The mining sector supplemented recent gains last night, with Kazakhmys rallying by almost 5 per cent as traders sought to increase their exposure to base metals.
Barclays Capital, eyeing potential inventory restocking in the OECD area, demand strength in China and more general constraints in supply, highlighted the potential for upside gains in base metals such as copper. Citing the impact of the devastating earthquake in Chile, which has been driving copper prices higher in recent sessions, the broker also pointed to the risk of unexpected disruptions.
Though natural disasters are thankfully rare, and while most of the capacity in Chile is already coming back online, "copper, nickel and zinc markets can easily be pushed from surplus to deficit in the event of a significant disruption", Barclays explained.
"While we do expect some easy supply growth in the near term in aluminium, nickel and zinc markets as idle capacity comes back online, we believe production growth will lag demand growth in copper and the copper market surplus that has developed over the past year will reverse," the broker said. "This should be supportive of relatively high copper prices. We expect nickel and zinc markets to be roughly balanced this year, while aluminium markets are likely to be oversupplied."
In keeping with its view, Barclays went on to upgrade copper-exposed Kazakhmys, up 70p at 1516p, from "equal weight" to "overweight". Antofagasta, which was moved from "underweight" to "equal weight", gained 34.5p to close at 967.5p, while Xstrata, which is also leveraged to the copper price, added almost 4 per cent, or 42p, to 1140p last night.
Overall, the strength in the mining sector drove the FTSE 100 beyond the 5500-mark, with the benchmark rising by 49.15 points to 5533.21. The FTSE 250, though firm, was a little weaker, rising by 13.52 points to 9612.17 as a number of mid-cap stocks went ex-dividend. Sentiment received a boost in the afternoon, with traders welcoming news of improving conditions in the American jobs market. Widely followed figures from the payrolls firm ADP revealed that private US employers shed 20,000 jobs in February – an improvement on January when 60,000 jobs were lost.
Back with the day's movements, and Standard Chartered, up 84p at 1674p, cheered investors with news of record annual profits. Lloyds was also strong, adding 1.37p to 52.78p as the non-executive director David Roberts bought shares. HSBC proved less resilient last night, easing by 0.7p to 699.9p after Credit Suisse, while sticking to its "outperform" stance, scaled back its target price for the stock to 810p.
The insurance group Prudential, which suffered sharp falls after revealing plans for a mammoth rights issue to fund its acquisition of AIG's Asian assets, attempted a comeback, rising by 12.5p to 500p as bargain-hunters piled in.
Parts of the wider sector were also strong amid supportive regulatory developments in Europe, with Legal & General rising by 3.7p to 76.95p and Aviva adding 11p to 390.2p. RSA Insurance was held back, however, with the stock retreating to 124.9p, down 5.3p, in ex-dividend trading.
Elsewhere, Pearson was 11p stronger at 962p after Citigroup raised its target price for the stock from 999p to 1070p on the back of the recent full-year results. The publishing group also received a boost from a round of deal talk, with market watchers citing renewed speculation regarding the possibility of bid interest in Pearson's Financial Times division. Bloomberg was once again mooted as the most likely suitor, but there was little in the way of new detail.
On the downside, Thomas Cook, down 0.7p at 235.7p, was in focus after Morgan Stanley expressed a preference for TUI Travel. Highlighting the high expectations ahead of the company's investor day later this month, the broker said Thomas Cook "needs to tread a fine line between optimism and realism". It added: "While Thomas Cook shares are not expensive, we think that TUI Travel has a more compelling internal turnaround story, and that other sub-sectors in leisure offer greater cyclical upside." At the close, TUI was 3.3p behind at 280.2p.
Further afield, Tullett Prebon swung to 306.8, an increase of more than 5 per cent, or 16.1p, after Panmure Gordon weighed in, revising its stance on the inter-dealer broker to "buy". "The current valuation overstates structural uncertainties and looks attractive compared to both its historic and peer group comparisons," Panmure said. It abandoned its "hold" view ahead of the company's preliminary results, which are due next week.
Meggitt also firmed up, adding 2p to close at 297p, after Société Générale, pleased with the way the engineering group was dealing with weakness in its markets, abandoned its negative stance.
"Meggitt has weathered the downturn in its markets well, with currency benefits and restructuring benefits... helping to offset a 13 per cent decline in revenues at constant exchange rates," the broker said. It revised its view on the stock from "sell"to "hold", with a revised 280p target price, compared to 220p previously.