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FTSE 100 surges on strong commodities

The FTSE 100 rose on Thursday as commodity prices resume their march higher helping shares in London’s oil companies.

“A 0.7% rise in the FTSE 100 to 7,188 should certainly bring a smile to investors, with similar gains seen across most of the key markets in Europe. Even parts of Asia had a spring in their step, with the Nikkei up 1.5%,” said Russ Mould, investment director at AJ Bell.

“Brent Crude pushed ahead 0.8% to $83.85 per barrel, natural gas showed no sign of stopping as it advanced another 6.7% to 251.73p per therm, and even sterling was intent on making ground as it rose 0.2% against the US dollar to $1.3699.”

Whereas higher energy prices have recently caused strife in markets due to fears over inflation, investors today focused on what it could mean for the earnings of the UK’s major oil companies.

“Stronger energy prices provide a tailwind to the FTSE 100 because Shell and BP are such big constituents of the index and their shares tend to do well when oil and gas prices rise,’ said Mould.

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BP and Shell were up both up around 1% in early trade on Thursday.

Stronger pound

Indeed, investors were even happy to ignore the impact of a stronger pound which typically has an inverse relationship with the FTSE 100.

“The reason why the currency movement hasn’t weighed on the FTSE today is down to the strength in the broader natural resources sector. Stocks like Anglo American, Antofagasta and Rio Tinto are rising because metal prices are moving ahead, most importantly copper,” said Russ Mould

Mining shares were among the top risers with metals and minerals companies accounting for 5 or the 6 top risers on Thursday morning. Anglo American was the top riser gaining 3.6%.

Analyst Russ Mould cautioned on the short term volatility of commodity prices if the global growth picture started to falter.

“On a broader basis, a slowdown in the global economic recovery could easily trigger a pullback in commodity prices in the near-term, but for today it seems that investors are very much risk-on.”

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