Traders pause for breath after share price surge yesterday; UK manufacturing slightly better than expected

<p>Traders paused for breath on Thursday, keeping the FTSE in a narrow trading range after the best one-day rally for UK stocks in nearly eight […]</p>

Traders paused for breath on Thursday, keeping the FTSE in a narrow trading range after the best one-day rally for UK stocks in nearly eight weeks yesterday.

After such a strong session yesterday, it’s natural that there has been a rather muted opening today on the FTSE and broader European stock indices. Whilst the co-ordinated Central Bank action to increase liquidity in the financial system yesterday was a welcome confidence boost and a hugely positive step, it does not address the problems that lay at the heart of the sovereign debt crisis. It is effectively a powerful band aid when fiscal surgery is required. Therefore, it is understandable that the sharpness of yesterday’s gains has lost some momentum today.

That said, if we continue to hear positive news out of the euro area, particularly in the run up to the next EU Summit, there is every chance of a santa rally, but that chance remains somewhat clouded today.

By 9.45am, the FTSE 100 was trading higher by 15 points or 0.28% on the day, whilst the German DAX and French CAC indexes lost around 0.2% in trading.

A somewhat successful Spanish bond auction, where demand was high but gross yields also surged higher, helped near term sentiment on the day, which may otherwise have caused some ripples in stock market waters.

What we have seen is a continuation from investors to buy into heavyweight mining and banking stocks, with both stock sectors rallying just short of 1% on the day as a result and continuing to benefit from the co-ordinated Central Bank liquidity action yesterday. The change of tone in monetary policy stance from China seems to have helped investors to turn a blind eye to the first time in three years that the country’s factory activity sector shrank. It is hoped that China will react to the seeming cooling of growth with renewed vigour to stimulate the world’s fastest growing economy.

UK manufacturing data came in slightly better than expected, but still showed that UK factory activity shrank last month. UK PMI data came in at 47.6, marking a small fall from an upwardly revised previous month contraction of 47.8. A somewhat worse fall had been expected however, but will do little to calm existing fears that the UK continues to teeter on the edge of recession.

A stronger than expected update from retailer Kingfisher helped to spark a rally in UK retail stocks this morning, lifting Kingsfisher’s share price higher by 4.5% straight to the top of the FTSE leader board. The retailer reported a 14% rise in retail profit to £273 million, which beat most analyst forecasts by approximately £10 million.

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