FTSE sits it out ahead of US profits season

THE FTSE 100 rose yesterday, led by miners on hopes for an improved outlook for demand, although investors were wary that the first-quarter earnings season might not be enough to spur further market gains.

The FTSE 100 closed up 36.27 points, or 0.6 per cent, at 6,313.21, building on an advance from the previous session when it rose 0.4 per cent.

But traders noted a lack of conviction, seen in “scrappy” trade which saw the index dipping below 6,300 a number of times, saying some investors were reticent about placing any large bets before the US earnings season gets underway in earnest.

US aluminium group Alcoa posted a better than expected profit on Monday to kick off the reporting season.

Other big US firms are set to report results during the week, including JP Morgan Chase and Citigroup, a particular focus for investors in British blue chips given the latter earn around a quarter of their revenues in North America.

US first-quarter profits are seen rising just 1.6 per cent from the year-ago quarter, according to data. In January, earnings were seen rising 4.3 per cent.

While strategists said this scaling-back of forecasts might mean firms will more convincingly beat expectations, the FTSE 100, up more than seven per cent in 2013 and near five-year highs, could struggle to make much more progress.

“Even if we do get good earnings is it enough to justify a lot more on these markets?” said IG market strategist David Jones.

Aside from aiding broad sentiment, Alcoa’s earnings helped lift miners four per cent – up for a second day and recovering from seven-month lows set at the end of last week – with the firm viewed as a bellwether for the materials sector.

Miners were also boosted after China, the world’s top metals consumer, reported lower-than-expected inflation data, fuelling expectations that its monetary stimulus would stay in place.

The sector has slid more than nine per cent in 2013 on concerns over falling demand and rising prices, with its 12-month forward price to earnings ratio at 9.58 times compared to the FTSE 100 index on 11.49 times, according to data.

In general, cyclical sectors that rise with optimism over the economy outperformed those seen as defensive plays against economic uncertainty, with banks ahead 1.1 per cent.

This countered the unusual theme which has characterised market trends so far this year, with defensive stocks outperforming cyclical counterparts in rising markets.