FTSE 100 nears new high as markets cheer Chinese stimulus

The FTSE 100 looked set to cap a week of gains on Friday as global markets rose on hopes of further interest rate cuts and a major Chinese stimulus package.

The blue-chip index rose slightly at the open, following continued outperformance from Asian markets overnight and ahead of crucial US inflation data later in the day, and taking weekly gains to almost 1 percent.

This means the FTSE 100 is around 1.8 per cent behind an all-time high of 8,445.8 set on May 15, when expectations that the Bank of England would press ahead with its first base rate cut before that the US Federal Reserve would combine with a weaker sterling to boost exporters.

Politburo leaders announced Thursday that they would bolster “necessary fiscal spending” to help meet the world’s second-largest economy’s 5 percent annual growth target.

It follows a period of deteriorating economic data, sparked by crises within China’s huge property sector.

The government intervention comes after China’s central bank pulled the trigger on stronger-than-expected monetary stimulus measures on Tuesday, including interest rate cuts and the easing of some mortgage rules.

This has driven China’s CSI 300 and Hong Kong’s Hang Seng indices 14.5 and 13.5 percent higher, respectively, since the market close on Monday.

The impact on the FTSE 100 has been limited so far, largely as a result of lower oil prices weighing on the index, with Brent crude now trading at $71.72 a barrel after falling more than 24 percent. cent during the last year.

However, the FTSE 250 has benefited from China-exposed components such as Burberry and Prudential.

Richard Hunter, head of markets at Interactive Investor, said: “Of course, there will be a lag between the announcement of the stimulus package and its effects on the economy, but the very fact that the authorities have moved away from their previous inertia has energized both national and international markets.

“Chinese blue chip stocks… (are at their) highest level since the time of the global financial crisis in 2008, while the positive repercussions have spread to most commodity prices and sectors.” with high Chinese exposure around the world.

Markets will also be keeping an eye on new global economic data due out today, with the eurozone numbers to be followed by a significant US inflation figure.

Eurozone data paint a mixed picture: French consumer prices rose less than expected, Spanish inflation slowed to 1.7 percent and German unemployment rose slightly more than expected. Stock markets across the block rose in early trading.

Figures for the US Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred measure of inflation, will be released this afternoon, and markets are looking forward to guidance on the outlook for interest rate policy.

PCE is expected to have risen between 0.1 and 0.2 percent last month.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Any significant rise above that range could dampen prospects for further rate cuts by the Federal Reserve, whose current forecast suggests another half-point reduction by the end. 2024”.