THE UK’S top share index hit three-week highs yesterday, with weak German data bolstering expectations of an interest rate cut in the Eurozone and sending investors into equities in search of better returns.
German business morale, as measured by the closely watched Ifo index, tumbled in April, missing even the most pessimistic economist’s forecast and boosting the case for the European Central Bank to stimulate the economy by cutting interest rates as soon as next week.
Such bets were further fanned during the session by comments from policymakers, with ECB vice president Vitor Constancio saying there was still room to act on rates.
Lower rates make stocks more appealing compared to bonds and reduce borrowing costs for companies, supporting profits.
“The data was pretty bad, but the market rallied, so the hope is that the central banks will step in,” said Joe Dyer, senior fund manager at Rowan Dartington Signature.
The FTSE 100 closed up 25.64 points, or 0.4 per cent at 6,431.76, its highest finish since 2 April, and technical charts showed scope for more gains in the index.
“The market has been technically oversold and I see it rallying to ... 6,580. In the short term it’s been a buying opportunity for the last few days,” said Bill Rook at Redmayne Bentley, who looks for entry points based on the weekly ‘Percent R’ indicator measuring the proximity of the latest close to the highest high over a set period.
Miners and industrial metals, which are heavily exposed to efforts to revive the global economy, led the gainers, adding 2.8 and 4.4 per cent respectively, with some investors seeing value in what have been two of the worst performing sectors this year.
“We are wary of mining, but with prices where they are now it becomes more interesting,” said Dyer at Rowan Dartington.
“If you look at the valuations, they look reasonable. Clearly some of the bigger companies have got some portfolio restructuring to do if they can find buyers at the right price and you may start to see that sector as more of an income play rather than the growth play that they have been.”
However, fund managers said that, given the FTSE’s strong performance so far this year, it was getting increasingly hard to find attractive prices among quality companies.
“People are going into equities because they can’t find anything else,” said Simon King at Premier Asset Management.
Increased investors activity helped bolster profits at Standard Life, sending its shares up eight per cent yesterday, at the top of the FTSE 100 gainers board.