London close: Stocks rally as Yellen hints at delaying rate hike

The FTSE closed in positive territory on Wednesday as banking stocks recovered and Federal Reserve Chair Janet Yellen signalled a delay to the next increase in interest rates.

Deutsche Bank soothed the market, reversing two days of declines, following reports that it will implement an emergency bond buyback plan.

The bank is expected to focus its emergency buyback plan on some €50bn of senior bonds, according to the Financial Times.

The report came after Deutsche Bank was forced to reassure staff that the bank was “rock solid” and German Finance Minister Wolfgang Schauble said he's not worried about the lender after its shares hit a 30-year low on Tuesday.

"It appears that those reports of Deutsche Bank potentially buying back debt has done far more to reassure investors than the comments from co-CEO John Ryan and German finance minister Wolfgang Schauble yesterday, and has inspired an impressive surge across the banking sector as a whole," said Connor Campbell, senior market analyst at Spreadex.

Meanwhile, Yellen flagged risks to the economy that could delay another increase in interest rates.

In prepared remarks for her semiannual testimony to Congress on US monetary policy, Yellen said financial conditions have become less supportive of economic growth, the slowdown in China could weigh further on the US and the outlook for inflation is falling.

Without stating it specifically, her remarks were seen to suggest the next hike to interest rates may be a long way off.

“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar,” Yellen said.

“These developments, if they persist, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset.”

Closer to home, UK industrial production fell 0.4% year-on-year in December, trailing estimates for a 1% increase. Manufacturing output declined 1.7%, more than the 1.4% fall that was forecast.

“Declining industrial production and manufacturing output, combined with headwinds facing producers from a troubled world economy, point to the growth in the services sector pulling even further ahead over the next few quarters, said Martin Beck, senior economic advisor to the EY ITEM Club. "As a result, a more balanced expansion continues to look like a forlorn hope."

Another report from the Energy Information Administration showed a surprise fall in crude stockpiles in the past week.
US commercial crude inventories fell by 754,000 barrels to a total of 502 million barrels, as refinery runs and exports fell from the previous week. Analysts had expected at 3.6-million-barrel build.

At 1651 GMT Brent crude rose 1.2% to $30.71 per barrel and West Texas Intermediate fell 1.4% to $27.53 per barrel.

On the company front, Hikma Pharmaceuticals plunged as the cash consideration for its takeover of Roxane Laboratories almost halved on the back of significantly lower revenue projections

Housebuilders were on the rise, including Taylor Wimpey, Berkeley Group Holdings and Barratt Developments, after sector peer Bellway reported strong growth in first half housing completions, saying it remains on target to deliver a 10% rise in full year volumes.

Tesco gained after it bought the remaining stake in coffee chain Harris & Hoole it did not already own.

Homewares retailer Dunelm Group rallied after it declared a special dividend payment and reported a solid first half of the year.

ARM Holdings declined despite posting a strong set of full year results and saying it was confident of meeting forecasts for 2016 as demand for its microchip technology continues to grow.

Glencore slumped after Societe Generale downgraded the stock to 'hold' from 'buy'.

Tullow Oil tumbled as the company reported full year revenues had fallen 27% from $2.21bn (£1.52bn) in 2014 to $1.61bn, due to the drop in oil prices.

Greene King climbed as it said record trading on Christmas Day supported growth in sales over the festive period as well as in the 40-week period up to 7 February.

Market Movers

FTSE 100 (UKX) 5,672.30 0.71%
FTSE 250 (MCX) 15,536.34 1.43%
techMARK (TASX) 2,939.06 0.57%

FTSE 100 - Risers

Worldpay Group (WI) (WPG) 279.10p 5.80%
International Consolidated Airlines Group SA (CDI) (IAG) 507.00p 4.84%
Mondi (MNDI) 1,197.00p 4.72%
Prudential (PRU) 1,175.50p 4.40%
Tesco (TSCO) 181.30p 4.32%
CRH (CRH) 1,709.00p 4.27%
St James's Place (STJ) 842.50p 3.82%
DCC (DCC) 5,015.00p 3.72%
Legal & General Group (LGEN) 209.70p 3.61%
Dixons Carphone (DC.) 437.90p 3.55%

FTSE 100 - Fallers

ARM Holdings (ARM) 900.00p -4.26%
Randgold Resources Ltd. (RRS) 5,700.00p -3.47%
Ashtead Group (AHT) 798.50p -3.21%
Antofagasta (ANTO) 398.40p -3.04%
TUI AG Reg Shs (DI) (TUI) 1,052.00p -2.86%
Fresnillo (FRES) 830.00p -2.70%
Anglo American (AAL) 325.40p -2.52%
Hikma Pharmaceuticals (HIK) 1,945.00p -2.51%
BHP Billiton (BLT) 653.80p -1.85%
BP (BP.) 330.10p -1.30%

FTSE 250 - Risers

Dunelm Group (DNLM) 934.50p 13.27%
Domino's Pizza Group (DOM) 940.50p 9.81%
Sophos Group (SOPH) 190.20p 7.95%
Marshalls (MSLH) 284.90p 7.67%
Ocado Group (OCDO) 250.00p 7.53%
Indivior (INDV) 140.50p 7.42%
Zoopla Property Group (WI) (ZPLA) 213.80p 6.90%
IP Group (IPO) 165.40p 6.57%
Poundland Group (PLND) 157.40p 6.14%
BGEO Group (BGEO) 1,663.00p 5.92%

FTSE 250 - Fallers

Tullow Oil (TLW) 147.70p -8.54%
Nostrum Oil & Gas (NOG) 263.70p -4.14%
Telecom Plus (TEP) 869.00p -3.44%
PayPoint (PAY) 738.50p -3.27%
Ashmore Group (ASHM) 211.30p -3.07%
ICAP (IAP) 404.10p -2.41%
Paddy Power Betfair (PPB) 9,055.00p -2.21%
Aldermore Group (ALD) 178.00p -2.20%
P2P Global Investments C (P2P2) 918.00p -2.18%
Vedanta Resources (VED) 212.90p -2.11%