Bank Shares Overshadow Weak Mining Sector, Powering FTSE 100 Index

U.K. shares turned higher on Monday thanks to gains in banking stocks that outweighed declines in mining shares.

The advance of London-listed banks’ equities was bolstered by upbeat sentiment from other European counterparts, after Italy’s largest bank by assets, UniCredit SpA UCG said on Tuesday it planned to cut jobs further and sell its assets in order to reinforce its capital base. In addition to the job cuts that had already been planned, UniCredit is about to cut another 6,500 jobs by 2019, bringing total reductions to 14,000, or 10% of its workforce.

The bank, which has a market capitalization of just under EUR15 billion, stated to launch a EUR13 billion ($13.8 billion) rights issue by the end of March and shed EUR17.7 billion of gross bad loans by bundling them into securities to be sold to investors.

Shares of Lloyds Banking Group added1.38%, Standard Charterer gained 1.04% while Barclays PLC moved up 0.53%. Royal Bank Of Scotland Group also picked up 0.4% and HSBC Holdings PLC ticked 0.92% higher.

However, mining shares capped the index’s rally today as metals prices fell on the back of a stronger U.S. dollar. Antofagasta PLC fell 2.26%, Rio Tinto PLC lost 2.01% and BHP Billiton PLC shed 0.96%. Precious metals producer Fresnillo PLC and Randgold Resources PLC were on a decline in the wake of sliding gold prices.

On the economic data front, the Office for National Statistics reported that the U.K.’s annual inflation climbed to its highest annual rate in more than two years. The CPI index rose to 1.2% in November, the highest rate since October 2014.  The Bank of England is scheduled to release its last policy decision of 2016 on Thursday, with markets widely expecting that the bank will keep its key interest rate unchanged at 0.25%.

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Fig: FTSE 100 Index H4 Technical Chart

The U.K.’s benchmark rebounded from nearly one-week low at 6868.00 and has broken above the resistance at 6920.00. The bullish momentum has been powered by the short-term MA20 which helped the index reverse higher on Tuesday. As indicated by the RSI that is heading to the overbought zone, the FTSE 100 index may surge higher to retest the 7000.00 threshold.

Trade suggestion

Buy Stop at 6930.00, Take profit at 7000.00, Stop loss at 6900.00

 

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