Copper producers, including Antofagasta, up 7.6 per cent or 54p at 762.5p, and Kazakhmys, up 5.8 per cent or 45.5p at 833.5p, rallied last night, as investors piled in on the prospect of another spike in the metal's price.
The bulls bought in after Nomura weighed in, challenging the view that the recent copper price rally was based on exceptionally high, speculative restocking in China. The advance has been underpinned by fundamentals, the broker said, "with surging refined imports to China explained by underlying demand growth and the replacement of scrap supply", much like the way Chinese iron-ore imports have replaced higher cost, domestic iron-ore production. Moreover, the market appears to have underestimated China's underlying demand growth.
"We continue to forecast supply deficits for the copper market in 2009 and 2010 with inventories reaching critical levels by 2011," the broker said. "As we believe copper supply growth is insufficient to restore market balance, we think the adjustment process will require copper prices to re-test previous highs to eliminate marginal demand."
Besides helping to lift sentiment around Antofagasta and Kazakhmys, both of whom posted production updates yesterday, Nomura's assessment also supported diversified groups with copper exposure, including Rio Tinto, which gained 7.2 per cent or 166p to 2462p.
Overall, the FTSE 100 was 1.9 per cent or 84.08 heavier at 4631.61, while the FTSE 250 rallied to 7934.63, up 2.2 per cent or 172.04 points. The benchmark, which touched its highest level since the depths of the current crisis in October at one point in the day, was affected by a string of positive earnings reports, with investors welcoming better than expected numbers from BT, the telecoms giant which was more than 12 per cent or 14.2p ahead at 126.9, and a strong update from Rolls-Royce, said to be benefiting from a short squeeze, rising by almost 9 per cent or 32.75p to 408p. David Jones, chief market strategist at the City spreadbetter IG index, said the 4,700-point level – "the one that successfully stopped rallies in the last quarter of 2008" – represented the "next big test" for the London market. Whatever its course over the coming weeks, following last night's gains, the Footsie is on track for one of its best months on record.
On the downside, Reed Elsevier fell to 420p, down more than 12 per cent or 60.25p, after announcing a share placing alongside its interim results. The group is to place new shares representing up to 9.9 per cent of its issued share capital to reduce debts.
BAE Systems, which also published a half-yearly report, was 4.9 per cent or 16p behind at 312p, as it emerged that the defence group's pension deficit had ballooned during the first half.
British American Tobacco had more luck after posting what Cazenove termed "a stunning set of numbers", rising by 1.3 per cent or 23p to 1863p. "The outperformance has been aided by a 28 per cent underlying tax rate for the half year, which we estimate to be worth 2 per cent in earnings per share terms compared with a 30 per cent tax rate," the broker said. "Even without this the [first-half] results would have been 4 per cent ahead of consensus we estimate, and rather further ahead of us."
Also on the upside, Royal Dutch Shell jumped 12p to 1600p after posting second-quarter results, which prompted Collins Stewart to reiterated its "buy" recommendation. "We think [the results release] is important not for the financial performance [which was above consensus] but for other messages," the broker said. "In particular, it highlighted 1) the pace of cost cutting already taking place, 2) the likelihood of a deep restructuring programme, and 3) the first signs of lower capex [capital expenditure] from 2010."
On the second tier, Logica climbed to 93.5p, up 5.1 per cent or 4.5p, thanks to Panmure Gordon, which switched its stance on the stock to "buy" from "hold", highlighting the positive read-across from Atos Origin's and Capgemini's results. "The brace of results gives Logica, in our view, licence to be more upbeat at its forthcoming interims," the broker said. "After all, Logica shares the strong outsourcing offer."
Elsewhere, the housing sector was boosted by the latest market report from Nationwide, which said UK house prices rose by 1.3 per cent in July, helping Barratt Developments climb to 192.5p, up almost 5 per cent or 8.75p, and Bellway rise to 736.5p, up almost 5.2 per cent or 36.5p.
Among smaller companies, Arc International, which confirmed that it was in preliminary offer talks during the session before, closed flat at 15p, as Panmure Gordon weighed in, suggesting that 20p may be the likely base level for a potential takeover. "We understand that discussions have been under way for a few weeks, but it is difficult to speculate who the potential acquirer might be," Panmure said.
"It is no secret that ARM had interest a number of years ago. Intel is a key user of the technology, and Apple could even come into the fray with the advantages that Sonic Focus brings. Other licensees could clearly have interest."