European stocks hit five-year highs yesterday after news that Lawrence Summers has pulled out of the race to lead the US Federal Reserve, while an international deal over Syria also boosted risk appetite.
The FTSEurofirst 300 hit an intraday high at 1,262.25, its highest level since mid-2008, while Germany’s DAX hit 8626.11 – an all-time high.
Investors took the view that Summers’ decision meant a more gradual approach to policy tightening, as he had been seen as less supportive of the bank’s monetary stimulus programme than the other main candidate, Janet Yellen.
However, the news on Summers is seen as having little bearing on a Fed meeting this week where the bank is expected to start reining in its bond-buying.
Demand for equities was also boosted by an international deal to destroy Syria’s chemical arsenal, which put off a US-led attack against the country and allayed concerns of a broader conflict in the oil-producing Middle East.
“The market has moved on two reasons. There’s a relief rally on the latest Syrian news, but also Yellen is seen to be more dovish and pro-quantitative easing... Consequently it’s good for the equity markets,” said James Butterfill, global equity strategist at Coutts.
The FTSEurofirst closed up 0.7 per cent at 1,258.42, a five year closing high, while the Dax closed at an all-time closing high, up 1.2 per cent to 8,613.
Both indexes ascended beyond their May peaks to post the new highs. In the case of the DAX, the top German index has added 3.9 per cent since the beginning of last week.
Meanwhile Britain yesterday launched the sale of its shares in part-nationalised Lloyds Banking Group, a milestone in the country’s recovery from the 2008 financial crisis.
UK Financial Investments (UKFI), which manages Britain’s stake in Lloyds and Royal Bank of Scotland, said it would sell six per cent of shares in Lloyds, worth £3.3 billion.
Britain’s Conservative-led coalition government considers the sale as a key step in its recovery from the 2008 financial crisis, during which taxpayers pumped a combined 66 billion pounds into Lloyds and RBS.
“We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met,” a Treasury spokesman said.
Britain pumped £20.5 billion into Lloyds during the crisis, leaving taxpayers holding a 38.7 per cent stake. The sale will reduce its stake to 32.7 per cent.
Sources with direct knowledge of the sale process said it is likely to be completed before the market opens today and at a narrow discount to the current share price.
It will be open to all institutional investors but the government has decided against using cornerstone investors despite interest from sovereign wealth funds and private equity investors in taking such a role.
Although the size of the stake being sold is lower than some analysts had expected, it is still comfortably above that of the Royal Mail, which is expected to raise between two and three billion pounds in its upcoming privatisation.
Easing supply concerns pushed down oil prices, with Brent crude for delivery in November down 1.5 per cent, while airline stocks notched up gains, led by Air France and IAG up 5.5 per cent and 3.3 per cent respectively.
“If Syria really is resolved as it appears that it might be, there’s a good chance that we could see energy prices come back significantly. You could even see (Brent) pull back to the $100 a barrel mark,” Matt Basi, sales trader at CMC Markets, said.
“At that price point I think you’d really start to see airlines being able to hedge their risk quite effectively and just lock in long-term contracts at those rates.” (Reuters)