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Central banks stoke the fires

Heading into the close the FTSE is 80 points higher, as central bank activity emboldens investors. 

City of London skyline
Source: Bloomberg

The action seen in the past 24 hours has been more than enough to make up for the sleepy atmosphere that prevailed in the first half of this week. Stock markets were already in robust form after Mario Draghi’s appearance yesterday, but a surprise rate cut (if a sixth cut in a year is a surprise) from China prompted the rally to move into a higher gear. While the move is a recognition that the Chinese economy is slowing, markets can apparently live with this if they believe that the People's Bank of China (PBoC) is prepared to take steps to counter the weakness.

Gains have been spread fairly evenly among the sectors in London, but it was not surprising to see companies with a close China connection heavily represented at the top of the gainers; such names as Glencore, Burberry and Intercontinental Hotels all enjoyed strong bounces, while asset managers Aberdeen and Schroders also moved upwards on expectations that the fourth quarter will be much more pleasant for equities than the third.

Those who bought Microsoft shares back in 2000 and held them until now can celebrate finally breaking  even on their investment today, as the shares move back above $53.

US markets as a whole continue to add to their gains for October, although some will start nervously eyeing next week’s Fed meeting. Current indications suggest just a 6% chance of a move on rates next week, but with other central banks shifting back towards looser policy even a slightly more hawkish statement will put the world’s most powerful central bank out of step with its peers. 

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