FTSE 100 closes higher by 1 2 despite poor US data

The FTSE 100 maintained its gains in the afternoon trading session, with the UK Index closing higher by over 1% despite some shockingly poor US manufacturing ISM data in the afternoon session.

The FTSE 100 closed at 5640 after the closing auction, marking a gain of 69 points or 1% on the day and a near two month closing high.

Importantly, the FTSE managed to close above the 5620 level which has threatened to be a resistance barrier from which a double top could have formed, marking somewhat of a bearish near term indicator for UK blue chip stocks. The close above this level today helps to convince that momentum is building for a fresh attack at the 5700 level on the FTSE. The FTSE’s close today marks the highest close on the UK Index since 4 May 2012.

Leading the charge higher for the FTSE was gains in financial stocks, with the FTSE 350 banking and insurance sectors both rallying 1.7% on the day, marking the best performing sectors on the day, as the relief rally from the EU Summit continues.

Barclays was the top banking stock, with share prices gaining over 3% in the aftermath of its Chairman, Marcus Agius, resigning amidst the libor fixing scandal that threatens to now engulf the broader banking sector as the FSA brings to the fore allegations against more banks outside of Barclays.

For now, it would appear a disproportionate attention from investors has been focused on Barclays within this current crisis. The FSA’s enforcement official Tracey McDermott confirmed today that Barclays was not an isolated case and “we will hear more in due course.” This threatens a lingering cloud over UK banks but at least for today it would appear that investors have turned a blind eye to this issue.

This week is likely to be all about two themes: the Bank of England rate and asset purchases decision on Thursday and US non farm payrolls on Friday. With the Bank of England expected to increase asset purchases by as much as £50bn and US jobs figures expected to bounce back from a poor 69,000 jobs increase last time around, these are two areas to which the longevity of investor stock buying is likely to be impacted by.

It’s the first trading day of a new quarter and so we have also seen some additional buying as investors position their portfolios for the new quarter ahead.

There was however somewhat mixed manufacturing PMI data from both sides of the Atlantic today, which further enforced the case for more QE from both the Bank of England (who are expected to increase asset purchases later this week) and Federal Reserve (who recently extended Operation Twist until the end of the year).

UK manufacturing PMI rose to 48.6, somewhat stronger than expected but remained in contraction territory for a second consecutive month. This in its own right was unlikely to weaken the BoE’s vigour for more stimulus however.

US manufacturing PMI however was the real surprise, falling into contraction territory for the first time since July 2009 at 49.7. One key element of the US report was particularly troubling; new orders. New Orders fell sharply from 60.1 a month ago to 47.8 this time around, which was a real shock. The unemployment segment of the reading remained relatively stable at 56.6 however, which could be a leader for Fridays all important US non farm payrolls.