FTSE bounces from early loss to trade higher by 1 on commodity stock gains

Strength in mining and oil firms was enough to lead the FTSE 100 higher from opening losses of 45 points to trade higher by 70 points, marking a 2% swing in the first hour of trading.

The energy behind today’s rally can be firmly located in the oil and mining sector. The FTSE 350 oil sector has rallied some 2% early on with sentiment undoubtedly helped by the seeming imminent end to hostilities in Libya as the rebels seek to take control of the capital Tripoli. Higher crude oil prices and muted degrees of bargain hunting after sharp falls towards the end of last week are also helping to support prices. BP, Royal Dutch Shell and Oil services firm Petrofac have all seen early gains of between 2%-3%.

The miners have also helped to lead the charge higher in london trading, with Randgold, Fresnillo and Lonmin topping the FTSE 100 gainers list. Randgold and Fresnillo, the Gold and Silver miners both saw high demand on the back of stronger Gold and Silver prices, but also on a positive note on both from Citigroup.

Banking stocks were largely marginally positive on the day though Royal Bank of Scotland and Standard Chartered lost 1% in trading.

It is crucial that rallies gain in both momentum and strength if we are to see the FTSE 100 start to significantly recover the heavy ground lost in August already. Undoubtedly the fact that there is no real significant economic data out today or major company earnings disappointment is helping to free the hands of investors somewhat and supporting equities. However, volatility is likely to remain this week and the FTSE 100 upside target remains at 5445. A break above this could open up more gains for stocks but considering the recent fragility of stock gains, this remains a big ‘if’.

The key question is how sustainable are these gains and can momentum start to build and strengthen? Unfortunately recent bounces have been very choppy in nature and this makes them fragile as proved by last week’s selling. The lack of economic data today is most likely helping to strengthen some short term stock demand but as we head deeper into the week, we have GDP readings from the UK and US on Friday, along with the Jackson Hole meeting, and it is these three headlines that will likely determine the longevity of today’s bullish move.

One fears that perhaps investors could be setting themselves up for yet more disappointment from the Jackson Hole meeting on Friday. There is undoubtedly a sense of de ja vu to last time around, when Bernanke used the meeting to give the markets hints that a second round of quantitative easing was coming. Naturally this will now be what investors will want to see again and if nothing sincere emerges, it could leave many rather disappointed, just like most were from the recent Merkel and Sarkozy meeting.