CW:FTSE jumps and gold slips on US debt ceiling deal
Britain’s FTSE 100 jumped and gold prices slipped on Monday, after US leaders agreed the framework for a deal to raise the US borrowing limit and avert a possible federal default.
The benchmark UK index of blue-chip shares gained 1.14%, or 67 points, to 5,881 and the Mid-250 index advanced 0.82%, or 95 points, to 11,647.
US president Barack Obama on Sunday night announced the tentative agreement, which involves a two-step process to cut $2.4 trillion (£1.46 trillion) from the US budget deficit over the next decade.
The move came only days before the deadline on Tuesday when the US Treasury had said that without a deal, the government would face being unable to pay all its bills.
Investors left safe havens on the back of the deal: gold prices softened 0.7% to $1,616 an ounce, and the dollar strengthened 0.19% versus the Swiss franc to CHF 0.794.
James Knightley, economist at ING, pointed out that lawmakers would likely pass the US debt deal in the Senate and House of Representatives later in the day. But he noted that that the package fell short of the $4 trillion in cuts that Standard & Poor’s reiterated last week that the US needed to reaffirm its prized AAA credit rating.
‘This action may be enough to keep the ratings agencies on side for a while until the joint committee reports its findings in around 3 month’s time,’ he said.
However, he added, ‘If there is any slippage or disagreements over the implementation of the second round of $1.8 trillion in reductions, the ratings agencies will find it difficult not to pull the trigger.’
US futures signalled a stronger start for equities on Wall Street. S&P 500 futures added 1.2% to 1304, Nasdaq 100 futures took on 1.37% to 2,392 and Dow Jones industrial futures gained 1.17% to 12,230.
Intertek (ITRK.L) topped the leader board on the FTSE 100, surging 106p to £20.21, on the back of a solid first-half earnings report from the testing firm. The group, which tests products from footwear to computers, posted a 14% rise in profit to £119 million from the same period a year earlier, beating market expectations.
‘Intertek benefits from the defensive qualities of its business model, favourable long-term market trends and the broad geographic and operational spread of activities,’ said Kevin Lapwood, analyst at Seymour Pierce.
Reiterating an ‘add’ rating and target price of £22 for the stock, he continued: ‘Looking forward, revenue growth will continue to be driven by regulatory issues and environmental legislation, even if consumer demand tails off due to economic slowdown.’
