FTSE rallies for third straight day after IMF may boost lending resources and Goldman Sachs earnings top expectations

<p>The FTSE 100 saw a small rally on Wednesday to post a third consecutive day of gains after investors were boosted by news that the […]</p>

The FTSE 100 saw a small rally on Wednesday to post a third consecutive day of gains after investors were boosted by news that the International Monetary Fund would boost its lending resources to the EU to $1trillion. A better than expected jump in earnings at US bank Goldman Sachs also brightened investor sentiment too, particularly after yesterdays disappointing earnings from banking peer Citigroup.

The FTSE 100 gained 8 points or 0.15% going into the close, closely tracking a 0.3% gain in the German DAX, whilst the French CAC index suffered small losses on the day.

Resistance levels put question marks on rally longevity
We have major European indices now trading at or around key resistance levels and so we need to see stocks push on from here or we may see the rally run out of steam as investor hesitation could trigger consolidation.

The FTSE 100 has struggled for much of the past three months to find upwards momentum above the 5700 level and it is critical for the FTSE’s charge to continue that it breaks above resistance here and the 5750-5800 levels soon if this rally is to continue. A close back below the 5600 level could open the UK index for a return to the 5360-5350 level.

IMF may boost lending
News that the IMF may boost its lending resources to the EU to $1trillion lifted sentiment on the day also, firming share prices as a result. Traders have taken the positives out of the fact that a boost to the IMF’s resources to help respond to the sovereign debt crisis was discussed at the IMF. Whether or not this will happen remains to be seen but certainly traders today have appeared to use the admission by IMF head Christine Lagarde in their strides today.

Goldman Sachs earnings top expectations
Financial stocks received a boost across Europe after bellwether bank Goldman Sachs beat expectations to report a better than expected quarterly profit, despite seeing profits falling by 56%. The major US bank posted earnings per share of $1.84, which significantly beat most analyst forecasts for an EPS of $1.24, giving a 5% lift to the firms share prices and we have seen correlated strength in UK banking and mining stocks as a result with investors happy to take on more equity risk.

Having said that, market expectations were severely repressed and this may pose a question mark on the amount of positivity there is to be had in the long term from Goldman Sachs beating the streets view. The results did still see revenues down 30% and the weakest full year profits since 2008, which shows that whilst today’s earnings are being met with a positive market reaction, there remains significant questions marks further down the road for the bank in the year ahead.

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