FTSE rallies 2 7 as UK Index plays catch up

The FTSE 100 rallied over 2.7% today as UK investors returned to the markets after the long bank holiday weekend break, keen to build on strong gains seen in Europe and the US on Monday whilst the UK market was closed. The gains seen today therefore have been all about UK investors playing catch up on yesterday’s global stock gains. However, a shocking drop in US consumer confidence did temper the confidence built by today’s FTSE gains.

Broader European trades, which were open for business yesterday, have however seen a bit of a mixed day, with the German DAX losing 0.5% after traders cashed in their gains early following US consumer confidence data, whilst the French CAC gained 0.2% and the IBEX rallied 0.5% on the day.

It has been a very positive start to the new week’s trading for the FTSE 100 in a week that is likely to be dominated by economic data as traders look for clues that may pressure the Federal Reserve and Ben Bernanke into announcing a third phase of quantitative easing in September’s FOMC meeting.

Somewhat poignantly, the FTSE 100 managed to hold onto most of the day’s gains despite the sharply weaker US economic data, and this does help to breed a bit of confidence into the market. That said, gains are likely to remain fragile given the big influx of economic data due out over the next three days and traders are likely to want to see a concerted break above resistance at 5445 before any real amounts of confidence can be restored.

UK banks have been firmly in control of the gains seen in the UK Index today, with a positive note on the sector from Deutsche Bank and a strong showing in US and European banks enough to convince UK investors to pick up shares in Barclays, Lloyds and RBS, helping to rally their share prices higher by 7%-8%.

US Consumer Confidence hits its lowest point since April 2009
US data did dampen the positivity behind today’s gains somewhat however, after the Conference Board reported that US consumer confidence fell to 44.5 from a downwardly revised previous reading of 59.2, a marked deterioration from already beaten down market expectations of 52.0. The fact that the actual number has dropped so far below consensus expectations is deeply concerning, particularly when you take into account that roughly 70% of US activity comes from consumer spending. If consumer confidence is now at more than a two-year low, what picture does that paint for the state of the US high streets? If the drop in confidence becomes more of a trend, this is a severe warning sign to the potential for the US to slip back into recession.