London close: Stocks rise on positive news from China

London markets finished with a positive performance on Wednesday, driven by gains in the mining sector following China’s announcement of an upcoming reduction in the reserve requirement ratio for banks.

The FTSE 100 rose 0.56% to close at 7,527.67 points, while the FTSE 250 experienced a stronger increase of 0.94%, ending the day at 19,171.68.

In currency markets, sterling was last up 0.45% on the dollar to trade at $1.2744, while it managed gains of 0.04% against the euro to change hands at €1.1695.

“Disappointing eurozone January flash PMI data didn’t prevent European stock indices from rallying, especially since US private sector activity growth hit a seven-month high and positive Netflix earnings propelled the S&P 500 and Nasdaq 100 to new record highs,” said IG senior market analyst Axel Rudolph.

“In the UK the strongest rate of output growth since last June was counterbalanced by weaker-than-expected factory orders.”

Rudolph said despite that, China-dependent luxury goods and mining stocks helped the FTSE 100 to also perform amid talk of a new China stimulus package, and as iron ore prices rose.

“The price of crude oil continued its advance, but the gold price fell despite the US dollar slipping.”

UK services and manufacturing paint mixed picture

In economic news, it was a mixed picture for the UK’s services and manufacturing sectors.

A fresh survey revealed that the services sector saw an improvement in January, with the S&P Global flash composite purchasing managers’ index (PMI) rising to 52.5, reaching a seven-month high and surpassing economists’ expectations of 52.2.

However, the manufacturing sector was adversely affected by the Red Sea crisis, with the manufacturing PMI index ticking up to 47.3 in January, remaining in contraction territory.

The Red Sea crisis had widespread repercussions, causing higher freight costs and extending suppliers’ delivery times for the first time in 12 months.

The industrial sector saw a decline in output volumes, particularly in sub-sectors such as chemicals, motor vehicles, transport equipment, metal products, and building materials.

While there was an expectation of a slight rise in output in the coming three months, new orders are projected to stagnate, with steep declines in both export and domestic orders.

“UK business activity growth accelerated for a third straight month in January, according to early PMI survey data, marking a promising start to the year,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“The survey data point to the economy growing at a quarterly rate of 0.2% after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum.

“Businesses have also become more optimistic about the year ahead, with confidence rebounding to its highest since last May.”

Meanwhile, in the eurozone, business activity showed signs of improvement as it fell at the slowest rate in six months, with the flash composite PMI coming in at 47.9, although that still indicated contraction.

The services sector saw a three-month low at 48.4, while manufacturing output reached a nine-month high at 46.6.

Germany’s growth forecasts were meanwhile revised downwards by the Institute for Economic Research (Ifo), citing government plans to cut spending.

The new projection expected GDP to grow by 0.7% this year, down from the previous forecast of 0.9% made in December.

Elsewhere, China’s central bank announced plans to cut the reserve requirement ratio (RRR) for all banks by 50 basis points to 10% from 5 February, freeing up CNY 1trn to stimulate the economy.

That would mark the third RRR reduction, following two cuts last year, as the central bank also pledged to reduce key interest rates by 25 basis points this week, aiming to boost economic activity.

“We stand by our call for a one-year loan prime rate cut in the first quarter, though it will depend on the January and February credit data and what it indicates about credit demand outside the policy-sensitive sectors and government bond issuance,” said Duncan Wrigley at Pantheon Macroeconomics.

“Governor Pan’s remarks confirm that Chinese policymakers see the role of monetary policy this year as mainly supporting fiscal stimulus intended to keep growth ticking over.”

Miners jump on China news, Haleon slips

On London’s equity markets, heavily-weighted mining companies surged following the positive news from China.

Anglo American was up 5.25%, while Glencore rose by 2.97%, and Antofagasta and Rio Tinto also posted gains of 5.32% and 1.55%, respectively.

Asia-focused companies Prudential and Standard Chartered also advanced, with gains of 1.39% and 0.49%.

Precious metals miners showed strong performance, with Endeavour Mining, Fresnillo, Centamin, and Hochschild Mining shining, registering increases of 4.36%, 4.22%, 5.16%, and 7.55%, respectively.

Budget airline easyJet ascended 2.4% despite taking a £40m hit from the Middle East conflict.

The company said it expected its first-half losses to narrow, and reported positive booking momentum for the summer.

Pre-tax losses for the three months ended 31 December came in at £126m, down from £133m a year earlier, with revenues rising 16% to £1.1bn.

Diversified Energy Company rebounded with an 8.86% gain after a recent decline prompted by concerns raised by activist investor Snowcap Research about funding for inactive well plugging and a potential dividend cut.

Royal Mail parent International Distributions Services (IDS) advanced 4.26% following Ofcom’s call for an overhaul of the UK’s postal service, including the possibility of reducing deliveries to three days a week.

Asset manager Abrdn reversed earlier losses and gained 1.57% after announcing a cost-cutting initiative aimed at saving £150m by the end of 2025.

It also reported net outflows of over £12m in the second half.

On the downside, Haleon declined 2.5% as JPMorgan Cazenove expressed expectations of potential disappointment in its top-line performance after strong volumes in the past two years.

Pub operator JD Wetherspoon edged down 1.31% despite maintaining annual guidance and reporting an increase in first-half underlying sales.

Senior saw a 6.67% decrease due to a downgrade to ‘equalweight’ from ‘overweight’ by Barclays, while Greggs declined by 2.02% following an initiation at ‘hold’ by Numis, which noted that growth was already factored into the company’s outlook.

Reporting by Josh White for Sharecast.com.

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