2 gains for FTSE as miners recover and investors gamble on rescue plan

The FTSE 100 saw gains of over 2%, alongside 3% rallies for peer indices the DAX and CAC on Tuesday, over investor optimism that the mooted rescue plan may be enough to stop the debt contagion within the eurozone.

What we have seen is the strong close in US trading last night and Asia trade this morning, giving investors confidence to build on yesterday’s gains and buy back into shares.

Revival of miners the key
The key element on the FTSE 100 today has been a revival in the prices of heavyweight miners, who have been aggressively sold off in the last few weeks as metal prices plummet. Tentative rallies in the prices of copper, silver and gold today have been enough to entice investors to bargain hunt some of the mining firms from their lows, with Vendata Resources, Fresnillo and Antofagasta all leading the charge higher. With the miners being heavyweight stocks, we can locate much of the energy behind the FTSE’s rally here.

If the FTSE 100’s rally is to have longer legs this time around, healthy demand for mining stocks will be crucial.

The banks and insurers continued to see buyer demand, posting more healthy gains on the day to add to yesterday’s very strong session. Barclays, Societe Generale and BNP Paribas saw gains of 4%-8% on the day.

Counter claims clouds what the rescue plan may look like
Whilst undoubtedly the mere fact that European leaders are talking, seemingly progressively, is enough to encourage investors to pick up shares from last week’s lows, there remains some doubt as to exactly what the final rescue package will look like.

Talk about the leveraging of the EFSF through the ECB was quashed further this morning by Spain’s Economic Minister Elena Salgado, who said that plans to extend the EFSF to €2trillion was not on the table. Traders are trying to guess whether this was a refute of the amount or of an increase in the EFSF itself.

It seems each day we are getting views and counter views from the very people that are deciding upon what the rescue package for Europe will look like and until a definitive, credible and co-ordinated plan emerges, the rally we are seeing in equity markets may run out of steam.

The buys we have seen remain on short term daily contracts, giving scope for quick changes of sentiment. Once investors see gains of 2-4% in their portfolios, they will be faced with a decision to either maintain positions or cash in their gains and this decision could come if the FTSE approaches the 5400-5450 technical resistance levels.

Make no mistake however, the initial plans being mooted is a step in the right direction, and this is helping to convince buyers to emerge for key banking and insurance firms previously hit by the debt uncertainty in the eurozone.