The FTSE 100 staged a turnaround in trading in the final few hours of the session after investor concerns over a weakening global economic recovery were calmed by a surprising increase in US consumer confidence data.
US consumer confidence rose to 53.5 in August, much higher than the market had expected and this breeds confidence that the consumer is not close to putting the shutters on the windows just yet, particularly after yesterdays worse than expected personal income data.
I would not expect that today’s better confidence data would significantly brighten prospects for Friday’s Non Farm Payrolls. However, the FTSE 100 did close on the highs of the days which insinuates that buying momentum was strong into the close and this is a positive.
The trading day had started particularly negatively, with the FTSE 100 opening 1% lower tracking weakness in the US last night and Asia this morning as traders continued to fret about the strength of the economic recovery. The worst one day slump in the Nikkei for 3 months locked in a negative start to trading in the UK with risky asset classes such as the banks and the miners the worst hit.
However, the trigger for the day’s turnaround was those better than expected consumer confidence data. The immediate reaction from investors was to buy back into those stocks that had been aggressively sold off earlier in the session and this saw a complete reversal for the miners and the banks, which ended the session in positive territory having been heavy fallers for much of the day. Rio Tinto, Fresnillo and Randgold all traded in the top 5 gainers for FTSE 100 companies whilst Royal Bank of Scotland was the top performing UK bank, closing higher by 2.5%.
Arm Holdings however saw a spurge of stock demand, particularly in the afternoon session, to finish the top riser on the day as investors became bullish that Intel’s $1.7bn deal to buy Infineon’s wireless unit could indicate that the blue chip tech firm could continue require support from ARM chip designs in their mobile phones. The news lifted ARM shares to a new monthly high, closing higher by 8.6%.
The above comments from Joshua Raymond, Market Strategist, City Index.
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