FTSE climbs ahead of US jobs data, with Tullow Oil up on takeover talk

Investors await non-farm payroll numbers and take heart from Chinese trade data

Leading shares have started the day brightly as investors await the latest US jobs data.

Tullow Oil was the biggest riser in the leading index, up 37p at 882p on revived bid speculation. The company’s shares have been on the slide after a series of disappointments, but that could leave it vulnerable to a takeover bid. So it is no surprise there has been renewed speculation a predator could be circling, with Statoil one of the names mentioned. But Dragan Trajkov at Oriel Securities was cautious:

A Bloomberg article yesterday suggested that Statoil is studying overseas acquisitions, naming Tullow as a “potential target on which Statoil is stepping up analysis”.

This is one of the many stories in the past that has involved Tullow as a take-out candidate. The only thing that makes this one maybe just a touch bit more believable than others is Tullow’s current share price. Nevertheless, we would not encourage investors to act solely based on this speculative article (albeit it may provide some very short term positive sentiment on Tullow’s shares this morning). Even if it was true, we think it would be fair to assume that there is probably a big gap between “stepping up analysis” and being an actual target.

Even so Tullow’s gain of more than 4% has helped lift the FTSE 100 42.41 points higher to 6731.75. But it is economic data providing the main driver, following China’s 8.3% jump in exports last month, recent signs of recovery in the UK and hopes of growth this year in the eurozone.

The week’s minutes from the US Federal Reserve caused few ructions, but all eyes will be on the non-farm payroll numbers later, with analysts expecting a rise of around 196,000 last month, compared to 203,000 in November.

But we could easily be back into the good news is bad situation, since better than expected figures would revive concerns that the Fed will trim its monthly bond buying programme again, a key support for the markets in recent months. Michael Hewson, chief market analyst at CMC Markets UK, said:

This week’s [Fed] minutes had something for both the doves and hawks, but one fact seems inescapable, in that a good payrolls number will shift the markets attention to the Fed meeting at the end of this month and the potential for a further $10bn of tapering on top of this months $10bn. It also means that investors are more likely to be picky about valuations with any vulnerability likely to be pounced upon.

Marks & Spencer added 11.7p to 472.6p as investors decided its Christmas update could have been worse.

Outsourcing group Capita has climbed 25p to £10.47 after UBS moved from neutral to buy, while among the mid-caps Homeserve is up 15.8p to 274.8p after a recommendation from the same bank. On Capita UBS said:

While some sector peers saw tough trading in 2013 as a result of issues with the UK government, Capita was not impacted and had secured £2.9bn of major contracts when it reported its November interim management statement, down on the record £4bn in 2012, but well above the £1bn- £2bn long-term average. We see almost 6% of our 8% forecast 2014 organic growth as already underpinned and expect good contract news momentum to continue in the near term.

But Arm has fallen 15.5p to 982p. A day after Deutsche Bank reduced its recommendation from buy to hold, Goldman Sachs has removed the chip maker from its conviction buy list. The bank kept the company as a buy but lowered its earnings per share forecasts by 6% for 2014 and 4% for 2015. It said:

We lower our near-term forecasts to reflect: 1) the continuing inventory correction in Smartphones (also echoed in profit warnings from HTC and Samsung), impacting our near-term Royalty forecasts; 2) latest currency movements, as stronger sterling represents a source of lower reported growth; and 3) our view that Arm’s licensing pipeline (reflected in a 60% backlog increase over the past two years and a 45% revenue increase) is driving additional hiring at Arm, increasing our operating expenditure forecasts.

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