FTSE 100 rises to 6-week high as miners climb on China stimulus plans

U.K. stocks advanced Tuesday, driving toward a six-week high as mining and bank shares were bolstered by plans in China to expand measures to stimulate economic growth.

How markets are moving

The FTSE 100 index UKX, +0.78%  leapt 0.8% to 7,721.12, on track for its highest close since June 11, according to FactSet data. The basic materials, tech and financial sectors led advancers. But the utility and oil and gas groups pulled slightly lower. On Tuesday, the index fell 0.3%, marking a second consecutive decline.

The pound GBPUSD, +0.2443%  traded at $1.3111, slightly higher than $1.3101 late Monday in New York. Against the euro, sterling GBPEUR, +0.1071%  bought €1.1217 versus €1.1204.

What’s driving the market

A promise of new stimulus by China spurred gains for mining stocks, as China is a major buyer of metals, including being the world’s biggest consumer of industrial metal copper. Mining stocks comprise 86% of the weighting in the basic materials sector on the FTSE 100, FactSet data show.

China’s State Council outlined measures aimed at bolstering domestic consumption, such as corporate tax cuts and support for small businesses. Bond yields as well as bank stocks rose in China on the news, a day after U.S. Treasurys and other sovereign bonds gained on reports that the Bank of Japan may discuss tweaking its yield curve control policy. Rising bond yields can provide a boost to lenders.

China’s move comes as it’s engaged in a trade fight with the U.S. Last week, U.S. President Donald Trump said he’s “ready” to put tariffs on all Chinese goods imported to the U.S., which would amount to more than $500 billion. China has issued levies in retaliation to tariffs already put in place by the U.S. Investors will watch for more developments from the trade front on Wednesday, when Jean-Claude Juncker, the European Union’s top official, meets Trump at the White House to try to de-escalate Trump’s trade dispute with the EU.

What analysts are saying

• “After a quiet start the equity bulls have come charging into the fray, emboldened by Google’s figures, China’s move towards infrastructure stimulus and a decent set of PMIs from the eurozone,” said Chris Beauchamp, chief market analyst at IG, in note.

“London’s mining contingent are clearly fans of China’s promise of more infrastructure spending, as the sector rises by an average of 2%. Global growth expectations had taken a knock thanks to trade wars, but the IMF’s view that 0.5% could be knocked off GDP thanks to trade disputes, while not great, is at least more optimistic than some of the numbers that had been doing the rounds,” Beauchamp said.

•The pound “has depreciated since the last Bank of England meeting in June, while the probability of a hike in August has increased significantly from 36% the day before the June meeting to 85% today, according to market pricing. One obvious reason is of course the political turbulence and the Brexit risk premium,” said Richard Falkenhäll, senior FX strategist at SEB, in a note.

“However, most of the appreciation in 2017 occurred in the last nine days ahead of the rate decision. Experience suggests there should be some room for a temporary recovery of [the pound] in coming days, although it is unlikely to last after the [BOE] decision,” said Falkenhäll.

Stocks in focus

Topping the FTSE 100, shares of iron ore producers BHP Billiton PLC BLT, +4.20% BHP, -0.52% BHP, +1.73%  and Rio Tinto PLC RIO, +3.96% RIO, -0.07% RIO, +1.28%  each bounced up 3.6%. Anglo American PLC AAL, +4.19%  , whose portfolio includes copper and platinum production, also rose 3.6% and Glencore PLC  GLEN, +4.19% GLCNF, +0.49%  , a commodities producer and trader, added 3.5%.

Shares of Asia-focused banks Standard Chartered PLC STAN, +2.14%  and HSBC Holdings PLC HSBA, +1.47% HSBC, +0.87%  moved higher by 2% and 1.3%, respectively.

Off the main benchmark, Hammerson PLC shares HMSO, +1.25% rose 1.3% after the retail property development and investment company said it’s launching a share buyback program of up to £300 million ($393.7 million), and launching a new strategy to exit the retail-park sector.