Britain's FTSE pushes higher on earnings, data relief

Reuters Middle East

* FTSE 100 up 0.6 pct in second day of gains

* HSBC Securities sees rise to 6,500 by end-2013

* Low implied volatility offers cheap options bets -UBS

LONDON, Oct 16 (Reuters) - Britain's top shares rose on

Tuesday, boosted by banks and commodity stocks, as investors'

appetite for riskier assets improved thanks to

better-than-expected U.S. corporate results and macro data.

Over two-thirds of U.S. companies who have already reported

third quarter results have beaten or met expectations, with

earnings on average 5.9 percent higher than forecast, according

to Thomson Reuters Starmine data.

That, along with forecast-beating data from the United

States and Germany this week, bodes well for UK corporates

looking abroad for growth while the domestic economy stumbles.

Mid-cap home shopping group N Brown is among those

cashing in on the U.S. market, with a strong trading update

boosting its shares 9.6 percent.

The UK general retail sector was one of the top performers,

up 0.9 percent. The FTSE 100 gained 36.10 points or

0.6 percent by 1048 GMT to 5,841.71 points, adding to the

previous session's 0.2 percent gain.

"We expect this rally to continue," said Robert Parkes,

equity strategist at HSBC Securities, who targets 6,500 for the

FTSE 100 by end-2013."

"We feel investors have become too pessimistic on the

earnings outlook, and if you view that alongside the fact

valuations are compelling - both in an absolute and relative

sense - and then you consider the monetary policy loosening that

you're seeing globally, you've got three reasons to be more


The German ZEW survey pointed to a bigger than expected pick

up in analyst and investor sentiment this month.

Risk appetite was also supported by growing expectations that

Spain could some ask for a bailout, thus triggering the European

Central Bank's crisis rescue plan to buy sovereign bonds.

That has helped pull down implied volatility on the FTSE 100

- a crude gauge of investor fear - by around 9 percent so far

this month after a 15 percent fall in September.

Low implied volatility means it is cheaper to buy options,

with derivatives strategists at UBS suggesting trades for both

sides of the market.

"Bears should consider June 2013 5,300 puts offered for

197.5 points (3.4 percent) while bullish investors might like to

own June 2013 6,200 calls for 92.5 points," they said in a note.

Underscoring the potential for downside risks, GKN

fell 4.3 percent in hefty trading volume, after the car and

plane parts maker said a sluggish European automotive market

weighed on third quarter profit and that a continued slump could

hurt the group for the remainder of the year.

Volume in GKN stood at 170 percent of its 90-day daily

average, compared with 36 percent on the FTSE 100.

"Today's (update) alerts us to trends that are likely to

deteriorate further in the fourth quarter and to spread to other

geographies," Panmure Gordon said in a note downgrading its

rating for GKN to "hold" from "buy".

"We have yet to see the word 'restructuring' but with strong

comparables for first half 2013 earnings there is no let-up for

GKN for at least another two quarters," the broker said.

(Additional Reporting by Toni Vorobyova; Editing by Ruth


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