European Indices post gains on US strength – traders shrug Chinese rate hike
City Index February 8, 2011 6:22 PM
<p>European indices traded into positive territory for a fifth time out of the last six trading sessions, helping the FTSE 100 and DAX rally 0.3 […]</p>
European indices traded into positive territory for a fifth time out of the last six trading sessions, helping the FTSE 100 and DAX rally 0.3 Per Cent. The morning session saw European indices lack a degree of direction with most traders lacking motivation to add to positions after the Chinese interest rate hike. However, traders are taking direction from the US, where indices continue to post new 52 week highs and the positive opening across the pond was enough to convince traders closer to home to pick up more stocks.
Indeed, today’s session has been interesting on two fronts; investor’s ability to shrug off the Chinese interest hike and the move by Chancellor of the Exchequer George Osbourne to raise the bank levy to 0.075 per cent. The afternoon session saw traders buy into both mining and banking weakness, which insinuates that traders continue to act with a bullish and not bearish bias, despite both factors likely to make an impact on both mining and bank firms.
That said, whilst the US markets continue to hit new 52-week highs and the DAX hits a new three year high, the FTSE 100 is stuck in a trading range. Traders are likely to need to see the FTSE break out of its current range and trade consistently above nearest resistance levels of 6117 before they can be convinced that the UK Index can follow its European and US peers to new weekly highs.
Chinese rate hike
The move by China to hike interest rates another 25 basis points is a move to curb spiralling inflation. Traders are not in the least bit surprised that a new hike has come considering the new prudent stance adopted by China. This is the second time China have hiked rates in the last six weeks and the third hike since October last year. The timing of the hike did take investors by a bit of a surprise however considering it was the final day of China’s Lunar New Year holiday. As such we saw more of a knee jerk sell reaction in the market before traders bought back into the market using the selling as an opportunity to pick up stocks at lower prices.
The more prudent monetary stance from China is a concern that investors in mining firms are increasingly becoming concerned about. Whilst today’s hike is not enough to raise too many alarm bells, it does heighten tensions that China remains fully committed to doing what is necessary to control both growth and inflation. The fact that the hike came on a day to which not many traders were expecting any action also makes the predictable, interest rate hikes, slightly more unpredictable and this could make the sector somewhat more volatile.
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