The FTSE 100 was trading at a two-week high on Friday morning on hopes that ongoing negotiations in the US will result in a short-term deal to raise the borrowing limit in order to avoid a dreaded default.
After a 1.5% jump on Thursday, the FTSE 100 was extending gains this morning, rising 0.8% to around 6,480 by midday. The last time the index closed higher was on September 27th when it finished the session at 6,512.66.
"The prospect of a US debt deal has given European indices a lift today [...] The increased inflows to European equities are evident," said Brenda Kelly, Senior Market Strategist at IG.
"Optimism and appetite for risk are back with a bang, with the financial and basic materials sectors both benefitting from the US government's negotiation progress."
No deal yet, but signs of progress
House Speaker John Boehner on Thursday afternoon announced a proposal to raise the limit for six weeks without conditions tied to changes in policy. He said he hopes that President Barack Obama would view the "good-faith" move as an attempt to meet him halfway on negotiations over the budget.
Obama and House Republicans failed to come to a deal following a 90-minute meeting late last night, but showed that they were still willing to negotiate. "After a discussion about potential paths forward, no specific determination was made," the White House said in a statement. "The President looks forward to making continued progress with members on both sides of the aisle."
While any deal would not automatically re-open the government - lawmakers still need to agree on a new budget - confidence in averting a default has now undeniably increased on the markets.
"The increase, which would give government six more weeks to come to a longer term agreement on the debt ceiling, is far from an ideal resolution, however any deal to avoid hitting it for now will always be well received in the markets," said Market Analyst Craig Erlam from Alpari.
"It's still not clear whether the Republicans will want anything in return, which could scupper a deal being done, but at least it's progress, which is something that hasn't been seen until now."
FTSE 100: Financials and miners provide a lift
An increase in risk appetite this morning was benefitting share prices
in the financial and mining sectors. Standard Life was a high riser after JPMorgan Cazenove reiterated its positive stance on the stock, reassuring investors about net inflows in the third quarter. Aberdeen Asset Management, Admiral and HSBC were also higher today.
Anglo American was leading the upside in the mining sector after an 11-day strike over job cuts at its platinum division in South Africa came to an end. Glencore Xstrata also advanced this morning.
Speciality chemicals firm Croda International was a heavy faller after analysts at Liberum Capital downgraded the stock to 'hold'. In contrast, Diageo gained after Exane BNP Paribas raised the drinks giant to 'outperform'.
Restaurant and hotels owner Whitbread was also higher after Citigroup upped the stock to 'buy', saying: "Improved sentiment around the European economies suggests that we could be at the start of a renewed upgrade cycle for European focused hotel names". Whitbread gained strongly on Thursday after one analyst cited the possibility that it could spin off its Costa coffee chain.
Stocks heavily exposed to the US defence markets, such as BAE Systems and Meggitt, were trading in the red after some cautious comments from sector peer Chemring.
FTSE 250: Chemring plummets after warning on performance
Military equipment manufacturer Chemring sank sharply this morning after saying that its North American business continues to be affected by the US government shutdown and said the full impact was unknown - although it would have a definite impact on October order intake and deliveries in the US Department of Defense. It has suffered quality and production issues, particularly at Kilgore, and will also suffer from an adverse move in the sterling/dollar exchange rate, reducing operating by around £8m.
FTSE 100 - Risers
Whitbread (WTB) 3,210.00p +3.08%
Standard Life (SL.) 355.40p +2.60%
Anglo American (AAL) 1,510.50p +2.34%
Aberdeen Asset Management (ADN) 391.90p +2.22%
Glencore Xstrata (GLEN) 333.30p +2.04%
Travis Perkins (TPK) 1,658.00p +2.03%
Shire Plc (SHP) 2,424.00p +1.81%
Admiral Group (ADM) 1,236.00p +1.73%
HSBC Holdings (HSBA) 690.00p +1.72%
Rio Tinto (RIO) 3,065.00p +1.66%
FTSE 100 - Fallers
BAE Systems (BA.) 439.20p -2.55%
Meggitt (MGGT) 537.50p -1.56%
Wolseley (WOS) 3,166.00p -1.09%
Croda International (CRDA) 2,574.00p -1.08%
Royal Bank of Scotland Group (RBS) 381.80p -0.81%
CRH (CRH) 1,493.00p -0.67%
Fresnillo (FRES) 930.50p -0.53%
Coca-Cola HBC AG (CDI) (CCH) 1,726.00p -0.52%
Pearson (PSON) 1,292.00p -0.39%
SSE (SSE) 1,444.00p -0.35%
FTSE 250 - Risers
Ferrexpo (FXPO) 183.50p +3.85%
Brown (N.) Group (BWNG) 493.10p +3.66%
Hays (HAS) 122.40p +3.64%
Howden Joinery Group (HWDN) 304.30p +3.08%
Serco Group (SRP) 544.50p +3.03%
Phoenix Group Holdings (DI) (PHNX) 750.00p +2.46%
Intermediate Capital Group (ICP) 460.30p +2.45%
International Personal Finance (IPF) 634.00p +2.34%
Investec (INVP) 418.00p +2.30%
Thomas Cook Group (TCG) 148.20p +2.07%
FTSE 250 - Fallers
Chemring Group (CHG) 216.20p -23.98%
Kenmare Resources (KMR) 26.11p -10.24%
Keller Group (KLR) 1,016.00p -3.24%
Ocado Group (OCDO) 436.30p -2.37%
Polymetal International (POLY) 576.00p -2.37%
CSR (CSR) 496.10p -2.34%
Ted Baker (TED) 1,692.00p -2.20%
Cobham (COB) 278.30p -1.90%
Perform Group (PER) 544.50p -1.89%
Rank Group (RNK) 161.30p -1.83%