US markets joined in the rally this afternoon, spurred on by the expectation of looser policy in China and more optimistic earnings reports in the latest quarterly update season.
The FTSE 100, with its quota of miners that stand or fall on China news, added to its morning gains, heading back to the top of the range seen last week.
By 3.30pm (London time), the Dow Jones was up 0.84% at 12,497.60, and the S&P 500 had risen 1.14% to 1295.26. In London, the FTSE 100 continued to gain, and had advanced 1.67% to 5706.08.
China hopes to buoy markets
So, we can safely pin today's rally on China and Alcoa, and forget all about the problems of Europe.
That appears to be the message to take away from the market today, as the 'bad news is good news' theme that dominated trading in US markets during mid-2011 comes to China. A drop in import growth has been taken as an indication that Beijing might loosen policy in response to slowing economic growth.
In addition, the financial regulator in the country said last night that it will begin actively pushing funds and investors into capital markets, in a bid to keep one of the most impressive booms in history going.
It seems as if the twin sights of looser Chinese monetary policy and an improvement in the US economy is sufficient for now to boost optimism. It does at least outweigh the untreated ulcer of the Eurozone crisis.
For now, the continent is quiet, with the situation no worse than last week. Nonetheless, the situation remains bleak, with Fitch noting today that the fate of the euro will be decided at 'the gates of Rome'.
If Italy fails to get its house in order, then the single currency will be a step closer to failing.
The agency added that Italy was likely to be downgraded at the end of January, with Spain, Belgium, Ireland, Slovenia and Cyprus all next in the tumbril.
The Alcoa update last night has tempted investors back into the market, with the Dow and S&P 500 opening significantly higher.
The aluminium firm's comments about strong demand for its products were especially important, as it presages more good news from other firms. Perhaps the general situation is not as bad as previously feared?
As the current earnings season rolls on, investors will be hoping that more companies will issue similarly upbeat pronouncements about the coming year.
Flybe & Game hit for six
It was another bad day for two firms on the UK spread betting market, as Flybe and Game Group became the latest companies to see their stock price slump.
Flybe, the budget airline that listed last year, nose-dived 21% to 54.23p, going as low as 47p, after it said that fourth-quarter revenues would be lower than forecast.
December was said to be particularly disappointing, while conditions are not expected to improve any time soon. Flybe is now down 84% from its opening level of 341p.
Meanwhile, Game Group, which sells video games and related products, was down 41% to 3.98p, the company having warned that it might breach its banking covenants due to a difficult trading period over Christmas. Sales for the year to 7 January were down 10%, with promotions eating into profitability.
Like HMV, markets will now be wondering if the company can survive in the long term. Game Group shares once resided close to 300p, a level that now seems quite fantastic.
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'Index Spread Betting: Strong Demand for Alcoa Products Boosts S&P 500', Article by IG Index, last update: 10-Jan-12
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