London close: Homebuilders lead bounce after Carney's remarks

Equities bounced back on Tuesday as a slowdown in Chinese economic growth fuelled stimulus hopes in Asia's largest economy and following 'dovish' remarks from the Governor of the Bank of England.

The Footsie finished 96.88 points or 1.68% higher at 5,876.80 points, while the second-tier index clocked in with a smaller gain of 0.98% to 16,114.56.

BoE chief Carney said in a speech in London, on Tuesday that the UK economy was not strong enough to contemplate raising interest rates now.

His remarks drove the pound lower by 0.44% to 1.4180 - below its May 2010 lows - and lit a fire under the shares of homebuilders.

“The year has turned and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates,” he said. “The world is weaker and UK growth has slowed.”

After the close of trading, economists at RBS would push back their forecast for the date of the first increase in Bank Rate from August 2016 to February 2017.

Air fares push core inflation higher, but economists unmoved

The UK consumer price index increased 0.2% year-on-year in December, as expected by analysts, compared to 0.1% in November, the Office for National Statistics revealed.

A jump in airfares last month was offset by another slump in oil prices.

Core inflation, which excludes volatile items such as fuel and food, rose 1.4% year-on-year in December, following a 1.2% increase in November. Analysts had pencilled in a 1.2% increase.

“Although CPI core inflation has been trending slightly up since June 2015, we believe the Bank of England would like solid proof that core inflation is increasing,” said Danske Bank.

“Our main scenario is that the BoE will increase the Bank Rate for the first time in Q2 16, probably in May.”

Economists at Barclays would lower their forecasts for CPI in 2016 and 2017 to 0.9% and 1.7% from 1.1% and 1.8%, respectively, on Tuesday afternoon.

World's financial watch-dog trims growth forecasts

The International Monetary Fund cut its global growth forecasts for the next two years (but left intact those for the UK), as the slowdown in China, weaker commodity prices and strain in some large emerging market economies weigh on prospects. In its latest World Economic Outlook, the IMF said it now expects the global economy to grow 3.4% and 3.6% this year and the next, with both estimates down 0.2 percentage points from the October forecast.

Overnight, data released in China revealed the country's gross domestic product grew by 6.8% in the fourth quarter compared to the same period a year ago, weakening from the previous quarter’s 6.9% pace. Analysts had expected GDP to remain unchanged from the third quarter and the government is targeting 7% growth.

“On this occasion, I think the markets may have been relieved that the numbers were not as bad as they could have been, given the challenges facing the economy during this period of transition and slowing global growth,” said Craig Erlam, senior market analyst at Oanda.

“There is also the fact that there is still plenty of scope for fiscal and monetary stimulus to plug any gaps that appear in the coming years during this period of transition, which occurs at a time when the country is also trying to liberalise its markets, something that has faced many challenges already and will likely continue to do so this year.”

Separately, data showed Chinese retail sales rose 11.1% year-on-year in December, missing expectations for an 11.3% increase.

Industrial production climbed 5.9% in December from a year ago, below estimates for a 6% gain.

In the Eurozone, inflation rose 0.2% in December, up from 0.1% in November but well below the European Central Bank’s target of just below 2%.

Among commodities, oil prices recovered from the previous session with Brent crude up 2.2% to $29.21 per barrel and West Texas Intermediate up 0.1% to $29.00 per barrel at 1630 GMT.

The market seemed to shrug off a warning from the International Energy Agency that crude oil is expected to remain oversupplied until at least late this year. The IEA said in its month report that oil prices will fall further as supply exceeds demand, while Iran’s return to the market is unlikely to be balanced out by production cuts from other countries.

In company news, miners were the biggest risers as investor sentiment in China improved on hopes of further stimulus and as the country’s President Xi Jinping left on Tuesday for the Middle East to try to forge deals for laying infrastructure in the region. Anglo American, Glencore and BHP Billiton rallied.

AstraZeneca gained after Barclays upgraded the stock to ‘equalweight’ from ‘underweight’ and lifted the target price to 5,000p from 4,400p following a review of the pipeline and the recent Acerta Pharma and ZS Pharma deals.

Rio Tinto jumped as it increased iron ore production in the fourth quarter of 2015 by 11% to 87m tonnes.

BAE Systems slumped after Credit Suisse downgraded the stock to ’underperform’ from ‘neutral’, saying it was not the bank’s preferred defence name, particularly after its recent strong run.

Unilever was a high riser as it said pre-tax full year profits fell 6% to €7.2bn, despite a 10% rise in turnover to €53.27bn.

Ocado jumped as rumours of a bid from Amazon resurfaced was in negative territory, bouncing back down following Monday’s confirmation it agreed to sell its Homebase division to Australia's Wesfarmers.

Market Movers

FTSE 100 (UKX) 5,876.80 1.68%
FTSE 250 (MCX) 16,114.56 0.98%
techMARK (TASX) 3,088.37 1.13%

FTSE 100 - Risers

TUI AG Reg Shs (DI) (TUI) 1,234.00p 5.55%
Glencore (GLEN) 78.98p 5.10%
Berkeley Group Holdings (The) (BKG) 3,572.00p 4.14%
CRH (CRH) 1,823.00p 3.99%
Persimmon (PSN) 1,951.00p 3.87%
Old Mutual (OML) 157.60p 3.82%
Prudential (PRU) 1,392.50p 3.42%
Admiral Group (ADM) 1,695.00p 3.29%
Unilever (ULVR) 2,934.00p 3.20%
BHP Billiton (BLT) 627.10p 3.01%

FTSE 100 - Fallers

Randgold Resources Ltd. (RRS) 4,268.00p -2.38%
Tesco (TSCO) 159.10p -1.52%
Fresnillo (FRES) 661.50p -1.48%
Pearson (PSON) 684.50p -1.08%
Shire Plc (SHP) 4,223.00p -0.64%
BAE Systems (BA.) 506.00p -0.59%
Imperial Tobacco Group (IMT) 3,559.50p -0.24%
Sainsbury (J) (SBRY) 239.00p -0.21%
Worldpay Group (WI) (WPG) 302.20p 0.10%
Hammerson (HMSO) 569.00p 0.18%

FTSE 250 - Risers

Ocado Group (OCDO) 259.10p 6.85%
Evraz (EVR) 62.10p 5.81%
Vedanta Resources (VED) 213.90p 4.18%
PZ Cussons (PZC) 279.10p 3.85%
Just Eat (JE.) 438.20p 3.84%
Hays (HAS) 117.60p 3.70%
Man Group (EMG) 155.70p 3.39%
Moneysupermarket.com Group (MONY) 329.60p 3.12%
Intermediate Capital Group (ICP) 588.00p 2.88%
Thomas Cook Group (TCG) 108.20p 2.84%

FTSE 250 - Fallers

Euromoney Institutional Investor (ERM) 940.50p -6.13%
Telecom Plus (TEP) 879.00p -3.74%
CLS Holdings (CLI) 1,633.00p -3.69%
Allied Minds (ALM) 285.10p -3.36%
Just Retirement Group (JRG) 153.50p -2.85%
Poundland Group (PLND) 148.40p -2.82%
Amec Foster Wheeler (AMFW) 381.50p -2.68%
Home Retail Group (HOME) 148.80p -2.68%
Jardine Lloyd Thompson Group (JLT) 854.00p -2.40%
Marshalls (MSLH) 302.50p -2.36%