19th Sep 2013 10:07
LONDON (Alliance News) - Following an opening surge that saw the FTSE 100 push up to the highest level in nearly three weeks, UK and European equities have maintained their gains, buoyed by the continued stimulus of cheap money from the US Fed.
By mid-morning the FTSE 100 is up 1.4% at 6,650.00, the FTSE 250 is up 1.3% at 15,279.70, and the AIM All-Share is up 0.8% at 789.18. European markets also are higher, the CAC 40 in France and the DAX in Germany both more than 1% up on the day.
Since the announcement from the US Federal Reserve last night, global stocks have rallied, the dollar has softened and Treasury yields have fallen. In this strange central-bank-fueled recovery, investors see the continued pumping of liquidity as a buy signal for riskier assets.
Having softened to its cheapest level since early August in the run up to the announcement, gold jumped about 4% when traders got the green light for continued cheap funding. Consequently, gold mining stocks are outperforming Thursday. The industrial metals sector of the FTSE 350 is up 4.1% while the mining sector is up 3.6%. Amongst the top blue chip gainers are Randgold Resources, up 7.9% and Fresnillo, up 5.2%.
The pound rallied against the dollar on the Fed announcement, testing early January levels and recording a high against the dollar of 1.6163, until UK retail figures came out at 0930BST. UK retail sales for August came in at down 0.9% against a forecast rise of 0.4%. Year-on-year the reading was up 2.1%, against a forecast rise of up 3.3%. The big miss is breaks a long run of surprise upsides to UK data readings and put a damper on the pound's rally, which was sold back down to USD1.6070.
Former MPC member Andrew Sentance defended the economic recovery on Twitter shortly after the data release, saying: "Monthly retail sales figures are volatile. Volume is still 2% up year on year and monthly volume is still the second highest in history".
The data miss comes as talk has begun that the MPC in the UK may actually have to raise rates before the Fed in the US. The Bank of England has voted not to provide a third round of quantitative easing, and minutes from this month's MPC meeting showed the last of the policy makers calling for more stimulus have now backed down.
The contrast between the very dovish Fed and a more hawkish MPC has seen gilts under-perform Treasuries and GBP-USD reach its best levels since early January, notes Kit Juckes, analyst at Societe Generale. With higher inflation than the US, and economic momentum picking up in contrast to the weaker recent data in the US, the case for rate rises in the UK looks stronger.
After a volatile morning, more opportunity may come from the 1330BST data release slot, when US jobless claims are scheduled.
By Jon Darby; [email protected]; @jondarby100
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