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“Bernanke Bounce” sends miners soaring

It has been a few months of Central Bank anticipation, and just over a week of Central Bank action. Yesterday the Federal Reserve Chairman Ben Bernanke followed his European counterpart’s actions last week in announcing further monetary easing. Quantitative Easing 3 as the latest initiative is called, involves the third tranche of asset purchases (buying bonds from institutions with newly created money), designed to further stimulate the economy by reducing borrowings costs. Bernanke suggested that $40 billion would be pumped into the economy indefinitely, until there was a clear improvement in the US labour market which currently has an unemployment rate of 8.1%.

The moves have been welcomed by investors globally, with yesterday’s announcement felt in stock markets, with those in the US jumping close to 2% last night; gains that were echoed at the European open this morning. With more dollar printing and inflation concerns, the Greenback dropped more than a percent against the Euro to $1.31. Commodities, a natural beneficiary of a weak dollar were unsurprising gainers, with Brent oil up around 1%l. Gold’s perceived inflation hedging properties saw increased demand for the precious metal, pushing the price up several percent to $1776 per ounce (at the time of writing), a gain of around 10% since the start of August.

In additional to the miners, RBS was in the news over its sale of Direct Line insurance business. The State owned lender said it would outline its plans to float the company on the London Stock Exchange as early as next week, an offering that could value the business at £3 billion. The move is a result of a European Regulator ruling following the State aid received back in 2008. The bank finished the day up 1.9% at 279p.

The FTSE 100 finished lower than its daily highs, although still managed a gain of 1.6% to close at 5915. It was led by miners, with Kazakhmys, Vedanta and Evraz putting experiences staggering gains of over 13%, and even the industry giants of BHP Billiton and Rio Tinto appreciating around 6%. British Sky Broadcasting was a noticeable underperformer on the day, its stock off 3% on concerns over BT’s aggressive acquisition of sporting television rights.

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

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