FTSE hits new highs as investor appetite for risk increases

The FTSE 100 rallied 20 points in early trading on Wednesday as investor appetite for risk increased with optimism that Greece will agree tough austerity measures needed to secure the new bailout funds in time, whilst eyes also switched to tomorrows Bank of England rate decision which is expected to see more quantitative easing.

The rally helped to see the FTSE reach new highs not seen since late July last year. The 6000 level remains in target but with strong resistance surrounding the key psychological level, investors are mindful of any correction that could be triggered by a breach of the 6000 level.

Investor confidence has risen somewhat, typified by the fact that we have not seen any mild correction as of yet despite the uncertainty over Greece and this helps to reaffirm that the markets are in rally mode. We have Central Banks pumping liquidity into the financial system at cheap levels with further pledges of stimulus expected from the Bank of England, and potentially the Fed, to come, whilst investors simply do not appear too fussed so far about Greece stumbling its way to agreeing the new bailout terms. Of course, that may change should Greece run out of time to agree terms but so far, we have not seen investors pay too much attention to that risk.

The added confidence is helping to increase demand for heavyweight riskier asset classes such as financial and resource stocks, which have led much of the early charge in European stock markets today.

The FTSE 350 mining sector and the FTSE 350 banking sector both saw gains of 0.8% in trading, with stocks such as Rio Tinto, Barclays and Kazakhmys leading the charge higher.

On the downside were shares of International Power, whose shares price fell 3.6% after the firm warned that its target of delivering core earnings of €1bn from new projects in 2013 is likely to be challenging. The company reported a 9% increase in current operating income with weak income from the UK helping to be offset from international markets. UK operating income fell 33% whilst growth was seen in North America by 45% and Latin America by 18%.

SuperGroup loses its ‘Super’ as shares fall 14%
Shares in retailer SuperGroup fell 14% after the fashion chain saw slowing growth in sales. Like for like sales grew by just 4.4% at stores open more than a year in the last quarter and the company also warned that the last three weeks of trading in January saw sales growth slow, highlighting concerns from investors that consumer demand is falling sharply in the tough economic environment.

There is no significant economic data out today and so investors are likely to pay a dual focus to Greece, and whether the constant delays to negotiations over the terms of the second bailout deal may see a resolution today, and eyes will also switch to the Bank of England rate decision tomorrow, which investors expect could see an additional $50bn added to the QE2 gun.