Stocks surged on Monday as traders took advantage of low volumes – with Wall Street closed for Labour Day – to push the London index up 1.5%. Better-than-expected manufacturing data from the UK, Eurozone and China and delays to possible US military action against Syria helped push stocks higher yesterday.

However with US markets re-opening today the mood in Europe is expected to be a touch less bullish with gains likely to be limited.

“With a number of key central bank meetings to come over the next couple of days, as well as a huge US jobs report on Friday, investors are understandably cautious as we head towards the end of the week,” said Market Analyst Craig Erlam from Alpari.

Investors will be particularly nervous about the employment report given that it comes less than two weeks before the Federal Reserve’s next policy meeting at which analysts now widely expect the central bank to begin tapering its asset-purchase programme.

“While the Fed isn’t going to draw a conclusion on the state of the economy on that one release, it is the most current data available and could therefore prove decisive, given that the Fed until this point has been split on which move to start tapering,” Erlam said.

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Vodafone will be in focus today after late last night reaching an agreement to sell its 45% stake in US outfit Verizon Wireless to Verizon Communications in a transaction valued at $130bn (£84bn) in cash and shares. Shareholders are expected to receive 71% of the net proceeds of the disposal. The stock was a heavy faller this morning, pulling back after a strong rise over the last few days.

Real estate groups were under pressure this morning after Deutsche Bank downgraded stocks and target prices across the sector. Land Securities and British Land were among the worst performers after the bank cut its ratings for both to ‘hold’. Hammerson, whose rating was kept at ‘hold’, was out of favour after having its target price cut.

Security solutions firm G4S was also lower after Credit Suisse lowered its recommendation from ‘outperform’ to ‘neutral’, saying that the stock has re-rated and is now trading at a premium to its historic average.

Leading the upside was Primark owner and food ingredients group AB Foods after Exane BNP Paribas raised the stock to ‘outperform’.

Mining group Rio Tinto was extending gains this morning after yesterday reporting the first shipment of iron ore from its expanded operations in Western Australia. “We are attracted by Rio’s value, quality volume growth and cost cutting potential,” said analysts at UBS this morning.

Source: ShareCast