29th Jan 2014 10:50
LONDON (Alliance News) - The UK's main stock indices are gaining Wednesday, led higher by mining stocks after two of the world's biggest miners, Anglo American and Antofagasta, announced positive production numbers.
Global sentiment in equities in general has also been shored up, ahead of the FOMC decision later Wednesday, by the dramatic action of the Turkish central bank, which sharply raised its interest rates to shore up its currency. Like other emerging market currencies, the Turkish lira had been under pressure due to concerns that tapering by the US Federal Reserve will draw international money away from those economies.
By mid-morning Wednesday the FTSE 100 is up 0.6% at 6,612.87, the FTSE 250 is up 1.0% at 15,867.35, and the AIM All-Share is up 0.6% at 864.06.
The Turkish central bank raised its overnight lending rate to 12% from 7.75% and the 1-week repo rate to 10% from 4.5%, a move that Societe Generale senior strategist Kit Jukes calls "a far, far more aggressive policy tightening than expected".
The move followed the more modest rate rise by the Indian central bank on Tuesday and has seen a recovery in emerging market currencies and an improvement in global risk sentiment. The Turkish lira rallied 10% from a record low after the rate rise.
"Obviously, rate hikes of this magnitude cannot be maintained for longer than a few months before the negative domestic economic effects offset any benefits from boosting credibility and restoring confidence, but for now, market nerves are calmed," says Jukes.
European equities echo the more buoyant mood, with the CAC 40 up 0.85% and the DAX 30 up 0.9%.
"Markets have provided the foundation for a second day of gains today ahead of this evening's Fed release, with European indices pushing higher on a morning very light on data," said CMC Markets senior sales trader Toby Morris.
The only piece of UK economic data out Wednesday was the Nationwide house price survey, which recorded a price rise of 0.7% in January, slightly faster than the 0.6% expected by economists, although slowing the rise from 1.4% seen in November. On a yearly basis, prices were up 8.8%.
Rising house prices continue to support the house builders, with the FTSE 350 Household Goods sector, which includes the house builders, up 1.0% Wednesday.
Industrial Metals and Mining stocks lead the gainers Wednesday, with the sectors both up 2.1%. Antofagasta leads the blue chip gainers, up 6.9% after saying it has achieved record copper production in the full year 2013, to 721,000 tonnes from 709,600 tonnes the previous year. Anglo American is close behind on the blue chip gainers, up 6.6%. The major mining group said it has increased production in its fourth quarter for all of its major metals.
Fresnillo and Randgold Resources are also big gainers, up 4.0% and 2.2%, respectively.
Sainsbury is the stand-out blue chip loser Wednesday, down 2.2% after CEO Justin King announced he will step down in July. King, who has been at the helm for 10 years, will be succeeded by the current commercial director Mike Coupe. The shock sent the stock almost 7.0% lower before recovering somewhat, though it still leads the FTSE 100 fallers.
AIM-listed Mulberry has lost a huge 27% Wednesday morning, after a shock profit warning prompted by heavy Christmas discounting and weaker demand from Korea.
The currency market is relatively quiet, with few data drivers Wednesday and ahead of the all-important FOMC decision after the European equity market close. The Federal Reserve is widely expected at 1900 GMT to announce a further USD10 billion cut to monthly asset purchases. The pound currently trades at USD1.6580, and the euro trades at USD1.3670.
Ahead of that, a speech by Mark Carney in Edinburgh at midday - the Bank of England governor's first in Scotland - will provide interest, and potentially some volatility in the pound. The speech is followed by a press conference that will likely focus on a future independent Scotland's potential use of the pound, although there could of course be more questions about forward guidance, interest rates, and the current value of sterling.
Still to come in the data calendar, US MBA Mortgage Applications for the week ended January 24 at midday and the US EIA change in Crude Oil stocks over the same week at 1530 GMT.
By Jon Darby; [email protected]; @jondarby100
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Related Shares:
Anglo AmericanRandgold ResourcesFresnilloSainsbury'sMulberry Group