By Carla Mozee, MarketWatch
U.K. stocks finished firmly in the green on Tuesday, booking a six-week high as mining and bank shares were bolstered by plans in China to expand measures to stimulate economic growth.
How markets are moving
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.20% leapt 0.7% to 7,709.05, marking the index’s highest close since June 14, according to WSJ Market Data Group. The basic materials, tech and financial sectors led advancers. But the utility and oil-and-gas groups pulled slightly lower. On Tuesday, the index fell 0.3%, marking a second consecutive decline.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.4148% traded at $1.3111, slightly higher than $1.3101 late Monday in New York. Against the euro, sterling /zigman2/quotes/210561278/realtime/sampled GBPEUR +0.3048% bought €1.1217 versus €1.1204.
What’s driving the market
A promise of new stimulus by China spurred gains for mining stocks, as China is a major buyer of metals, including being the world’s biggest consumer of industrial metal copper. Mining stocks comprise 86% of the weighting in the basic materials sector on the FTSE 100, FactSet data show.
China’s State Council outlined measures aimed at bolstering domestic consumption, such as corporate tax cuts and support for small businesses. Bond yields as well as bank stocks rose in China on the news, a day after U.S. Treasurys and other sovereign bonds gained on reports that the Bank of Japan may discuss tweaking its yield curve control policy. Rising bond yields can provide a boost to lenders.
China’s move comes as it is engaged in a trade fight with the U.S. Last week, U.S. President Donald Trump said he’s “ready” to put tariffs on all Chinese goods imported to the U.S., which would amount to more than $500 billion. China has issued levies in retaliation to tariffs already put in place by the U.S. Investors will watch for more developments from the trade front on Wednesday, when Jean-Claude Juncker, the European Union’s top official, meets Trump at the White House to try to de-escalate Trump’s trade dispute with the EU.
What analysts are saying
• “After a quiet start the equity bulls have come charging into the fray, emboldened by Google’s figures, China’s move towards infrastructure stimulus and a decent set of PMIs from the eurozone,” said Chris Beauchamp, chief market analyst at IG, in note.
“London’s mining contingent are clearly fans of China’s promise of more infrastructure spending, as the sector rises by an average of 2%. Global growth expectations had taken a knock thanks to trade wars, but the IMF’s view that 0.5% could be knocked off GDP thanks to trade disputes, while not great, is at least more optimistic than some of the numbers that had been doing the rounds,” Beauchamp said.
•The pound “has depreciated since the last Bank of England meeting in June, while the probability of a hike in August has increased significantly from 36% the day before the June meeting to 85% today, according to market pricing. One obvious reason is of course the political turbulence and the Brexit risk premium,” said Richard Falkenhäll, senior FX strategist at SEB, in a note.
“However, most of the appreciation in 2017 occurred in the last nine days ahead of the rate decision. Experience suggests there should be some room for a temporary recovery of [the pound] in coming days, although it is unlikely to last after the [BOE] decision,” said Falkenhäll.
Stocks in focus
Topping the FTSE 100, shares of iron-ore producers BHP Billiton PLC /zigman2/quotes/208108397/composite BHP +1.41% /zigman2/quotes/201448516/delayed AU:BHP -2.16% and Rio Tinto PLC /zigman2/quotes/208934945/delayed UK:RIO +0.51% /zigman2/quotes/202627887/composite RIO +0.52% /zigman2/quotes/200083756/delayed AU:RIO -1.82% jumping 5.7% and 4.8%, respectively. Anglo American PLC /zigman2/quotes/201381512/delayed UK:AAL -0.20% , whose portfolio includes copper and platinum production, also rallied and finished the day 5.6% higher, while Glencore PLC /zigman2/quotes/201400686/delayed UK:GLEN -0.42% /zigman2/quotes/209462106/composite GLCNF +0.49% , a commodities producer and trader rose by the same percent.
Shares of Asia-focused banks Standard Chartered PLC /zigman2/quotes/200125072/delayed UK:STAN +0.85% and HSBC Holdings PLC /zigman2/quotes/203901799/delayed UK:HSBA +0.01% /zigman2/quotes/208272822/composite HSBC +0.07% gained 3.3% and 1.3%, respectively.
Off the main benchmark, Hammerson PLC shares /zigman2/quotes/206876822/delayed UK:HMSO +0.46% rose 0.6% after the retail property development and investment company said it is launching a share buyback program of up to £300 million ($393.7 million), and launching a new strategy to exit from the retail-park sector.