FTSE 100 at point of indecision Chinese inflation helps miners

The FTSE 100 saw gains of 1.1% to finish the week on a high, with strong demand for mining and energy shares. The gains were enough to send the FTSE 100 through a key resistance level and finish the week at its highest closing level in more than two months.

The FTSE 100 had this week struggled to overcome resistance at 5450, which was proving to be a large hurdle for UK large cap shares. However, the fact that the FTSE has continued to see higher lows indicates a perseverance from investors to refrain from locking in their gains from the recent three-week rally, a perspective emphasised by the fact that a Spanish credit rating downgrade alongside recent downgrades for a range of European banks, and a weaker reading than expected in US economic sentiment was not enough to take the wind from the FTSE’s sails today.

Countering the negative US sentiment report however was a much better-than-expected jump in US retail sales, which climbed 1.1% last month to hit its highest point since February. Considering the fact that 70% of US economic activity is relied upon consumer spending, investors took the data in their stride in the afternoon session.

The FTSE 100 has now closed higher for three consecutive weeks, yet whilst this is very positive, much of the gains we have seen have been built on investors optimism in the run up to the G20 meeting early next month, which makes the gains fragile should investors not see credible, coordinated and transparent plans to combat sovereign debt contagion effects and address bank recapitalisation.

Of course next week also sees the US earnings season move full steam ahead, with important earnings to come from Citigroup, Apple, Bank of America, Goldman Sachs, Intel, American Express and General Electric. As such, investor eyes will likely sway somewhat from Europe’s debt problems to US earnings and this raises the potential for a pullback if weaker earnings trigger investors into profit taking mode.

Shares in mining companies have been the energy behind today’s FTSE gains after data showed that Chinese inflation cooled to 6.1% from 6.2% last month, helping to cement a view that potentially hawkish Chinese monetary policy will ease sooner rather than later. This coupled with reports of a sharp reduction in metal stockpiles in China is helping to ease the concerns raised yesterday regarding a slowdown in activity from the weaker Chinese export and import data. Miners topped the FTSE leader board as a result today, with shares of Fresnillo, Kazakhmys and Vedanta Resources all gaining 3% on the day.

A 2.5% rally in crude prices also locked in a positive session for oil firms, with Tullow Oil shares rallying 4.9% whilst Essar Energy shares climbed 3% after the firm reinstated a power plant purchase agreement.