European markets made small gains on Friday morning as investors weighed up a stimulus plan announced in Japan against a surprise leap higher for inflation in China.
Britain’s FTSE 100 started trading seven points higher, a small gain but just enough to hold above the 6,100 mark which the blue chip index recently scaled amid New Year enthusiasm about an improving global economy and the deal to see off a fiscal cliff in the US. The overall upbeat mood was helped by comments from European Central Bank president Mario Draghi yesterday that 'financial market confidence has improved significantly,'
French, German and other European markets showed similar small gains. Overnight on Wall Street the Standard & Poor’s 500 Index had hit its highest level in five years, closing at 1,472, helped by yesterday's strong Chinese trade data.See more on overnight markets here.
Asian markets were mixed this morning, though Japan’s Nikkei 225 rose by 1.4% after prime minister Shinzo Abe unveiled a 10.3 trillion yen emergency stimulus package designed to spark growth in Japan’s struggling economy and create jobs.
The announcement of the plan, which had been widely trailed in the media, buoyed markets.
Renewed China stimulus debate
The news from China though was less positive, with inflation rising to a surprisingly high 2.5% in December, with food prices running particularly high.
Alongside this week’s improving trade data, the Chinese inflation numbers re-ignited the debate over the country’s plans for monetary stimulus. Economists though point out that food price inflation will probably fall back after the Chinese New Year.
'The People's Bank of China is likely to shift its focus towards inflation and financial risk from growth, albeit gradually and carefully,' commented Societe Generale economist Yao Wei.
Alistair Thornton of IHS Global Insight said: 'China’s December inflation data is not a generous Santa-delivered gift, but neither has the Grinch stole Christmas...IHS feels there is little pressure from inflation to move on monetary policy.'
RBS firm amid Libor reports
Banks and insurers were among the biggest gainers on London markets, with Aviva (AV.L) up nearly 2% at 376p after Citigroup raised the insurer's shares to a 'buy'. The bank also raised its target prices for Standard Life, Prudential and Legal & General.
Royal Bank of Scotland (RBS.L) stood firm, with shares up 1.2% at 361p, despite a barrage of reports on an imminent fine against the bank for rigging Libor rates.
Two Royal Bank of Scotland (RBS) senior executives are facing mounting pressure to leave the bank as it braces itself for a fine of at least £300 million for Libor manipulation, according to the Daily Telegraph.
According to the BBC’s Robert Peston, RBS Libor fines – from both the Financial Services Authority (FSA) and US regulators, will run to several hundred million pounds, more than the £290 million fines paid by Barclays.
According to the Financial Times, the bank may seek to divert up to £150 million of its bonus pot to fund the fine.
On the mid-cap index Moneysupermarket.com (MONY.L) shares soared nearly 10% to 173p after the financial comparison price website announced that it expected full year revenues to increase around 15% to £204.5 million. Roddy Davidson, an analyst at Westhouse, raised his price target on the shares from 168p to 180p, reiterating his 'add' recommendation.
Losers in UK markets this morning included Citywire Top Stock Tullow Oil (TLW.L), down 4% at 1,174p after the oil and gas company said unsuccessful exploration write-offs for 2012 were expected to hit $299 million. Tullow is a top 10 holding of the M&G Recovery fund run by Tom Dobell.