News Column

Meggitt surges as FTSE hits one-week high

July 17, 2014

Britain's top share index hit a one-week high on Wednesday, with engineering firm Meggitt surging on bid speculation and miners rallying after a strong update from Rio Tinto and encouraging economic growth data from China.

The FTSE 100 advanced 1.1 percent to 6,784.67 points. The FTSE 350 mining index rose 2.7 percent to a 4-1/2-month high, making it the sector that gained the most in the FTSE 350 index, which climbed 1.1 percent.

Miners got support from data showing growth in China, the world's biggest metals consumer, beat expectations and after miner Rio Tinto, up 2.8 percent, reported a sharp rise in iron ore output in Australia.

"An upside surprise on Chinese GDP, alongside positive corporate newsflow, is helping the mining sector to outperform today," Robert Parkes, equity strategy director at HSBC, said. "This sector remains heavily out of favour amongst investors and so a little bit of positive news can go a long way."

The market was also helped by a 9.6 percent surge in Meggitt shares to 537 pence. Citing dealers, the Daily Mail wrote that the U.S. company United Technologies Corp may be preparing a 625 pence cash offer for the British engineering firm, which is a key player in the aerospace sector.

Meggitt declined to comment. A spokeswoman for United Technologies could not be reached for comment.

The prospect of a bid led speculative sellers to close their short positions, or bets against the stock, traders said. The shares had fallen nearly 9 percent since late June.

"I don't think there will be a huge amount of people going long on the back of this, but people who were short would be scrambling to cover," said Mark Ward, head of execution trading at Sanlam Securities UK.

Short sellers borrow a stock and sell it, expecting to buy it back at a lower price before returning it to the lender. Over the past month, they have targeted Meggitt - around 5.7 percent of its shares available to be borrowed were out on loan on June 14, up from 0.4 percent on June 10, Markit data showed.

Meggitt was the top riser on the FTSE 100 index, which climbed to its highest since early July and recouped most of its losses from Tuesday, when U.S. Federal Reserve Chair Janet Yellen voiced concern over valuations.

On the economic front, the market showed little reaction to a report that Britain's unemployment rate fell to its lowest since late 2008 in the three months to May, while wages grew less than expected. Employment reports are usually watched for clues about the timing of an interest rate hike.

"The figures do not suggest any change in MPC thinking, as the rise in average wages was subdued," Nick Beecroft, senior market analyst at Saxo Capital Markets, said, referring to the Bank of England'sMonetary Policy Committee.


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Source: Herald, The (Scotland)


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