FTSE gains 20 points on mining and defensive stock strength though financials weaker

The FTSE 100 traded largely flat after the first hour of trading on Tuesday as strength in mining firms was countered by weakness in heavyweight financial stocks such as Barclays and RBS, keeping the UK Index in flat territory. By mid morning however the UK Index had rallied 20 points, with weakness in financials deteriorating somewhat but trading remaining very choppy.

The FTSE 350 mining sector gained by around 0.5% in early trade despite copper prices falling before prices retreated to trade slightly lower. Defensive stock sectors also gained in early trade with pharmaceutical firms, tobacco firms and Vodafone seeing gains of around 1%.

However it is weakness in financial stocks that is proving the key drag on the UK Index and keeping a leash on any gains made. The FTSE 350 banking sector lost over 1% within the first hour of trading, with Barclays, RBS, Standard Chartered and Lloyds all losing 2%.

Naturally there remains an eye on ratings agencies, given both Fitch and Moody’s quite public thumbs down to the progress, or lack of progress rather, made at the EU Summit last week. Whilst the intergovernmental treaty helps to address some of the more longer term issues concerning a fiscal dislocation within the eurozone, investors are still concerned over the near term pressures on liquidity and the scope of bailouts available to help contain any further escalation in sovereign bond yields at a time when Italian 10-year bond yields continue to head back towards the 7% level.

UK inflation slowed to 4.8% last month as expected from 5% the previous month, whilst Bank of England chief economist Mr Spencer Dale believes that UK inflation should fall sharply early next year to hit below the 3% level by March, which would mark a sharp drop. The UK inflation drop to 4.8% was in line with market expectations and whilst a more sincere drop to below the 3% by March could give the BoE more room to increase QE, most likely in February, both the pound and UK stocks saw little reaction as a result of this morning’s inflationary data.

German ZEW data showed that German economic sentiment unexpectedly improved slightly to -53.8 from -55.2, a factor which the ZEW relates to the decisions made at the EU Summit. However the ZEW data also showed that current conditions fell more than expected to 26.8 from 34.2.

Traders will keep an eye on important economic data out of the US today, with retail sales due out at 1.30pm (UK time). Later, after the European close, we will see the latest FOMC decision where little change is expected in terms of rates or easing but given this is the first FOMC decision since the co-ordinated central bank action to increase dollar liquidity, traders will be on their guard for any surprises.

Shares in Petrofac were the top gainer in London trade after the oil services firm predicted stronger growth next year due to an order backlog worth $10.6 billion and said that it expected to deliver like-for-like net profit growth of at least 20% this year, firmer than initial expectations. Shares rose 4.3% as a result.