Chinese growth lifts UK listed miners UK retail sales eyed

Stronger than expected Chinese growth figures helped to lift UK listed miners in a slow start to trading on Friday in London. Chinese GDP bounced back to grow at 7.9% in the fourth quarter, its first growth in expansion for 7 quarters and lofting optimism that resource demand can continue to track a similar rate of expansion.

Listed UK miners are dependent on Chinese demand for resources. The correlation between Chinese GDP and the FTSE 350 mining sector is undeniable. As such, it is no real surprise to see miners such as BHP Billiton lifted in trading today, with Chinese GDP beating forecasts of 7.8% growth in Q4.

Chinese industrial production increased to 10.3% against expectations of 10.1% whilst retail sales also grew faster than expected to 15.2%.

The key here however will be sustainability. Investors in mining stocks can ill afford volatility in Chinese growth after consecutive quarterly slowdowns and given the rate of spending in Chinese infrastructure to help speed growth. We are still awaiting broader evidence of the People’s Bank of China’s next move in terms of stimulus and Chinese inflation – which increased to 2.5% last month (stronger than expected) – will inevitably be a key measure to take into consideration for further monetary expansion.

The FTSE 350 mining sector has underperformed the benchmark UK Index already this year, despite the positive tone to trading and risk appetite. The sector has fallen 5% from Jan 2, whilst the FTSE and FTSE 350 banking sector has rallied 4% and 8% respectively. Whilst the miners have rallied 0.7% this morning on the back of the stronger than expected Chinese data, growth will need to consistently be above 8% before investors may start to view mining stocks as buying opportunities.

As a result of the early gains in heavyweight mining stocks, the FTSE 100 rallied to 6148, marking an opening gain of 16pts after the UK’s benchmark Index closed at its highest levels yesterday since May 2008. the 6100 level continue to provide solid support to any UK equity weakness and the Index’s consolidation above this level is pleasing for the medium term outlook for UK blue chip stocks.

Rio Tinto shares continued to bounce back in trading today following yesterdays $14bn write downs and sacking of CEO Tom Albanese. Investors are taking the clarity in their stride and starting to put their money behind new CEO Sam Walsh, who faces a tough challenge after some expensive acquisitions at the top of the market. Shares opened lower by 5% yesterday but soon rallied to close on the high of the day, showing some good buyer interest which is reinforced by today’s stronger open. Rio Tinto shares rallied 1.3% early on.

UK retail sales, a somewhat tempestuous issue of late, is expected to return to growth in December when data is released at 9.30am today. Sales are expected to come in at 0.2%. A reading above 0.6% would be the best sales growth since May last year but considering the volatility of retail sales amongst corporate including Morrison’s, Tesco’s, Marks and Spencer’s and ABF (owner of Primark), this is set to be a very interesting data release.

Later in the session we see the latest release of US consumer confidence data, which is expected to come in at 75.0 from a previous reading of 80.5.