The FTSE 100 rose to 5803.71 before paring back nearly all of its gains by mid morning, as cautious investors took profits ahead of Alcoa's first-quarter earnings report.
Details of an EU rescue package for Greece provided the stock market with a boost this morning. On Sunday, EU officials vowed to lend the crippled Greek economy up to €30 billion in the first year should it need it. Under the terms, Greece would have to pay an interest rate of 5% for a three-year loan programme, substantially less than the yields in the open market – this reduces the risk of a default since it would be cheaper for the country to meet its debt obligations. Eurozone ministers also said that Greece has not yet requested the aid.
This development sent the euro up to its highest level in nearly a month against the US dollar. In turn, a broadly weaker US dollar enhanced the appeal of commodities, sending May high-grade copper 1% higher to $3.626 per pound and June gold 0.30% above its previous close at $1,165 per troy ounce. May light sweet crude oil (WTI) was also higher, up 0.80% to $85.38 a barrel on the back of a weaker dollar and bullish data that showed a surge in Chinese crude oil imports.
Unsurprisingly, energy majors were in demand, with the likes of Shell and BG Group up between 0.5% and 0.70% this morning. In contrast the entire mining sector was in the red this morning, with Antofagasta among the worst performers, down 1.1% to 1050p after Citigroup downgraded its rating from 'buy' to 'hold'. Much of the pullback in the mining sector may be due to caution ahead of Alcoa's first-quarter earnings report, due at the end of today's US trading session.
On Friday, JP Morgan downgraded Alcoa from 'overweight' to 'neutral' and removed it from its broker's focus list after estimating 2011 earnings per share of 48 cents and lowering the company's price target. 'Although Alcoa has taken significant costs out of its business by closing high cost operations and through additional procurement and productivity savings, we think it will still struggle to generate attractive returns at our strategist's 2011 aluminium price forecast of 92 cents/pound,' the broker said.
The banking sector fared relatively better, however, after Swiss bank UBS unveiled its highest pre-tax profit since the start of the credit crisis. Meanwhile, the UK's main opposition party said it would sell the government's stake in Royal Bank of Scotland (RBS) and Lloyds Banking Group should it come to power.
Shares of RBS gained 0.7% to 45p and Lloyds Banking Group advanced 0.11% to 64.16p after the Sunday Times reported that the bank is in talks with various stockbroking firms on setting up a joint venture which would strengthen its presence in equity capital markets. Ironically, Barclays advanced 1% to 360.25p, despite Seymour Pierce issuing a 'sell' rating on the stock.
'We...believe [Barclays] is not a 'buy and hold' investment. The last 20 years have seen four episodes where the share price declined 45% or more, peak to trough. Most recently, the share price fell 90% peak to trough over the last two years. Share price declines of this frequency and magnitude do not make sense for a company with a conservative capital structure and stable revenues. We rate Barclays a sell, target price 276p.'
Retail shares were also in demand today, with Home Retail rallying 5.2% to 295p on rumours it may become a takeover target. Meanwhile, Sainsbury's shares climbed 2.8% to 347.8p after Bank of America Merrill Lynch upgraded the company from 'underperform' to 'buy'.
By around 10.45am, the FTSE 100 Index traded only 0.80 points (+0.01%) above its previous close at 5771.78, while the broader FTSE 250 was 29.46 points (+0.28%) higher at 10492.74.
Looking ahead, June Dow and S&P 500 futures traded between 0.10% and 0.20% higher this morning, suggesting the market expects Wall Street to open marginally higher today.
Apart from Alcoa's first-quarter report, investors should also watch out for loss-making smartphone maker Palm, as Bloomberg News reported that the company is up for sale. On Friday, Taiwan's Economic Daily News said that HTC Corp , the world's fifth largest smartphone maker has, 'opened discussions about an intent to acquire' Palm.
