London close: Stocks close higher after Yellen's Jackson Hole speech

London stocks closed higher on Friday as traders weighed remarks from Federal Reserve chair Janet Yellen at the Jackson Hole conference.

Yellen said the case for an increase in the federal funds rate has “strengthened” in recent months in light of a robust labour market and an upbeat outlook for economic growth and inflation.

However, she stressed that policy decisions depend on how incoming economic data affects the Fed’s outlook.

Her remarks were seen to suggest that while an interest rate hike is a possibility at the 20-21 September policy meeting, or at least in coming months, it all depends on the strength of economic data.

“Even if September is now a more likely possibility for a move, the presence of non-farm payrolls on the calendar for next week means that the jury is still out for now,” said IG chief market analyst Chris Beauchamp.

Barclays Research maintained its call for a September rate hike, subject to another solid non-farm payrolls report next week. “In our view, her statements were as strongly worded as possible and we read her statements as consistent with a rate hike in September.”

The dollar initially dropped against most major currencies following Yellen’s remarks, but picked up towards the close.

Equally, oil prices jumped when the dollar weakened, with Brent rising above the $50 a barrel mark, but started to erase gains once the dollar regained ground. A weak dollar makes crude imports cheaper for holders of other currencies, and vice versa.

At 1650 BST, Brent crude climbed 0.64% to $49.99 per barrel and West Texas Intermediate rose 1.06% to $47.84 per barrel.

The two-year US Treasury yield dropped by two basis points immediately after Yellen's comments but later turned higher, rising two basis points to 0.8131% at 1650 BST.

Earlier, the second estimate of US economic growth in the second quarter was revised lower.

Gross domestic product expanded at an annualised 1.1% in the second quarter, the Commerce Department, slightly down from the initial estimate of 1.2%. but in line with analysts’ expectations.

Personal consumption in the US was revised to a 4.4% gain in the second quarter from a previous estimate of 4.2%. It marked the fastest rate of growth since the fourth quarter of 2014.

"Altogether, the second estimate of Q2 GDP does little to alter the view of economic activity in the second quarter. Personal consumption rebounded sharply in the quarter as household spending on durable goods reversed its weak first-quarter showing," said Barclays Research analyst Michael Gapen.

"Business investment remains soft, with structures investment continuing to reflect the lagged effects of declines in energy prices, and residential investment looks to have taken a breather after very strong growth throughout 2015."

Another report showed US consumer sentiment eased in August. The University of Michigan’s final reading of the consumer sentiment index fell to 89.8 from 90.0 the month before and 91.9 in August last year. It was below the flash reading of 90.4.

Closer to home, second quarter UK economic growth accelerated in line with expectations.

The Office for National Statistics confirmed UK gross domestic product grew 0.6% on the quarter in the second quarter, up from 0.4% in the first three months of the year.

On the year, growth was confirmed at 2.2%, compared to 2% in the first quarter.

Mike Read, co-founder of app-only trading network Pelican, said: “Those who feel the Bank of England were too quick to cut interest rates earlier in the month will now have all the more reason to grumble following today’s positive GDP figures.

“Despite the near universal agreement that the British economy would suffer significantly in a post-Brexit climate, June’s extraordinary retail sales figures coupled with today’s GDP data paint a slightly rosier picture.”

In Asia, Japan’s core consumer price index, which excludes food and energy prices, fell 0.5% year-on-year in July compared to a 0.4% decline in June. Analysts had expected no change.

The headline CPI dropped an annualised 0.4% in July, the same rate of decline as the previous month and in line with analysts’ estimates.

Economists said the weak inflation data is likely to add pressure on the Bank of Japan for further stimulus measures.

“The monetary game in Japan has become very challenging given that the BoJ has gradually lost credibility and support from the market. It is time for the BoJ to surprise the insatiable market, yet Mr. Kuroda is running out of resources,” said Ipek Ozkardskaya, senior market analyst at London Capital Group.

Among corporate stocks, miners flourished as metal prices increased with Glencore, Rio Tinto and BHP Billiton among the biggest risers.

BAE Systems was given a boost after Berenberg upgraded the stock to ‘buy’ from ‘hold’ and lifted the price target to 580p from 520p.

Pharmaceutical stocks continued to slide after US presidential favourite Hillary Clinton slammed US-based Mylan during the previous session over its 480% hike in the price of its EpiPen epinephrine product since the company acquired it in 2007.

Following her remarks, Mylan said it was cutting the cost of the EpiPen 2-Pak through the use of a savings cards that will cover up to $300, effectively halving the price.

Shares in Astrazeneca, Shire and GlaxoSmithKline dropped.

Sky shares dipped despite analysts at Macquarie having said the time was ripe for Fox to pick-up the 61% of Sky which it did not already own, following the 32% year-to-date share price drop in the shares of the latter in US dollar terms.

Shares in Restaurant Group rose as the company said it had swung to a pre-tax loss in the first half on the back of restructuring costs, while like-for-like sales fell and the company announced the closure of 33 outlets.

Ladbrokes shares jumped as Berenberg raised its rating to ‘buy’ from ‘hold’ and lifted its target price to 185p from 130p, saying the company is its second favourite pick in gaming after Playtech.

Amec Foster Wheeler rallied after Morgan Stanley upgraded the stock to ‘overweight’ from ‘equalweight’ and bumped up the price target to 700p from 500p, saying restructuring should outweigh disposals.

Strong performances in France and Germany drove a 2.8% rise in Computacenter's revenues at the half-year stage to £1.48bn, but the shares were down as management said business conditions in the UK were "challenging", with a reduction in services volumes driving a drop in that segment´s margins.

Market Movers

FTSE 100 (UKX) 6,838.05 0.31%
FTSE 250 (MCX) 17,928.20 0.25%
techMARK (TASX) 3,471.70 0.06%

FTSE 100 - Risers

Rio Tinto (RIO) 2,469.00p 3.35%
Glencore (GLEN) 185.00p 3.21%
BHP Billiton (BLT) 1,080.00p 3.15%
Antofagasta (ANTO) 541.50p 2.75%
BAE Systems (BA.) 541.00p 2.37%
Anglo American (AAL) 858.90p 2.30%
Fresnillo (FRES) 1,791.00p 1.99%
Hikma Pharmaceuticals (HIK) 2,182.00p 1.49%
Bunzl (BNZL) 2,420.00p 1.47%
Rolls-Royce Holdings (RR.) 785.00p 1.42%

FTSE 100 - Fallers

AstraZeneca (AZN) 4,955.00p -1.12%
Shire Plc (SHP) 4,850.00p -1.06%
Burberry Group (BRBY) 1,320.00p -0.98%
Imperial Brands (IMB) 3,999.00p -0.92%
Admiral Group (ADM) 2,044.00p -0.87%
Dixons Carphone (DC.) 371.40p -0.77%
London Stock Exchange Group (LSE) 2,780.00p -0.75%
Berkeley Group Holdings (The) (BKG) 2,663.00p -0.63%
Intu Properties (INTU) 314.20p -0.63%
Sky (SKY) 867.50p -0.63%

FTSE 250 - Risers

Amec Foster Wheeler (AMFW) 572.50p 6.61%
SIG (SHI) 126.20p 6.05%
Smurfit Kappa Group (SKG) 1,949.00p 3.56%
Restaurant Group (RTN) 421.70p 3.51%
Ladbrokes (LAD) 162.40p 3.51%
Shawbrook Group (SHAW) 231.00p 3.40%
Hastings Group Holdings (HSTG) 223.30p 3.33%
CLS Holdings (CLI) 1,585.00p 3.06%
Centamin (DI) (CEY) 169.00p 2.99%
Hochschild Mining (HOC) 277.60p 2.81%

FTSE 250 - Fallers

Worldwide Healthcare Trust (WWH) 2,020.00p -4.63%
Ascential (ASCL) 254.60p -4.11%
Carillion (CLLN) 270.40p -4.01%
Computacenter (CCC) 741.50p -3.20%
Vesuvius (VSVS) 348.00p -3.06%
Allied Minds (ALM) 372.80p -2.97%
Big Yellow Group (BYG) 724.50p -2.62%
BBA Aviation (BBA) 245.80p -2.38%
OneSavings Bank (OSB) 283.60p -2.24%
IP Group (IPO) 189.80p -2.01%