FTSE rallies from early losses after China cuts bank reserve requirement ratio by 0 5

The FTSE 100 and broader European indices recovered from earlier losses after China cut the bank reserve requirement ratio by 0.5% in a move to curb slowing growth, marking a change in tune from a previous hawkish monetary policy stance. The move was enough to sharply increase short-term demand of mining stocks, with the FTSE 350 mining sector rallying from around 2% down on the day to trade in positive territory within minutes of the announcement. The positive move in the heavyweight miners provided the engine behind the FTSE’s resurgence from negative territory.

Earlier in the session, stocks had lost ground, with the FTSE 100 losing 0.4% in trade weighed down by weakness in banking stocks after the Standard and Poo’rs cut its ratings on a wide range of US and European banks late last night.

The ratings changes had been long expected in the market after a public admission by the agency earlier in the year of a review, with cuts expected for a host of US and European banks, and upgrades due to banks from emerging economies so the move was not necessarily a shock. That said, the broadness of the cuts was somewhat larger than expected and this weighed on banking stocks on the FTSE for the morning before the China move.

A failure of European finance ministers to provide a greater degree of transparency as to the exact scale of the newly agreed EFSF last night is also weighing on stock markets in Europe today. Whilst talks continue in Brussels today, the reliance of euro leaders to source outside funding is keeping uncertainty in the markets. Certainly it is hoped that now the mechanics of how the EFSF works has been agreed, this will help to invite third party funding, but given the marked deterioration in lending markets recently, it remains unclear what appetite their exists for funding the EFSF.

It is clear that the IMF will take on a much greater role in lending but the clarity of the IMF’s role and the fiscal scale remains clouded.

So it seems there has not been much to take away from the agreements made at the finance minister meeting last night, with investors continuing to react to any speculation or rhetoric out of the euro area to gauge short term stock price moves, emphasising the fact that we remain locked in a headline driven market at present.

Sage shares top the FTSE after update
Shares of Sage topped the FTSE 100 after firm reported an 8% rise in pretax profits for the year of £352.6 million, broadly in line with analyst forecasts. Whilst the firm highlighted the headwinds it faces and struck a cautionary tone in the update, shareholders and investors alike have reacted well to the earnings after an initial muted response, lifting shares higher on the day by 3.5%.