Market Review

Market Review

The FTSE 100 hits a seven-week high buoyed by commodity stocks, but airlines are hit by comments that a downturn is due

Britain’s benchmark index touched its highest level in seven weeks in early morning trade, buoyed by commodity stocks.

The FTSE 100 climbed 52.74 points, or 0.84pc, to 6,379.02 - its highest level since August 19 - and is now poised to make gains for its sixth consecutive trading session.

Rebecca O’Keefe, of Interactive Investor, said: “Equity markets continue to rise, as investors increasingly view the market as good value.

“While significant risks remain, the dramatic fall in volatility demonstrates that the late-summer panic has subsided, leaving investors with little choice but to put cash back to work.”

A bullish note from Morgan Stanley (Xetra: 885836 - news) also lifted equities. The investment bank expects European equities to enjoy a strong fourth quarter, due to better news from China, and improved sentiment towards commodities and emerging markets.

The note came a day after Citigroup (NYSE: C - news) strategists forecast global equities would gain as much as 20pc by the end of 2016. European shares hit a one-month high this morning with the CAC in Paris up 0.7pc and the German DAX 1pc higher.

Mining sector

Meanwhile, mining stocks reclaimed their position at the top of the FTSE 100 after Morgan Stanley, in a separate note, upgraded the sector to “attractive”, and lifted the ratings of Anglo American (LSE: AAL.L - news) , Rio Tinto (LSE: RIO.L - news) and BHP Billiton, big players in the sector.

In a note entitled ‘Turning Tide’, Menno Sanderse, of Morgan Stanley, said: “Stable data from China in the last few months with a potential uplift from recent financial and administrative stimulus policies should increase conviction that a 19pc commodity price uplift by 2017 is achievable”.

While such a scenario would mean a sharp reversal from the experience of the last 18 months, the investment bank said if commodity prices increased, it would trigger a tactical re-rating.

However, with the mining sector now trading at lows not seen since the global recession of 1982, Morgan Stanley warned that the months of September and October were seasonally weak for the sector with “destocking ahead of winter in the Northern Hemisphere”.

Anglo American rose 10.9pc to 670.1p as a result, while Rio Tinto jumped 7.9pc to £24.96, Antofagasta (Other OTC: ANFGF - news) rose 5.3pc to 565.5p, Glencore (Amsterdam: GX8.AS - news) added 42pc to 122.8p and BHP Billiton (NYSE: BBL - news) climbed 4.7pc to £11.09.

Airline industry

Airline stocks suffered from a spot of turbulence on the back of comments made by industry experts at the CAPA World Aviation Summit in Helsinki.

Jonathan Wober, of CAPA-Centre for Aviation, said the airline industry was near near the top of the cycle and a downturn was due.

However, he reckoned the downturn could trigger M&A activity, while pushing the weaker airlines out of the industry.

“We’re somewhere near the top of the cycle and you don’t stay at the top of the cycle forever,” Mr Wober said.

The rising oil price has also weighed on sector stocks. Mike van Dulken, of Accendo Markets, said: “UK-listed airlines continue to lose altitude as investors react to oil’s extended bounce to the longest in nearly six months.”

IAG slid 5.3pc to 555.1p, easyJet was 4.8pc lower at £16.75 and Wizz Air fell 3.7pc to 578.1p.

Oil stocks

While oil prices hindered the performance of airline stocks, it helped oil and gas companies to rise towards the top of the blue chip index.

Ms O’Keeffe said: “Oil prices rallied sharply on Tuesday after news emerged that Russia and Saudi Arabia had held discussions on oil output.

“With US crude output now increasingly expected to decline, OPEC may be more inclined to take action to support higher prices.”

Before 10.30am Brent crude hit an intraday high of $52.95 per barrel - up 1.9pc.