LONDON MARKET COMMENT: Miners And Banks Lead Stocks Higher

LONDON (Alliance News) - London's main indices are trading higher Monday mid-morning led by mining and and banking stocks as China's central bank stimulus measures announced on Sunday are helping European stock markets to recover some of their losses on Friday.

The FTSE 100 is trading up 0.7% at 7,046.86, while the FTSE 250 is up 0.1% at 17,581.33. Meanwhile, the AIM All-Share index is flat at 749.5.

European indices also are higher, with the CAC 40 in Paris up 0.5% and the DAX 30 in Franfurt up 1.3%.

"The selling pressure that signed off last week has abated slightly, and there is an element of support. The negative impact of new regulations on short selling in China have been countered over the weekend by a 100 basis point cut to the Reserve Requirement Ratio," says Hantec Markets analyst Richard Perry.

On Friday, stock markets dropped after China allowed fund managers to lend shares for short-selling in a move meant to increase the supply of shares in the market. But on Monday, share prices are recovering on the news that the Chinese central bank reduced the amount of cash financial institutions are required to hold as reserves.

Chief analyst at CMC Markets UK Michael Hewson says the cut in the reserve requirement ratio to 18.5% from 19.5% was a much larger reduction than many in the market had been expecting.

Chinese state media reported that the reserve requirement ratio cut by one percentage point goes into effect on Monday. It was the biggest such cut since the financial crisis and the second reduction this year, and was taken after gross domestic product was reported to have dropped to its slowest rate of growth in six years.

The central bank last lowered the ratio by 0.5 percentage point in February, which was the first reduction since May 2012. The latest move was intended to make available more funds for banks for lending and to divert funds to productive sectors.

Despite the stimulus news, Asian stock markets ended lower Monday, with the Japanese Nikkei 225 down 0.1%, the Hang Seng down 2.0% and the Shanghai Composite down 1.6%. The Hong Kong and Shanghai exchanges had rallied last week despite the weak Chinese economic data.

Later in this week, the market focus will turn to Friday's EU finance ministers meeting where the main theme will be again the Greek debt situation. Meanwhile, Greek officials are pulling out all the stops in an effort to borrow EUR15 billion to avoid default, with recent feelers out to China and Russia, according to Greek media reports Saturday.

Weekly newspaper Karfi cited government officials saying that the country is hoping China will provide it with a EUR10 billion loan, in the form of a prepayment for future use of the port of Piraeus and as an advance on its investment into Greece's railway operator. The country is also hoping for an additional EUR3-5 billion from Russia, according to the weekly Agora, also quoting officials. That would serve as an advance payment for fees linked to a planned gas pipeline dubbed Turkish Stream.

"Don't get overly excited about a murky story in some Greek and German media that Athens may get a EUR3 billion to EUR5 billion cash advance from Russia shortly. First, a top Russian official contradicted these stories over the weekend. Second, such money would probably buy Greece time to make it to July without having to choose between Grexit or accepting [European Union, European Central Bank, International Monetary Fund] conditionality," says Berenberg analyst Holger Schmieding.

Greece is desperately trying to pull together a list of credible reforms and cost-cutting proposals to present to its creditors - the EU, the ECB and the IMF - in exchange for the release of a EUR7.2 billion tranche of funding from its bailout package that has been held up amid worries that Greece is not making the changes necessary to stay solvent.

"Our main scenario remains that Greece will return to sensible policies, strike a deal with its creditors and stay in the euro. However, with Greece having apparently made no progress at all since the interim agreement of 20 February, we raised the probability of Grexit from 25% to 30% last Friday," says Schmieding. "While European officials do not expect any significant progress ahead of a Eurogroup finance minister meeting on 24 April in Riga, they now seem to be urging Athens to accept key reforms in time for the next Eurogroup meeting on 11 May."

Among individual stocks in London, mining stocks are leading both FTSE 100 and FTSE 250. Anglo American is the best performer in the blue-chip index, up 2.6%, while Rio Tinto is up 1.7%. Glencore, up 1.7%, BHP Billiton, up 1.4%, Antofagasta, up 1.2% and AstraZeneca, up 1.2%, also are amongst the biggest gainers. FTSE-250 listed Vedanta Resources is up 2.5%, while Kaz Minerals is up 1.6%.

The FTSE 350 Mining sector index is up 1.5%. Meanwhile, the FTSE 350 Banks sector index is up 1.2%, with HSBC Holdings up 1.9%, Royal Bank of Scotland up 0.8%, Barclays up 0.7%, and Lloyd's Banking Group up 0.4%.

Outside miners and banks, Ashtead Group is amongst the biggest gainers in the blue-chip index, up 1.9% at 1,133 pence, after Barclays raised the equipment rental company's price target to 1,405p from 1,289p, reiterating its Overweight rating.

Petrofac is the worst performer in the mid-cap index after it said Monday it will book a further GBP130 million pretax loss on its Laggan-Tormore gas plant project on Shetland in the UK, blaming weather-related delays, an issue with a sub-contractor, lower worker productivity and the requirement for more work than it had previously expected.

The oil and gas services company had booked a USD230 million loss on the project in its 2014 results and had said it expected that it wouldn't have to book any further losses over the remainder of the contract, which it expected to complete in the third quarter of 2015.

US futures point to a higher opening, with the DJIA and the S&P 500 pointed up 0.5% and the Nasdaq 100 up 0.4%.

By Daniel Ruiz; danielruiz@alliancenews.com

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