The UK’S blue chip share index rose to one-month highs yesterday, backed by a fresh batch of strong domestic data and with heavyweight mining stocks cheered by forecast-beating results from US peer Alcoa.
Alcoa, which traditionally kicks off the global earnings season, posted a larger-than-expected adjusted profit for the second quarter on Monday and forecast growing aluminium demand.
That offered some much-needed good news for miners – the third biggest sector in the FTSE 100 and by far the laggard this year due to falling metals prices and concerns about the strength of global demand.
Miners added 10 points to the FTSE 100, which closed up 63.01 points, or one per cent, at 6,513.08 – its highest finish since early June.
Financial stocks also held up well, with investors snapping up the likes of fund manager Aberdeen Asset Management, which are likely to benefit from further gains in equities.
However, volumes were relatively light – at around 87 per cent of the 90-day daily average – underscoring ongoing concerns about a possible scaling back of US Federal Reserve’s stimulus programme in coming months, the case for which could be further strengthened by a strong earnings season.
“There is indeed potential for further gains ... However, investors are cautious regarding any overly optimistic data as it may indicate a more rapid exit of bond buying from the Fed which could limit any upside potential,” said Kash Kamal, analyst at Sucden Financial.
The prospects of reduced stimulus in the United States – the source of around a quarter of revenues for FTSE 100’s companies – contrasts strongly with the domestic policy outlook, where the Bank of England plans to keep rates low for a long time yet.
That, coupled with stronger British data, is helping domestic-focused companies to perform more strongly than some of their exporting peers.
Yesterday offered fresh data support, with strong numbers on house prices, retail sales and business confidence.
“The numbers are starting to improve, the consumer space in particular could do well, there are early signs – but nonetheless very firm signs – that a domestic recovery is taking hold in the UK,” said Daniel McCormack, strategist at Macquarie.
“I do not do a country allocation, but I would be overweight domestic UK.”