BRITAIN’S blue-chip shares reversed early losses to hit a four and a half year high yesterday after several big fallers bounced back to expunge sellers from the market.
Banks gained 0.9 and are now up around 2.5 per cent since the previous session’s lows, boosted by forecast-beating earnings from JP Morgan Chase and Goldman Sachs on Wednesday.
Appetite for banks was maintained despite hits to the profits of both Citigroup and Bank of America, while early selling pressure on Rio Tinto reduced dramatically throughout the day to lift the main weight on the index.
The heavyweight miner had been down as much as five per cent after it announced a $14bn non-cash impairment charge and the resignation of CEO Tom Albanese.
Rio closed only 0.5 per cent lower, while Dutch technology company ASML turned a seven per cent fall into a seven per cent gain after its profit update. Such turnarounds scared off sellers in the market even before the Citigroup and Bank of America results, said Andy Ash, head of sales at Monument Securities.
“The reversal had already happened before the US got in. I think it’s more simply the way Rio and ASML behaved today,” he said.
“There’s not a lot of business behind it, but we saw a couple of stocks being hammered first thing in the morning and then suddenly they reversed. That’s probably got people a little bit scared and they’ve followed it.”
Rio benefited as several banks issued notes saying that the miner’s dip provided a buying opportunity.
“The market will perceive today’s write-downs and management changes negatively in the short term but that these will be positive for the stock and the sector longer term,” analysts at Citi write in a note, upgrading the stock to “Buy” from “Neutral”.
“We believe the announcement could significantly realign Rio Tinto with shareholder interests through reduced M&A and reduced capex spend.”
The FTSE 100 closed up 28.38 points, or 0.5 per cent, at 6,132.36, its highest close since May 2008.
Few investors are expected to roll over their downside protection at today’s options expiry, with 60 per cent more puts than calls due to expire on the FTSE 100. While this leaves the market vulnerable to a correction, few investors are willing to spend money on downside insurance on an index that has gained nearly four per cent this year and has left 98.2 per cent of put options worthless.
With so few people prepared to bet on the market falling, weakness such as that exhibited this morning is an opportunity to get into a rising market at slightly more affordable levels, said Robert Quinn, chief European equity strategist at Standard & Poor’s Capital IQ.
“I think that if the market comes off a little, it’s a nice buying opportunity,” Quinn said.
British Airways parent firm International Airlines Group (IAG) was up 4.3 per cent yesterday, ending on 211.8p. IAG, was boosted by BA announcing new routes for the upcoming summer season.
Additionally, IAG – which also owns the airline Iberia – saw their stock in demand “on reports that their Spanish division have reached a resolution to a long running dispute with the unions which has long been a major concern for shareholders,” Matt Basi of CMC Markets said.
Associated British Foods was up 3.2 per cent. “Its subsidiary, discount-clothing chain Primark, showed a 25 per cent jump in sales for the last quarter,” Basi added in a note.