Ruth Mitchell

Markets higher despite IMF global growth warning

Markets were tangibly calmer today, the FTSE 100 settled around 0.7% higher at just under the 5300 level for most of the morning. This came despite S&P’s one notch downgrade of Italy’s government debt from A+ to A (with negative outlook). The ratings agency cited weak growth prospects and political concerns as problematic in the country’s bid to cut its debt, currently standing at 120% of GDP. It came amid continuing talks between Greece and inspectors from the EU and IMF, in which further Greek austerity measures are being demanded in exchange for the next €8bn tranche of its bailout package.

Late morning saw a 30 point up-lift in the UK’s blue chip index that subsequently saw it trade around 1.3% higher on the day. However with trading volume low and large defensive stocks in demand, it was evident that the market was benefiting from investors buying into yesterday’s sell-off as opposed to an uptick in risk sentiment.

Later in the day saw an announcement by the IMF cutting global GDP forecasts and stating that the global economy has entered a “dangerous new phase”. The news led to an erosion of some of the afternoon gains, although these were quickly recovered and extended in a rally that saw the FTSE finish 2.0% higher at 5364 points.

The gains were broad based, although Carnival group was one of the best performers with a 6.6% gain, the cruise operator announcing a surprise 2.6% increase in 3Q revenue. The stabilisation in trading was welcomed by investors who have seen higher fuel costs, the disaster in Japan and trouble in the Middle East weigh heavily on the shares throughout the year.

Investors in Consolidated Airlines Group, the owner of British Airways, were less fortunate as its German peer Deutsche Lufthansa’s reduced its earnings outlook for the year. The news was detrimental to the European airlines sector, with Consolidated Airlines ending the day at the bottom of the FTSE 100 with a 2.6% loss.

Locally, Barratt Developments was upgraded to buy from hold at Citigroup, citing the current discount from net asset value as too extreme. Whilst it lowered its price target from 135p to 110p, the shares were buoyed 5.7% to finish the day at 82p.

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