The FTSE 100 has had its best week in months this week as optimism around interest rates and the technology sector propelled UK stocks higher. Better data out of China helped lift the FTSE 100’s natural resources sector – an integral factor in this week’s gains.

Higher oil prices helped lift energy majors BP and Shell throughout the week while improving sentiment around China and upbeat broker upgrades supported the miners.

Rio Tinto, Glencore and Anglo American were around 1-2% higher around 2pm on Friday and were among the best performers on the week.

Housebuilders joined in the rally on Friday after the ECB made a ‘dovish hike’ signalling they could be done with rate hikes. The Bank of England will meet next week to decide on rates and hopes are the ECB’s positioning will be mirrored by the BoE’s Monetary Policy Committee.

The FTSE 100 was trading at 7,728 at the time of writing after touching the highest intraday level since May earlier in the session.

“A solid showing from Wall Street last night put investors in a good mood and that positivity extended across Europe and most of Asia on Friday,” says Russ Mould, investment director at AJ Bell.

“Helping to lift spirits was a strong debut from Arm on the US market and the ECB signalling the end of its policy tightening. That’s exactly what investors want to hear, namely the end of the rate hiking cycle and excitement around growth stocks once again.”

ARM Holdings closed up 25% on its first day of trading yesterday and markets will closely watch how it performs today for signs of sustained interest.

The FTSE 100’s miners have staged a monumental rally this week. The slightest sign of optimism from China has fired up the sector and Rio Tinto, Anglo American, and Glencore are among the best performers over the past week, extending a rally that started in August.

The mining sector had been on its knees after the Chinese slowed to a crawling pace this year and the Chinese authorities did little to stimulate the economy.

China is the world’s biggest consumer of natural resources and a slowdown in China is bad news for the miners. Concerns were anchored around the property market which is the destination for much of global mining companies’ offtake.

However, one could argue the Chinese slowdown has presented a rare opportunity in the shares of Rio Tinto, Anglo American, and Glencore.

The mining sector is horribly cyclical. The FTSE 100’s miners have the highest beta of the index and can be enormously volatile. It is not a sector for the cautious investor.

That said, the sector has a propensity to distribute high levels of cash to their investors during the good times. Those who buy during the downturns can find themselves enjoying bumper dividend yields when things pick up.

An appetite for risk is required to make this play and it favours investors with a longer-term outlook.

In terms of whether you have missed the boat after this week’s rally; long-term investors will have little to worry about but those hoping for a quick buck may find better opportunities elsewhere.

Rolls Royce shares are the best-performing FTSE 100 shares of 2023 so far. The Rolls Royce shares price is up a bumper 147% since the start of the year and has left every other London-listed Bluechip in the dust.

One of the main drivers of Rolls Royce shares is the resumption of global travel after the pandemic. Revenue grew 28% in the first half of 2023 compared to the same period last year and operating profit jumped 9.7%.

The strong performance gave the board the required confidence to increase guidance full-year operating profit £1.2bn-£1.4bn and free cash flow to £0.9bn-£1.0bn.

Higher profit guidance is the result of the recovery from the pandemic but also the fruit of a multi-year transformation strategy Rolls Royce says has ‘started well with strong initial results’.

Tufan Erginbilgic, Rolls Royce CEO, was particularly bullish on the back of the results and indicated Rolls Royce was far from done:

“There is much more to do to deliver better performance and to transform Rolls-Royce into a high performing, competitive, resilient, and growing business.”

Rolls Royce shares have continued to rally since and investors will undoubtedly be questioning how high the stock can go.

Using Rolls Royce EPS for the first half in a price/earnings valuation would suggest the run isn’t over yet. Annualising the first half’s EPS of 4.9p to 9.8p would give Roll Royce a PE Ratio of around 23x earnings.

However, this doesn’t allow for EPS growth in the second half. If the top end of Rolls Royce operating profit guidance is achieved, and margins are maintained, EPS could be as high as 12p for the year.

This would translate to a PE Ratio of around 19x which isn’t expensive.

From a technical perspective, the market depth prior to the pandemic favours a move into the 300p-320p region. 260p is an important level of resistance and some may take profit around this level.

Both a basic analysis of their earnings multiples and the technical set-up of the stock suggests the Rolls Royce share price could have plenty left in the tank.

Beacon Energy shares fell in early trade on Friday after the junior energy company completed a £4.3m oversubscribed placing to fund their German exploration programme.

Beacon Energy enjoyed strong demand for the issue and was able to secure funds at a marginal discount. The placing was completed at 15p – a 16% discount to the prior closing price.

The placing was met by demand from both institutional and retail investors.

“We are delighted to have received such strong support in this process from both existing and new investors. The Fundraise was significantly oversubscribed, bringing a number of new high quality institutional investors onto the shareholder register – a testament to the quality of the Company’s asset base and the scope for material value creation,” said Larry Bottomley, CEO of Beacon Energy.

“The fundraise provides welcome additional working capital to support bringing the SCHB-2(2.) well into commercial production. We would like to thank our new and existing investors for their support and look forward to providing further updates on our operational progress in due course.”

The highly anticipated ARM Holdings IPO got off to a flying start with the stock opening up at $56.10 in New York.

ARM’s IPO had been priced at $51 and a strong start will be encouraging not only for ARM’s investors but a raft of other tech companies preparing to come to market.

ARM was trading at $61.23 at 17.22 BST.

The London Stock Exchange will be bitterly disappointed ARM didn’t choose London as their IPO destination given that the company is based in the UK.

That said, a successful ARM IPO will have wide-reaching benefits to confidence and could spur a wave of global listing activity.

This is a developing story

The FTSE 100’s heavy weighting towards natural resources was evident on Thursday as London’s leading index was launched higher by mining stocks after JP Morgan analysts upgraded Rio Tinto and Anglo American.

The FTSE 100 was 1% higher at the time of writing, with Anglo-American surging 5.5% and Rio Tinto not far behind with a gain of 4.6%.

JP Morgan analysts upgraded both stocks to neutral from underweight, citing improvements in Chinese steel demand.

“China steel demand has proven more resilient as infrastructure demand offsets poor property sector demand and excess output is finding its way to the export market. With the iron ore market relatively more balanced medium term…we see the iron ore miners offering moderately more attractive valuations,” JPMorgan wrote in a note.

BP and Shell added a decent number of points to the index as oil prices continued to tick higher.

“The miners were doing the heavy lifting for the FTSE 100 on Thursday morning amid positive broker commentary on the sector,” says AJ Bell investment director Russ Mould.

Equities have had the path higher cleared by US CPI, which did little to increase fears about the Federal Reserve hiking rates at their next meeting.

“Inflation data from the US yesterday was mixed but there wasn’t anything in there to cause major alarm for either investors or the Federal Reserve, even if energy prices are starting to become a relevant inflationary pressure again,” said Mould.

Markets will learn of a raft of US economic data on Thursday with the potential to move markets and shift interest rate expectations.

US futures were pointing to a positive open.

ECB hikes rates

After natural resource companies drove Thursday morning’s trade, attention quickly shifted to the ECB and their rate decision. The ECB hiked rates by 25bps to 4%, and markets will now be fixated on whether they are finished with their hiking cycle.

The Bank of England and the Federal Reserve will meet next week to decide on rates.