FTSE 100 recovers opening losses to post gains; IBEX and MIB both up 2% as ECB agrees to purchase bonds

<p>The FTSE 100 quickly recovered from opening losses of 1% on Monday to post gains, providing some relief for investors though certainly tensions remained and […]</p>

The FTSE 100 quickly recovered from opening losses of 1% on Monday to post gains, providing some relief for investors though certainly tensions remained and investors were cautious to aggressively add risk.

The opening losses came in tune with after the initial heavy opening loss, which followed a similar start to the weeks’ trading in Asia and Australia, where the Nikkei and ASX indices both lost over 2%.

The move by the Standard and Poor to downgrade its US credit rating from the top notch Triple ‘A’ level has not had a huge impact on the markets today. This is because many in the market had expected the S&P to downgrade the US anyway considering the clues they had given the markets over the last month. Moreover, the move was leaked into the markets at the US open so investors were expecting this after the close.

Gains were soon seen in the major UK banks such as Lloyds Banking Group and RBS, which helped the FTSE 100 to trade lower by 0.4% within the first 10 minutes of the London opening and with the UK banking sector trading higher by 1.5% and the miners trading back into positive territory on the day, this helped the FTSE 100 push higher by 0.7% after 30 minutes of trading.

Top stocks outside of the key UK banks were Fresnillo, whose shares were lifted by an upgrade from Deutsche Bank, who also upgraded their stance on Randgold Resources, giving the precious metal miner a lift too. Premier Foods shares did see a big boiunceback too after Fridays sharp falls, with share prices rallying some 25% early on to recover most of Fridays losses straight away. Premier Foods was the top mid-cap gainer on Monday trade as a result.

G7 and ECB action calms investors somewhat
The Spanish IBEX and Italian Mib indices both saw strong opening gains too, rising over 2%, after the ECB agreed to purchase bonds in an emergency weekend meeting between the European authorities. Certainly the move by the ECB to actively implement its bond buying, called the Securities Markets Programme, has helped in the near term to settle some nerves. Investors have been calling on the ECB to buy Italian and Spanish bonds last week and despite it taking slightly longer than the market would have hoped, it is expected that last night’s ECB statement paves the way for the Central Bank to support Italian and Spanish debt. The joint agreement between France and Germany that the EFSF should also be used to buy bonds of indebted nations also helps to support the concern about Italian and Spanish debt.

It is without a doubt the unilateral intended action made clear by the ECB and G7 over the weekend that is helping to lift Spanish, Italian and to a lesser extends, broader European Indices today.

But investors should not get too far ahead of themselves with today’s price bounce. The hallmarks of the ‘dead cat bounce’ remains strong and we need to see the FTSE 100 close above the 5400 level before any ‘tentative’ degree’s of confidence can be re-built.

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