China’s monetary easing puts FTSE close to the 6,000 level
A SURPRISE easing in China’s monetary policy drove Britain’s FTSE 100 within striking distance of a seven and a half month closing high as miners rallied on the prospect of revived demand from the world’s most voracious consumer of raw materials.
Miners were the top gainers as London’s blue chip index climbed 40.18 points, or 0.7 per cent, to end on 5,945.25 yesterday.
China said at the weekend it was cutting the amount of cash banks must hold in their reserves in another move to try to kickstart slowing growth.
“China’s reserve requirement ratio cut was a surprise to the market but supports our economists’ belief that the authorities are more concerned about growth than inflation,” Nomura said in a note.
Societe Generale said: “The cut will release around Chinese Yuan Renminbi 400bn into the banking system and will help ease banks’ liquidity situation, placing downward pressure on interbank interest rates.”
It added that it was expecting three more cuts in the reserve requirement ratio – by a total of 150 basis points – by the end of the year.
Investors positioned themselves not only for a near-term boost in metal demand but also for a rate cut soon.
“We typically see a knee jerk bullish move in the miners as a result of any Chinese easing and today’s reaction has been no different,” a London-based trader said.
Insurers and banks, sectors with the largest exposure to Europe’s sovereign debt crisis, also pushed ahead in anticipation of a deal being struck to rescue Greece for a second time.
Although doubts remain over the ability of Greece to carry through the agreed austerity program, Eurozone finance ministers are expected to approve a second bailout for Greece yesterday to try to draw a line under months of uncertainty that has shaken the currency bloc.
Henk Potts, equity strategist at Barclays Wealth, described easing concerns over Greece, supportive US economic data and the readiness of policymakers in emerging markets to act to maintain robust growth levels as “a powerful mix of positivity”.
“Investors can once again focus on the fundamentals, which are very good corporate positions with undemanding valuations.”
Those valuations have driven a spike in M&A activity recently, with Misys up 6.6 per cent after Vista Equity Partners outlined an all-cash deal for Misys that would scupper an agreed merger between the British banking software group and Swiss Temenos.
Weir Group, which is in a bidding war for Australian mining equipment firm Ludowici with Danish engineering company FLSmidth, climbed 6.6 per cent ahead of results next week.
Short interest in Weir’s shares spiked significantly since August to about 35 per cent of stock available for loan, compared with around an average of nine per cent for the capital goods sector, according Dataexplorers, leaving investors scrambling to cover positions as the share price gains upward momentum ahead of results.
“Weir has just underperformed the sector by 18 per cent, and yet the underlying growth dynamics remain unchanged,” BofA Merrill Lynch said in a note.
Perceived defensive stocks filled the FTSE fallers list, with drugmaker Shire down 1.1 per cent, Imperial Tobacco 0.8 percent lower and utility Severn Trent off 0.7 per cent as investors turned to riskier assets.