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Miners advance following upbeat Chinese data

European equity markets opened higher this morning, the major news for digestion being the weekend of talks between European leaders. Whilst no definitive solutions were derived, markets were primed for this outcome with a new deadline of this Wednesday being announced last week. Some news of progress was sufficient to temporarily calm nerves; investors have been prone to disappointment from previous meetings. There was some evidence of development, mainly the agreement that European banks must raise more than €100 billion of new capital and that the firepower of the EFSF should be increased. The latter involved some ground being surrendered by Mr Sarkozy as the German Chancellor dismissed a proposition from the French that the regions bailout fund should be bolstered by the unlimited backing (in the form of loans) from the ECB.

In addition to the above friction, the two nations were also divided on the extent to which private holders of Greek debt should contribute via haircuts on their holdings. Whilst the current private sector involvement has agreed haircuts of 21%, there has been the realisation that this will not be sufficient and Germany is pushing for a figure closer to 50-60%.

Sentiment was also boosted by Chinese economic data overnight, HSBC flash PMI rising to 51.1 in October, from 49.9 in September. The reading, which showed expansion in manufacturing activity for the first time in three months, calmed investors nerves that the world’s second largest economy was at risk of a hard-landing. Those assets with greatest exposure to the region’s growth, i.e. commodity prices and their respective mining equities, were lifted by the news.

In contrast to the above, Eurozone PMI data released this morning provided fuel for further concern, with services and manufacturing activity falling to 47.2 and 47.3 respectively. With both figures below forecasts, worries mounted that the bloc is edging closer to recession.

In response to the newsflow, the UK market opened in positive territory with the FTSE trending between its opening level and gains of around 0.75%. As previously alluded to, the market was led higher by mining companies, Kazakhmys, Antofagasta and Rio Tinto all faring particularly well and all enjoying more than 7% gains by the close of trade. Financials were also buoyed by positive comments from several analyst reports which were generally rather upbeat on Britain’s banking sector as compared to European institutions. Suggestions that additional capital may in fact not be required in the UK provided an excuse for some buying, with Lloyds outperforming its peers to post a 5.3% gain to finish at 34.6p.

Europe was buoyed somewhat following the US open, Catterpillar a strong gainer on the Dow Jones Industrial Average following strong third quarter results and a bullish outlook for the US and Japan that wasn’t consistent with recessionary concerns. The FTSE rallied into the close to finish 1.1% higher at 5548 points.

This was posted in Bdaily's Members' News section by John Dance .