Global stock indices rebounded today after yesterday's slide, as investors regain some hope that growth can take place even under the shadow of the European debt problem.
Stocks staged an impressive recovery today, with commodities rallying on renewed speculation that economic growth is gradually improving. The UK's leading index succeeded in recouping yesterday's losses and pushing higher still, hitting 5094.67 (+140.61) by 4pm.
The mining sector continues to dominate the top of the table this afternoon after a rise in base metals, with Rio Tinto up 247.50p (8.67%), Kazakhmys up 88p (8.21%) and Eurasian Natural Resources up 66.5p (7.34%). Commodities company Lonmin also fared well, up 127p (8.14%) by 4pm. Clothing company Burberry is also revelling in its top-five place after announcing pre-tax profits of £166m, a stark contrast to the 16.1m losses reported by the fashion house last year.
Banks, too, did their bit to spur on the recovery. Royal Bank of Scotland gained 44.90p (5.2%), and Lloyds Banking Group Plc rose 53.21p (5.3%) today, after Credit Suisse upgraded the banks' rating from 'neutral' to 'outperform'.
British Airways and the Unite union will continue with their talks later today, in a further attempt to block ongoing strike action from the airline's cabin crew. After the court's ruling in favour of the union last week, BA earlier declared that they want a full hearing on the legality of the strike.
And the industrial action doesn't stop with BA, as BT faces possible strikes in a dispute over pay. The Communication Workers Union (CWU) has rejected BT's offer of a 2% pay rise, arguing that a 5% pay rise is in line with inflation. Frustrations have been pushed further by the revelation that chief executive Ian Livingston accepted a bonus of £1.2m last year.
Meanwhile in Europe, stocks rebounded from their eight-month low on speculation that the earlier slump was a result of overblown fears. The Organisation for Economic Co-operation and Development (OECD) has however warned that the recent debt crisis poses a threat to Europe's weak recovery.
Calling for bolder measures to ensure fiscal discipline, the organisation said that 'the sovereign debt crisis has highlighted the need for the euro area to strengthen significantly its institutional and operational architecture to dissipate doubts about the long-term viability of the monetary union.' [1]
The OECD did however raise its growth forecasts for this year and next. Today it announced that it expects its 30 member countries to grow 2.7% this year, larger than the 1.9% prediction made in November. The figure increases further when including non-members such as China, to 4.6% this year and 4.5% in 2011.
The euro hasn’t fared any better for the positive economic mood, declining 0.2 percent to $1.2322 today, and 0.13% against sterling at 1.16860. Investors are concerned that the pressures in Europe may slow growth compared to the rest of the developed world. [2]
Over in the US, Wall Street followed the positive sentiment, opening up 0.9% on yesterday's close. Today's results showed that durable goods orders rose in April for the fourth time in five months, suggesting that US manufacturing performed well at the start of the second quarter.
New homes purchases in the U.S. climbed in April to their highest in two years, as the government's tax credit scheme drew close to expiry. Figures from the Commerce Department today showed that new home sales climbed 15 percent to an annual pace of 504,000, exceeding all estimates in a Bloomberg News survey of economists and the highest level since May 2008. [3]
With sentiment much more positive than yesterday, investors will be waiting with anticipation to see whether momentum can be maintained. As analysts start to venture that indices may well hold onto their rise, it remains to be seen whether shrewd investors will be willing to put their money into 'bargain' markets.
Source: [1] bbc.co.uk (26 May 2010) [2][3] Bloomberg News (26 May 2010)
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'Spread Betting News 26 May 2010', Article by IG Index, last update: 26-May-10
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