HSBC leads the FTSE to a new 5 and a half year high

Shares in bank HSBC rallied close to 3% higher on the day, leading the FTSE 100 into positive territory on a day that saw the UK Index follow the Japanese Nikkei and hit a new five-and-a-half-year high.

The FTSE 100 hit a high of 6552 as the morning progressed in London after the long bank holiday weekend, with the UK index supported by gains in heavyweight banks after HSBC’s earnings beat expectations. The FTSE 350 banking sector rallied over 2.5%, whilst heavyweight mining stocks also found support as investors’ appetite for risk increased on the back of global indices hitting new heights over recent trading days. The Dow Jones recently passed the 15,000 level whilst the Nikkei also broke the 14,000 level for the first time in five years.

Central banks providing the stop loss
Global indices have some excellent momentum currently, with investors happy to put their stockpiled cash into risk weighted assets as the migration of funds from bonds to stocks continues.

The stimulus actions of the world’s central banks have acted as an efficient stop loss against bearish fluctuations. This has turned bad news into good news and good news into great news.

Investors have viewed heavy price weakness as buying opportunities and as long as that continues, market trends are maintained with large support. Investors have so far turned a blind eye to when ‘the central bank music stops’ meaning that right now, the risks of missing out on equity moves higher are greater than being caught long the market during violent price corrections. This risk on appetite continues to support equities.

Important levels for global indices
That said, we have global indices at important levels right now and so there are some price tests coming up. The Dow Jones has so far failed to close above the 15,000 level and we currently expect the Dow to open around the 15,000 level today, whilst the Nikkei edges closer to a test of its own at the 14,500 level. The German DAX is also trading just above resistance levels at 8150.

This week is equally important for the FTSE 100. The market needs to close on a weekly basis above resistance at 6550. This will confirm that momentum remains supportive and could allow the UK index to target 6600 and a retest of the 2007 highs around 6750.

HSBC investors toast earnings
HSBC shares were well supported today after the bank reported first quarter earnings almost doubled to $8.4bn, beating a forecast of $8.1bn. Europe’s largest bank’s cost cutting measures – which saw as many as 38,000 jobs culled – have gained traction whilst bad debt provisions have halved and the bank saw a $1.1bn gain from disposals. Costs are now broadly close to hitting its 52% of income target by the year end. Yet again, it is the bank’s weighting of income to performance in Asia that has benefitted the company and provided an ‘earnings shield’ against weakness from Europe.

HSBC shares have rallied close to 3% today to re-target March’s high of 741p. A failure to break above this price level, however, could see the 700p level revisited.