Europe midday: Stocks rally after UK jobs report, BoE minutes

- UK employment improves
- BoE releases minutes
- FOMC to announce policy decision
- German business confidence rises

FTSE 100: 0.20%
DAX: 1.01%
CAC 40: 0.66%
FTSE MIB: 1.03%
IBEX 35: 0.98%
Stoxx 600: 0.81%

European stocks rose after better-than-expected UK employment figures and after the Bank of England released its meeting minutes.

UK unemployment declined unexpectedly by 99,000 to 2.39m people in the three months to October, according to the Office for National Statistics (ONS).

The unemployment rate, measured by International Labour Organisation methods also fell to 7.4% from 7.6% in the quarter through September – moving closer to the Bank of England’s (BoE) threshold of 7% at which it will consider raising interest rates.

‘Despite the sharp drop in unemployment, we believe the odds are still strongly in favour interest rates staying at 0.50% all through 2014,’ said Howard Archer, IHS Global Insight’s Chief UK and European Economist.

‘For what it is worth, our current view is that the Bank of England will start to raise interest rates gradually from the third quarter of 2015.’

The ONS report also showed the number of those employed climbed by 250,000 to a record 30.1m during the quarter through October, the biggest increase since July 2010. In November, jobless claims fell 36,700, more than the 35,000 that was forecast.

This morning the BoE released its minutes which showed the central bank had warned that Britain’s economic recovery may be at risk if the sterling strengthens much further.

The central bank’s Monetary Policy Committee (MPC) said the 2% appreciation in sterling over November could jeopardise British exports.

‘Any further substantial appreciation of sterling would pose additional risks to the balance of demand growth and to the recovery,’ the MPC said in minutes of its December 4th to 5th meeting.

The stronger sterling and curbs on energy bills has improved the inflation outlook with the BoE predicting it could hit its 2% target for the first time in four years in early 2014.

At its meeting earlier this month, the BoE decided to maintain interest rates at 0.5% and to leave its bond-buying programme unchanged at £375bn.

Separately, Governor Mark Carney said yesterday the central bank was likely to hold on to asset purchases for several years. He said the BoE was likely to implement interest rate hikes before considering such a move.

Federal Reserve policy decision looms

The US Federal Reserve will announce its latest policy decision later today when it wraps up its two-day meeting.

The central bank may decide to begin scaling back its monthly $85bn bond buying programme following a raft of data pointing to a recovery in the world’s biggest economy.

‘Will they? Won’t they? Tapering is likely the only thing on most investors mind today ahead of the [Fed's] decision on whether to finally taper the unprecedented $85bnn monthly bond-buying scheme,’ said Alex Conroy, Financial Sales Trader at Spreadex.

‘If the last few months are anything to go buy expect huge volatility today as investors attempt to get ahead of the Fed.’

German business confidence grows

German business confidence improved in line with expectations in December, according to a survey of about 7,000 companies today.

The Ifo institute’s business confidence index climbed to 109.5 from 109.3 in November, the highest level since April 2012.

Elsewhere in Europe’s biggest economy, German Chancellor Angela Merkel urged European leaders to take control over economic policy and make changes to the bloc’s treaty in order to spur recovery.

In her first speech since being appointed Chancellor for a third term yesterday, Merkel said progress in countries like Ireland and Spain showed Europe was overcoming the financial crisis.

Meanwhile, Eurozone finance ministers agreed today to provide a common backstop, by at least 2025, to the European Union’s (EU) new bank rescue system in case it runs out of money in an emergency.

The deal paves the way for an overall blueprint for dealing with failing lenders in Europe’s banking union.

Technip, TUI

Technip shares tumbled after the French oilfield services company warned that it expects margins will fall next year.

TUI AG gained after the tour operator unexpectedly posted a full-year profit.

Elektrobit surged after the Finnish maker of software products for the automotive industry forecast operating profit of about EUR8m in 2013.

Vesta Wind Systems advanced after saying it received an order from Enel Green Power for wind turbines to produce 350 megawatts of power.

The euro fell 0.12% to $1.3752.

Brent crude futures rose $0.065 to $108.510 per barrel, according to the ICE.

RD