.60p -2.86%
Stagecoach Group (SGC) 180.00p -2.76%
Pets at Home Group (PETS) 156.40p -2.74%
Marston's (MARS) 115.80p -2.69%
Go-Ahead Group (GOG) 1,727.00p -2.54%