The FTSE 100 tiptoed towards record highs early on Monday as additional measures by China to stimulate the economy boosted interest in risk assets.
However, the gains were short-lived and the index turned negative as the session progressed with London’s leading index trading down by 0.2% at the time of writing. The FTSE 100 all time record high at 8,445 is providing a difficult mark to reach despite consistent record highs for US stocks.
Early gains were driven by mining companies that managed to hold onto gains as the session developed. It was the domestic facing side of the market that suffered and dragged the market lower as concerns about the budget mounted.
China
After leaving the market hanging for what seemed like an eternity after the pandemic, Chinese authorities have responded to calls for stimulus with a plethora of measures in recent weeks. The most recent area of focus was the consumer and changes to borrowing rates to encourage higher spending.
The latest developments saw the FTSE 100’s miners rise on hopes of greater demand for natural resources.
“The FTSE 100 has started the week on a positive foot, helped by the extra stimulus being thrown at China’s economy. Miners were among the gainers in early trade after the People’s Bank of China cut key lending rates,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“The one-year and five-year loan prime rate have been slashed by 25 basis points. These benchmarks are used to price consumer loans and mortgages, and the idea is that the move will encourage lending and spending and help mend the ailing property market. There are also hints from authorities that there may be further cuts to the amount banks need to hold in reserve, to try and boost lending further.”
The spectacular rally in gold continued on Monday with the safe haven touching highs above $2,700. Silver also marched higher. This propelled Fresnillo 5% higher to the top of the FTSE 100 leaderboard.
Unfortunately, the optimism around China and the miners was unable to keep the FTSE 100 positive and issues closer to home weighed on the index.
UK-focused stocks
New data from Rightmove has highlighted the impact the Budget was having on the property market. Far from helping the UK economy shift up a gear, the new Labour government’s messaging and rhetoric has done nothing but curtail the UK economy in the early months of the new parliament.
This was evident in Rightmove’s data that showed the pace of growth in house prices slowed ahead of the upcoming budget as home buyers held off making purchases. The data led to a drop in housebuilding stocks as investors booked gains after a recent rally.
Intertek was the top faller after being downgraded by analysts at RBC Capital.