FTSE 100 index jumped two per cent yesterday on strong earnings reports and after weak German data fuelled expectations for a rate cut in the Eurozone, the UK’s main export market.
The FTSE 100 rose 125.50 points, or two per cent, to 6,406.12, its best performance since 2 January.
Speculation mounted that the European Central Bank would act sooner rather than later to boost growth in the Eurozone after data showed business activity in Germany shrank in April.
“The Bundesbank may become a bit more dovish with regards to interest rates. There is still the chance of a rate cut,” a London-based trader said.
Rate cut expectations lifted European stocks markets as well. In London, investors were also encouraged by a better-than-expected start to the earnings season.
Chip designer ARM Holdings led the gainers, jumping 11.9 per cent, after its first-quarter profit topped analyst forecasts, driven by a boom in smartphones and tablet computers.
The technology sector was also lifted after US video subscription service Netflix posted better-than-expected first-quarter growth.
Associated British Foods surged 8.1 per cent after the company predicted its Primark discount clothing chain would remain Britain’s fastest-growing major retailer this year.
Saxo Bank’s Seagrave said that so long as central banks globally maintained loose monetary policy and corporate earnings remained buoyant then equities as an asset class present a particularly attractive yield.
Mining stocks, however, continued to lag broader market gains after data from top commodities consumer China showed activity in the country’s vast factory sector barely grew in April.
The chart outlook for UK mining stocks looked negative too, with the sector's 50-day moving average crossing below the 200-day line this week in a pattern known as the death cross.
The pattern usually signals further losses on a six-month horizon. Gold miners, such as Fresnillo, have suffered in particular as the price of gold has slumped to two-year lows recently.
“Some of the resources stocks, (such as) Fresnillo and Randgold, aren’t joining in the broader rally and we think there is still some downside on these types of stocks,” Richard Curr, head of dealing at Prime Markets said.
Fresnillo shares fell 2.2 per cent yesterday and have lost 40 per cent in the year-to-date.
Analysts have cut Fresnillo’s and Randgold’s earnings per share estimates by nine per cent and six per cent respectively in the past week, while short interest in the former is up 21 per cent in a week.