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Greggs heats up on Budget U-turn

Rumours overnight that China had begun measures to stimulate the economy were welcomed by markets this morning, with European indices opening up around 1% higher. It was cited in news reports that China’s biggest banks had appeared to have increased lending at the end of May, purportedly in response to the fast tracking of approvals for new infrastructure projects.

The news lifted stocks with exposure to China, most notably mining companies with industry heavyweights BHP Billiton and Rio Tinto both higher in early trade. Greggs was also a beneficiary from news that the Government is to perform a u-turn on its much publicised “pasty tax”, that initially aimed level the VAT playing field given the bakeries were previously exempt from a tax that other hot food vendors were subject to. The amendment, which meant that food cooling down rather than being kept warm would be exempt from VAT, sent shares to the top of the FTSE 350 index, higher by 8% to finish at 504.5p.

As was the case yesterday, the market’s initial optimism slowly dissipated throughout the day, as investors focuses on underlying issues in Greece and Spain. These problems have never been far from the headlines, with Bankia shares lower by around 13% today and the Spanish IBEX massively underperforming its peers.

Risk assets were however given a boost in the afternoon in response to an S&P Case-Shiller Index, which showed that home prices in 20 cities had remained basically unchanged month on month, falling 2.6% over the year. The data was in line with expectations and indicated a bottoming of the housing market, in which house prices that have fallen around 35% since their peak in 2006. The news provided a boost to the domestic markets, and fed through to European indices. The FTSE 100 closed 0.65% higher at 5391 (similar to the performance of the US indices), but below the 1% plus gains seen on the German DAX and French CAC.

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

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