FTSE rallies 1 in light volume as data improves

The FTSE saw a late charge higher, lifting the UK index from morning weakness to close higher by 54 points or 1%.

Much of the gains were led by mining and financial stocks, with both FTSE 350 sectors rallying over 1% on the day.

Stronger than expected German Ifo data helped to give German and French stocks a fillip to push higher in the morning session, whilst a successful Spanish bond auction also saw stocks well supported going into the afternoon session. However, a bigger than expected jump in US housing starts triggered a late UK stock rally. US housing starts jumped to 0.685 million in November, a rise from a downwardly revised 0.627 million last time around and bigger than the market consensus of 0.635 million.

Low volumes are clearly exacerbating market moves and this certainly helped to boost the UK index stronger than the fundamentals today may otherwise have indicated. This could therefore perhaps be a valuable lesson as we delve deeper into the festive period, when volumes become non-existent.

Previous Commentary (updated at 10.45am)

European Indices mixed – Astrazeneca weighs on drugs blow

European indices were largely mixed on Tuesday, with the FTSE 100 losing small, whilst both the DAX and CAC saw gains of 0.8% after a successful Spanish bond auction and a better than expected German Ifo survey.

Data out of Germany this morning showed that the Ifo business survey beat market expectations, with the business climate figure surprisingly rising to 107.2 from 106.6 when a small fall had been expected. Current conditions remained flat, when a fall had also had been predicted by most whilst expectations, the forward looking part of the survey, rose strongly past consensus of 97.3 to 98.4.

The German data gave stocks a fillip to push higher, whilst a successful Spanish short-term bond auction also supported shares into the latter stages of the morning session. Spain sold 3-month and 6-month treasury bills with yields falling sharply from a previous similar auction whilst bid to cover ratios remained healthily strong. The yield on the 3-month bill fell from 5.110% to 1.735% whilst the yield on 6-month bills sold fell from 5.227% to 2.435%.

Whilst the Spanish bond auction is being seen positively, clearly there is an impact on its ‘success’ from the commencement of the ECB’s first ever three-year LTRO (Long Term Refinancing Operation), with allotments confirmed tomorrow.

Trading is choppy once again, a likely common theme this week, with the majority of traders sitting on the sidelines now for the holiday period and this is exacerbating market moves and clouding true market sentiment.

From a sector perspective, we have seen early gains in resource stocks weighed somewhat by weakness in oil and financial firms. RBS shares continue to tumble in the face of goverment support for banking reform measures.

Astrazeneca double drug blow
Pharmaceutical stocks have been dragged lower by investor disappointment in blue chip Astrazeneca, which told shareholders today that it will take a $381.5m pre-tax charge for the fourth quarter after disappointing results for its new cancer drug at the mid-stage clinical trial, whilst at the same time its anti-depressant drug failed to meet its goals at a second Phase 3 study.

The double drug disappointment is a big blow to shareholders as the pharmaceuticals giant attempts to develop and market new drugs to help cater for a fall in sales and recent patent setbacks.

Astrazeneca shares topped the fallers list on the FTSE 100 as a result, losing 2.3%, dragging down the shares of peer GlaxoSmithKline with it.