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Mining shares continued to defy gravity today with prices being pushed higher with a little help from top broker Goldman Sachs.
Goldman is still bullish about the outlook for commodity prices which is good news for those companies digging the stuff up out of the ground. It says expectations of strong steel production growth, driven both by recovering western economies and strong Chinese production growth means we will see raw material prices grow over the next 12 months.
As a result, Goldman has increased its April 2010, coking coal benchmark settlement from $155 a tonne to $180 a tonne.
All this is taking place against the backdrop of a sharp drop in the dollar in which commodities are priced. Dealers say a softer dollar is likely to leave a dent in the miners' profits. But despite this investors are continuing to chase mining shares higher. They, along with the banks, have been the driving force in the London stock market's revival in recent months. Only yesterday, the gold price touched a record high of $1,041 an ounce with investors hedging against that weaker dollar.
Lonmin rose 20p to 1630p, Randgold Resources was up 45p to 4576p, Rio Tinto jumped 37½p to 2778, and Kazakhmys rose 13p to 1106p. Dealers say there is too much cash chasing too few shares and that is serving to drive prices higher.
Kazakhmys remains on Goldman's influential conviction buy list, while Impala Platinum is deemed to be the most expensive stock in the sector.
Shares generally ran into light profit-taking after strong gains of the past couple of days. Even so, the losses were restricted as witnessed by the FTSE 100 which reduced the deficit to 8.8 points at 5128.0.
But Standard Chartered warns: “Despite increased optimism that an economic recovery is taking hold, it sees a growing risk that the US recovery will look like a flash of lightning.”
Even in Asia, where the recovery is stronger, sustainability is still undermined by weak loan demand and poor infrastructure in many economies.
The half-year trading update from J Sainsbury received a cool reception from the City and shares responded with a fall of 9p at 314½p. The sales figures lived up to expectations but the grocer warned that growth would slow in the second half along with food price inflation. Oriel securities appeared unperturbed and has repeated its buy rating. Rival Tesco, which reported yesterday, ran into profit-taking leaving the shares 4.4p down at 386.4p.
Citigroup has raised its price target on Whitbread, the Premier Inn hotels and Costa Coffee chain, from 1250p to 1400p and has moved its recommendation from hold to buy. The shares were unmoved on 1259p. The broker has also jacked-up its target on rival Intercontinental Hotels, steady on 812p, from 550p to 970p and raised its rating from hold to buy.
New York investors were in confident mood ahead of the third-quarter reporting season as they chased shares higher with the help of further rises in commodity prices. The Dow Jones finished 131.50 up at 9731.25.
News of the interest rate rise in Australia set the ball rolling and increased confidence among investors, although that did not explain the reason for the sudden jump in the price of gold to record levels. Traders are keen to sniff out good news and the rise in bullion was a good enough reason for mining shares to rise. Newmont Mining led the way, up 7.1% to $46.26, while a resurgent oil price lifted Chevron 1.7% to $70.59.
Asian stock market investors may still doubt the pace of America's economic recovery but they were happy to cast caution to the winds this morning, following Wall Street's lead.
In Tokyo, financial shares powered higher on continued optimism about American banks. Japan's top bank, Mitsubishi UFJ Financial Group jumped 6.1% to 504 (£3.58). This helped lift the Nikkei 225 index 107.80 points to 9799.60.
Over in Hong Kong, shares also rose strongly as a surge in gold spurred demand for resources shares, while the prospect that China may increase interest rates sooner than expected lifted banks. Chinese gold miner Zijin Mining Group rose 4.04% and rival Zhaojin Mining advanced 4.36%. The Hang Seng was up 382.79 at 21,194.32.
